Chargeback Fraud

Chargeback fraud occurs when a buyer makes a legitimate purchase, receives the goods or services, and then disputes the transaction with their card issuer claiming the item never arrived, was not as described, or was an unauthorised charge. The bank reverses the payment, leaving the merchant out of pocket and unable to recover the goods.

Also called 'first-party fraud', this type of abuse costs online retailers billions annually and is particularly damaging to small merchants who cannot absorb multiple reversals. High-risk categories include digital goods (games, software), electronics, and luxury items — sectors where delivery proof is hard to enforce.

Merchants defend against chargeback fraud by collecting robust delivery evidence (tracking numbers, signed receipts, IP logs at checkout), using 3-D Secure authentication, and maintaining detailed transaction records. Repeated abuse can lead to card account closure by the issuing bank, but prosecution of individual buyers is rare.