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What Are the Types of Fraud That Can Result In Chargebacks?

Posted: August 6, 2021 | Updated: August 6, 2021

No one wants to think about fraud when dealing with their business plans, but it is a concern that can develop all the same. Fraud can be dangerous, as it can cause someone to request a chargeback because that person didn’t actually do business with you. 

You could lose significant amounts of money from fraud. The losses can come from not only losing money from a chargeback, but also dealing with additional fees for bearing with plenty of chargebacks. You could also lose access to your merchant account if you have too many chargebacks, which could be dramatic and significant if you watch what happens here.

The worst part about fraud is that it can come in many forms. Here’s a look at three types of fraud that can occur in your business, with each of these problems potentially resulting in a chargeback.

Merchant Error

The most common fraud type that can occur in your business is merchant error. This problem happens when a merchant doesn’t handle the proper data.

There are many merchant errors that can occur in your work:

  • There might be an unauthorized recurring payment on a credit card.
  • The product wasn’t delivered on time, or it might have been damaged when getting it shipped out. The customer won’t be able to use the item, thus resulting in a chargeback on the order.
  • The customer might be dissatisfied with the customer service one received.
  • Sometimes an employee might have entered the wrong data when handling an order. That person might enter an excess amount of money, thus resulting in the need for a chargeback to occur.

Criminal Fraud

Criminal fraud is a threat that can happen with many online transactions. The online world has made it easy for people to pretend they are others that they are not. You could experience some significant problems if you aren’t careful enough in trying to manage your funds and keep everything under control.

Criminal fraud can occur for many reasons:

  • Someone stole another person’s credit card. The person may have a physical card on hand, or that someone might have all the data needed for a transaction. This content includes the CVV and the billing address for the card.
  • A person could also use a counterfeit card that features account information that was stolen. Magstripe cards are often counterfeited, but an EMV card could also be manually entered in cases where the card isn’t reading on a device.
  • Someone can also hack a person’s account information to complete a transaction. The hacking typically results in a card-not-present or CNP transaction.

The worst part about criminal fraud is that it doesn’t take much for people to find credit card info. Some people can go on the dark web and download stolen credit card data. They can purchase the data and use it to handle whatever they want to manage.

Friendly Fraud

Not all people who actively commit fraud will do this with criminal intentions in mind. Friendly fraud is a problem that can occur in many situations, and it can be dangerous if not managed well enough.

Friendly fraud is a problem where people are actively engaging in fraud. The main idea is for someone to use a product or service without having to pay for it. While this instance of fraud isn’t as common as what you might find elsewhere, it can be a real concern.

One reason why friendly fraud often occurs is that someone is trying to get around the refund process. A customer might not want to talk with the business, as that might be too complicated. Going through a bank for a chargeback is often an easier process. But even then, the customer might be aware of what one is trying to do and is actively going after the refund.

One other point about friendly fraud involves how many credit card companies offer zero-liability protection. The feature means that a card company isn’t going to declare you responsible for anything that happens if there’s a questionable charge on your card. This feature ensures your protection, but it is also something any cardholder could use to one’s advantage. The person might take the parts to one’s use and try to commit friendly fraud.

Can You Prevent These Problems?

The three types of fraud that can cause chargebacks can be frustrating, but you can prevent them with a few tips. These are all sensible things to see when looking for something that could work in any situation:

  • Provide the best possible customer service to your clients. Answer whatever questions they have about what you are selling, and make sure they feel confident in whatever you provide.
  • Real-time resolution services are critical for all disputes. You can provide real-time data to help identify the customer’s order. You can have this data on hand before the dispute starts, ensuring there are no problems with whatever you might manage at any moment.
  • Be accurate when representing whatever products you sell. Being accurate in what you’re discussing will ensure your customers understand what they are buying.
  • Keep enough evidence for each purchase to ensure you can confirm someone paid for an item in cases where a customer is actively trying to commit fraud.
  • Provide an easy to review merchant descriptor on a credit card bill. Make sure the customer recognizes your name when looking at the chargeback and what you’re trying to list here.
  • Use the proper hardware and software firewalls and protective measures to keep your data secure when going online. You can use these firewalls to prevent outside parties from getting in the way of a setup.

The right measures are critical for ensuring there are no problems with whatever you’re trying to manage at any time. Be sure you look at what you’re getting out of your plans for preventing fraud to ensure there are no concerns coming from any situations that might develop.

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