What is Chargeback Flip Fraud?

Sydney VaccaroChargebacks, Ecommerce, Fraud Prevention, Reason CodesLeave a Comment

What is Chargeback Flip Fraud

The term “flipping,” when talking about fraud, is normally associated with fraudsters buying property. They will then resell it at an artificially inflated price for a considerable profit, even though they only made minor improvements to it. In the world of disputes, flip fraud has a little different meaning, but the same concept behind it. That is why we are going to explain what chargeback flip fraud is, how fraudsters are taking advantage of the chargeback process, and what reason codes you need to look out for.

What is Chargeback Flip Fraud

We will get to the definition of flip fraud, but let’s start with the definition of chargeback fraud. Chargeback fraud is the fraudulent request for a return or refund in the form of a chargeback. The transaction is disputed by the cardholder in an attempt to regain the transaction dollar amount while retaining the product or service rendered. Essentially the card holder knowingly authorized the transaction but is now trying to get their money back.  

And then there’s true fraud, otherwise known as identity theft. This form of fraud begins when fraudsters steals either a physical card or the card’s credentials. And the merchant accepts it without knowing that the card was stolen. The fraudulent purchase is then disputed by the actual cardholder and, as a result, the card account will be closed. A new account number and card is issued to the true cardholder, and the merchant is forced to accept liability for the fraud dispute.

Flip fraud is when cardholders buy an item with the intention of disputing the charge in order to get their money back. Then they turn around and attempting to sell the disputed merchandise in order to make a profit. They are stealing the product from the merchant, then keeping all the profit from selling the product on a platform like eBay or Craigslist. Obviously, not every product or company suffers from flip fraud. But if your products can be sold easily on platforms like eBay or Craigslist, you may be vulnerable to flip fraud.

Now flip fraud can be a category of fraud underneath both chargeback fraud and true fraud depending on what card the fraudster used. In the case of true fraud, the fraudster used a stolen credit card number to make the purchase. In chargeback fraud, the fraudster is using their own card to make the purchase. Either way, both flip fraudsters attempt to make a profit on their dispute.

What to Look Out For

If your product is easy for a customer to turn around a sell, then you need to be vigilant of flip fraud. Especially if these products are considered ‘limited edition’ or ‘high value’ products. Those are the most susceptible to flip fraud.

There are 151 different reason codes that are broken down into four categories: authorization, consumer disputes, fraud, and processing errors. Fraud and consumer disputes are two categories that flip fraudsters will likely use. The table below presents the reason codes that flip fraudsters could use to get away with keeping the merchandise—and make money during the process.

Fraud Disputes

Card Network
Reason Code
Definition

American Express

F24

The cardholder denies participation in the charge submitted by the merchant.

American Express

F29

The cardholder denies participation in a mail order, telephone order, or internet charge. Note: Not applicable to Digital Wallet application-initiated transactions.

Discover

UA02

The cardholder claims they did not approve or participate in a Card Not Present card sale.

Discover

AA

The cardholder claims their account was charged or credited for a card transaction (other than an ATM transaction) that they do not recognize.

MasterCard

4837

The cardholder states neither they, nor anyone authorized by him or her, engaged in the transaction.

MasterCard

4863

The cardholder claims they do not recognize the transaction and states they did not authorize the charge to their credit card.

Visa

10.4

The cardholder did not authorize or participate in a transaction conducted in a Card Not Present environment. Or a fraudulent transaction was completed in a Card Not Present environment using an account number for which no valid card was issued or is outstanding, and no authorization was obtained.

Consumer Disputes

Card Network
Reason Code
Definition

American Express

C04

The goods or services were returned or refused, but the cardholder did not receive credit.

American Express

C08

The cardholder claims to have not received (or only partially received) the goods or services.

American Express

C32

The cardholder claims to have received damaged or defective goods or services.

Discover

RG

The cardholder challenges the validity of a transaction due to non-receipt of goods or services.

Discover

RN2

The cardholder challenges the validity of a transaction due to non-receipt of goods or services.

MasterCard

4855

The cardholder claims they have paid for an item that was to be delivered, but has not yet been received.

MasterCard

4860

The cardholder claims they are due a credit from an establishment that has not been processed.

Visa

13.1

The cardholder participated in the transaction, but the cardholder or an authorized person says they did not receive the goods or services.

Visa

13.3

Either the goods or services did not match what was described on the transaction receipt or other documentation presented at the time of purchase. Or the merchandise received by the cardholder was damaged or defective (All excluding France Domestic). Or the cardholder disputes the quality of the goods or services (All excluding France Domestic).

Visa

13.4

The cardholder claims the purchased merchandise was counterfeit.

Visa

13.6

The cardholder received a credit or voided transaction receipt that was not processed (Europe and Interregional including Europe). Or the cardholder cancelled or returned merchandise, cancelled services, cancelled a timeshare transaction, or cancelled a Guaranteed Reservation and the merchant did not process a credit or voided transaction receipt. And, either the merchant did not properly disclose or did disclose, but did not apply, a limited return or cancellation policy at the time of the transaction, or in the Europe Region, the merchandise or services relate to an off-premises, distance selling contract (as set out in the EU Directive and amended from time to time) which is always subject to a 14-day cancellation period. (All Regions). Or an original credit transaction was not accepted because either A.) the recipient refused the original credit transaction, or B.) original credit transactions are prohibited by applicable laws or regulations.

When responding to these disputes, it is important to create your response around the specific evidence asked for by the card network. Some of the requirements for compelling evidence will allow you to prove flip fraud is the reason behind the chargeback. For example, American Express Reason Code F29 allows you to provide compelling evidence that includes “screenshots from your customer’s social media with products from the order pictured, or displaying works created using your product or service; [or] links to or screenshots from eBay or Craigslist showing the product listed for sale by the customer.”

In short, your response will have more merit when you provide evidence that the fraudster tried to flip the disputed product. So make sure if your company is susceptible to flip fraud that you are checking sources like eBay while compiling your response.

Leave a Reply

Your email address will not be published. Required fields are marked *