Chargeback fraud is a growing problem that affects businesses of all types and sizes. According to Mastercard, 324 million chargebacks are expected by 2028 – a 24% increase compared to 2025. Chargebacks are a type of transaction reversal that occurs when a customer disputes a charge with their bank or credit card company. They can occur for many reasons, including errors made by the business or customer dissatisfaction with a product or service.

However, customers sometimes use chargebacks to avoid returning items while seeking a refund, and fraudulent actors use them to steal from businesses. In both cases, the negative impacts of chargebacks can do serious harm to a business's financial health and reputation.

The first step in detecting, preventing, and responding to chargeback fraud involves understanding what chargeback fraud is, how it works, and which businesses are the most vulnerable. Below, we'll explain what businesses should know about chargeback fraud, including the steps they can take to minimise risk and how to respond to fraudulent chargebacks when they occur.

What's in this article?

• What is chargeback fraud?
  
• Types of chargeback fraud
  
• What types of businesses are affected by chargeback fraud?
  
• How to prevent chargeback fraud
  
• How chargeback fraud hurts businesses
  
• How Stripe Radar can help
  

What is chargeback fraud?

Chargeback fraud occurs when a customer intentionally disputes a charge to receive a refund, while keeping the product or service. (Customers typically have 60–120 days from the transaction date to dispute a charge, although this varies by card network.) The customer might claim they didn't receive the product, that the product was defective, or that the transaction was unauthorised. Chargeback fraud is sometimes called first-party fraud when it's committed by the legitimate cardholder. This is distinct from third-party fraud, where a stolen card or identity is used without the cardholder's knowledge.

Types of chargeback fraud

Here are several types of chargeback fraud and the industries with the highest occurrence of each type.

• Friendly fraud: Friendly fraud, also called first-party fraud or first-party misuse, occurs when a cardholder makes a legitimate purchase but later disputes the charge, claiming they didn't authorise it or that the goods or services were not as described. Sometimes, this happens when the cardholder forgets that they made the charge, doesn't recognise it on the billing statement, and assumes it was fraud. In some cases of friendly fraud, the cardholder might even receive the merchandise and then file a chargeback, claiming that they never received it.

• Return fraud: Return fraud happens when an individual returns an item to a retailer, claiming that the product is faulty, defective, or otherwise not satisfactory – despite the fact that the product is in good condition or has been tampered with (or used). This often accompanies a chargeback request, particularly if the retailer's return policy is unclear.

• Digital goods fraud: Digital goods fraud occurs when a customer disputes a charge for a digital product, such as a software licence or online course, after accessing and using the product. This can be difficult for businesses to prevent since the customer might've already downloaded the product – but the business cannot know this for certain.

• Subscription fraud: Subscription fraud occurs when a customer disputes a recurring charge for a subscription service, such as a streaming service, after receiving several months of service. The customer might claim they didn't authorise the recurring charge or that they cancelled the subscription but were still charged.

What types of businesses are affected by chargeback fraud?

Chargeback fraud can affect any business that accepts credit card payments, regardless of size or industry. However, some businesses are particularly vulnerable to chargeback fraud:

• Businesses that sell high-value products or services: For example, luxury goods and travel accommodation come with a higher risk of chargeback fraud since fraudulent actors might see an opportunity to obtain the product or service for free by filing a fraudulent chargeback claim. The travel industry had the highest chargeback value in 2025, averaging at US$120 per dispute.

• Online retailers and service providers: Online transactions are more difficult to verify than in-person transactions, making it easier for fraudulent actors to dispute charges and obtain refunds. Digital products such as software and online courses are especially vulnerable to chargeback fraud because the customer can easily claim they didn't receive the product or didn't find it satisfactory.

• Subscription-based businesses: For instance, streaming services and subscription boxes have a higher risk of chargeback fraud. Customers could forget they signed up for the service or might not recognise the recurring charge on their credit card statements. That causes them to dispute the charge and file a chargeback claim. Or customers might claim they didn't authorise a subscription that they've, in fact, been using.

While these industries are especially high-risk, any business that processes credit card transactions could encounter chargeback fraud. Therefore, it's important for businesses of all types and sizes to be aware of chargeback fraud and take proactive measures to protect themselves.

How to prevent chargeback fraud

As diverse as chargeback fraud tactics are, there are several ways businesses can protect themselves.

Make it easier for customers to resolve issues directly

According to a 2025 survey, about half of customers go directly to their banks to resolve a dispute instead of contacting the business. Improving customer service can reduce the likelihood of chargebacks that result from dissatisfaction with a product or service. By providing high-quality customer service and making it as easy as possible for customers to reach you if they have a question or problem, businesses can address customer concerns and more effectively prevent customers from initiating chargebacks.

Provide clear return and refund policies

Many chargebacks occur because it's easier for customers to initiate a chargeback than it is to follow a business's return or exchange policy. You can help reduce the number of fraudulent chargebacks by simplifying your return policy so it's as easy for customers as filing a chargeback. Creating detailed, accommodating return and refund policies – and clearly communicating them to customers – can prevent return fraud by ensuring that customers understand the processes.

Implement AI-powered fraud protection

Adoption of AI-based fraud prevention tools is growing fast, with 27% of businesses in a 2025 survey reporting that they used them and 37% saying they plan to use them in the future. Robust fraud prevention tools like Stripe Radar can prevent fraudulent transactions before they result in chargebacks. Radar uses AI algorithms to analyse transaction data and flag suspicious activity.

Dispute fraudulent chargebacks

Effective chargeback management can help businesses dispute fraudulent chargebacks and recover lost revenue. Businesses should track chargeback data, analyse the reasons for chargebacks, and dispute those that are fraudulent or unwarranted. Visa's Compelling Evidence 3.0 update and Mastercard's First-Party Trust programme let merchants submit expanded evidence (e.g., matching device IDs, account data from prior undisputed purchases) to fight friendly fraud. Businesses typically have a short window to respond with evidence such as delivery confirmation, signed receipts, and customer communication, so proactive evidence collection should be a core part of any chargeback management process. Stripe Smart Disputes automatically creates and submits evidence for eligible disputes, automating your chargeback response process.

Use descriptive billing language

Billing descriptor confusion is a common cause of friendly fraud. Customers might not recognise the business name next to a charge and could assume it's fraud, even when the purchase was legitimate. This often happens when the billing descriptor uses a parent company name, abbreviation, or "doing business as" (DBA) name the customer never saw at checkout. You can minimise this type of dispute by using a clear, recognisable billing descriptor, ideally with a phone number or website included.

Read more about how businesses can reduce chargebacks.

How chargeback fraud hurts businesses

Chargeback fraud can have a significant negative impact on businesses of all sizes. For small and medium-sized businesses, which tend to operate with tighter margins, the financial hit from chargebacks can be even greater. For large enterprises, each individual chargeback might not do as much damage, but there's a greater possibility for chargeback fraud to occur on a larger scale. Here are some ways in which chargeback fraud can affect businesses.

Drains revenue through lost goods, fees, and chargeback penalties

Like other types of fraud, chargeback fraud can result in significant financial losses for businesses. In addition to losing revenue from fraudulent transactions, businesses might also have to pay chargeback fees and other associated costs. Frequent chargeback requests could lead to higher network fees or potentially even blacklisting. If chargebacks become too frequent or severe, they can contribute to the business's insolvency.

Erodes customer trust and drives away future business

Frequent chargebacks can lead to negative reviews and social media comments that harm a business's image and credibility. If a brand becomes associated with fraud, customers might view the business as unreliable or risky. That can decrease customer loyalty and future sales.

Diverts time and resources away from core business activities

Chargeback management can be time-consuming and expensive for businesses. They might have to spend a significant amount of time and resources on representment, the formal process of disputing a chargeback with evidence. This can involve investigating chargebacks, providing evidence, and disputing fraudulent claims, which can divert resources from growing the customer base, developing and launching new products or services, and focusing on retention efforts. Any amount of time a business spends fighting chargebacks is time they're not spending on nurturing the business.

Forces additional investment in tools, systems, and training

To prevent chargeback fraud, businesses might need to invest in additional fraud prevention measures such as fraud detection software, security systems, and staff training. These costs can add up quickly and impact a business's profit.

Increases processing fees

If a business has a high chargeback ratio (the number of chargebacks compared to the number of sales), that can result in penalties from payment processors or credit card issuers. Some payment networks have automated monitoring programmes (e.g., the Visa Acquirer Monitoring Programme, Mastercard's Excessive Chargeback Programme, Discover's Chargeback Threshold) that place businesses with high chargeback ratios (often about 1.0%–1.5%) on remediation plans. These higher ratios can also lead to higher processing fees or the loss of merchant accounts.

How Stripe Radar can help

Stripe Radar helps detect fraud and unlock growth, using AI trained on data from Stripe's global network. Radar helps protect your business from fraud throughout the customer lifecycle before it affects your bottom line, while helping you approve more legitimate customers and payments.

Radar can help your business:

• Prevent fraud losses: Radar's AI learns from more than US$1.9 trillion in annual transactions across Stripe's global network, helping it identify and block fraud patterns that individual businesses might not catch on their own.

• Unify protection across evolving fraud attacks: Radar brings protection against transaction fraud, account fraud, and customer abuse all into one solution, so you gain unified protection across major fraud types.

• Adapt as fraud evolves: Radar continuously adapts to changing fraud patterns, from first-party abuse to agentic transactions, helping protect your business against emerging threats.

• Work with your existing tech stack: Use Radar with Stripe payments with no integration required, or access Radar's intelligence through programmable application programming interfaces (APIs), whether you process payments on Stripe or not.

Stripe also offers solutions tailored to preventing and responding to disputes. Stripe's dispute prevention enables users to proactively deflect and resolve disputes, lowering your dispute rate. Stripe Smart Disputes automatically responds to eligible disputes on your behalf, using AI to collect and format evidence to help increase your likelihood of winning a dispute.

Learn more about Stripe Radar or get started today.