Why Cardholders Don’t Always Win Chargebacks

As the number of card-not-present transactions rise due to consumers making more online purchases during the pandemic, the levels of fraud committed against our merchants have also seen a dramatic increase.

Fraudsters love using stolen credit cards to make their criminal purchases behind the secrecy of a computer. Financial Institutions that issue credit cards offer their cardholders a safety net in the form of the chargeback system. The chargeback system allows cardholders to receive an immediate credit to their account while a disputed transaction is investigated.

Can this system be abused? Yes! Not all shoppers are honest and sometimes file chargebacks on transactions they legitimately participated in. It isn’t always a scam though. Sometimes customers simply forget they purchased an item or they simply may not recognize the descriptor on their credit card statement such as an abbreviated company name. There are also those who are just plain thieves and file chargeback disputes to get goods or services for free.

Financial institutions that issue credit cards do thoroughly investigate all chargeback claims for the benefit of both their cardholder and the merchant. They make an honest effort to protect merchants from things such as “friendly fraud” while safeguarding honest consumers from criminal fraud.

Friendly Fraud

Friendly fraud is painful. It is also very common. Many merchants falsely believe that merchant’s will never win in a chargeback dispute. Nothing could be further from truth. In fact, the Chosen Payments Chargeback Assistance Team has a track record of winning nine out of every ten chargeback dispute filed against our merchants. A recent study of the past three years found that online retailers experienced a wrongful friendly fraud chargeback 50% more often than they experienced a chargeback caused by true criminal activity. This is a costly problem for our merchants as they often struggle to furnish evidence needed to successfully dispute a claim and for card-issuers who must spend time and money investigating charges that never should have been placed.

Card-issuers such as banks and credit unions are coming to a realization that many times family members might make a purchase using a family owned/used tablet that has a credit card attached to the account. A prime example of this might be an iPad that has the Amazon app. Consumers are likely to file chargebacks if they do not realize family members made the purchases or if they fail to recognize the name on the statement because the Merchant Descriptor is wrong. Perhaps it contains a parent company name rather than a DBA name that someone might be more familiar with. In the recent survey, many consumers stated they would like to be able to see more details, such as receipt images when viewing their purchasing histories online, which could help them identify and confirm the transactions.

In an effort to help merchants avoid unnecessary losses, card-issuers are now using artificial intelligence to help gather and analyze data to assess the legitimacy of a chargeback claim. Leveraging these advanced tools can get the information needed to come to conclusions.

The Investigation of a Chargeback

Card-issuers must discover whether a chargeback is warranted or not. The right investigation strategy is paramount to the decision-making process. Quick communications with both the cardholder and the merchant as well as using robust data analytics are the key to making the right decision in favor of the merchant or the cardholder. This means using detailed customer purchasing profiles, devices and behavioral analysis to attempt to get to the truth.

The card-issuing bank spends a great amount of time and money evaluating undue chargeback claims, and consumers are participating in more CNP transactions during the pandemic causing an increase in unwarranted chargeback filings. There are many tools and strategies available to card issuers that help them form a decision of who they will side with. The bottom line is this: It is not always the customer that wins. Many factors are used to determine the final outcome and merchants can and do win every day.

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