Chargeback Fraud: The Hidden Epidemic Threatening Merchants

At Dispute.com, we’ve seen firsthand that chargeback fraud is no longer a fringe issue—it’s a full-scale crisis.

While overall transaction volumes might be rising steadily, chargebacks are increasing at a pace of 20–30% per year—far outpacing that growth. Behind this surge lies a darker truth: an explosion in first-party fraud, often known as "friendly fraud," where consumers exploit payment systems to claim illegitimate refunds.

Let’s be clear: this isn’t a glitch in the system—it is the system. And unless merchants take proactive measures to stop it, they risk being buried under the weight of lost revenue, reputational harm, and punitive processing fees.

Why Chargeback Fraud Is Growing—Fast

Chargeback fraud thrives in the current landscape because the system lacks accountability. As one industry leader put it:

“If you shoplift in-store, you face criminal charges. If you file a fraudulent chargeback online, the worst that can happen is you don’t get your money back.”

At Dispute.com, we believe this imbalance must be addressed with smarter tools, tighter feedback loops, and real-time visibility.

It starts with understanding just how broken the process is.

A System Built to Confuse: Why Merchants Are Set Up to Lose

Most merchants don’t lose chargebacks because they’re in the wrong. They lose because the process is designed to be opaque.

Reason codes are inconsistent and often misleading.
Banks frequently side with consumers—not because they have the facts, but because it’s easier and better for customer retention.
Issuing banks sometimes file chargebacks automatically, based on internal triggers, even when no customer complaint exists.

Merchants are left blindfolded, without the data to understand or contest what’s happening. That’s where Dispute.com flips the script.

The Dispute.com Advantage: Fight Back Before the Chargeback Hits

Rather than playing defense after the damage is done, Dispute.com’s platform is built to prevent disputes before they ever become chargebacks. We do this by combining advanced AI with powerful pre-dispute tools:

1. Real-Time Alerts with Ethoca & CDRN

Through integrations with the Cardholder Dispute Resolution Network (CDRN) and Ethoca, we alert you the moment a cardholder files a dispute.

This gives you a crucial window to:

Issue a proactive refund
Resolve the issue with the customer
Avoid a formal chargeback altogether

This can reduce chargeback volume by up to 40%, preserving your processing health and reducing fees.

2. Rapid Dispute Resolution (RDR)

For Visa transactions, our platform can automatically resolve disputes under set parameters—think small-dollar purchases, repeat customers, or items already refunded.

No dispute. No chargeback. No fee.

3. AI-Powered Intelligence That Exposes Friendly Fraud

Our machine learning models don’t just flag disputes—they predict and prevent them, analyzing transaction history, device fingerprinting, behavioral trends, and delivery timelines to detect fraud before it festers.

We leverage:

First-party fraud indicators
Geo/IP mismatches
Suspicious repeat behavior
Custom rules tailored to your business model

**4. Intelligent Representment (When You Should Fight Back)**

When a chargeback is worth contesting, Dispute.com builds a bulletproof case, sourcing:

CRM data
Order records
Shipping confirmations
Behavioral analytics

Our custom dispute responses are crafted for maximum recovery rates, not generic templates that get tossed by processors.

Hidden Costs of Chargeback Fraud (And How We Save You From Them)

Here’s what the average fraudulent chargeback really costs you:

Chargeback Stage	Typical Fee
First Chargeback Fee	$15–$35 per case
Second Chargeback / Pre-Arb	$30–$50 per case
Arbitration	$250–$500+
Lost Product/Service	Varies (non-recoverable)
Time and Admin Overhead	Hours of lost labor

And if your chargeback ratio rises above 1%, you risk getting flagged as “high risk,” increasing processing fees—or worse, account termination.

Dispute.com helps prevent these outcomes entirely by intervening early, responding effectively, and educating merchants on smarter dispute management.

A 360° View of Risk: Beyond Disputes

We don't just look at chargebacks—we look at your entire transaction lifecycle, from pre-purchase to post-settlement. This full-funnel approach helps you:

Spot broken customer journeys
Identify recurring dispute causes
Improve fulfillment and communication
Maintain relationships with legitimate customers

Sometimes, the right move isn't to fight—it’s to fix.

We help you make that call with confidence.

Collaboration Is Key: Dispute.com Isn’t Just a Vendor—We’re Your Partner

Solving the chargeback problem isn’t about better forms—it’s about better foresight.

That’s why Dispute.com combines:

Industry-leading integrations (CDRN, Ethoca, RDR)
Proprietary fraud detection
Dedicated chargeback analysts
Real-time reporting and dashboards
AI that supports transparency—not just automation

Together, we give merchants the power to fight fraud, reduce risk, and grow with confidence.