Credit Card Chargebacks & Fraud Explained

Why should I be concerned as a business owner?

The occurrence of fraud and chargebacks has been increasing over the past few years. The increased financial risk posed by this threat has resulted in the burden of proof being placed on the merchant to provide proper documentation for all credit card sales. As of now, merchants are required to properly respond to all accusations of fraud or customer issued chargebacks, otherwise, forfeit their right to overturn the dispute. Unresolved disputes almost always result in the responsibility of payment falling back onto the merchant. Business owners should be concerned about the liability of transactions and making sure they are set up with the appropriate protection measures to avoid losses.

What steps can I take to minimize chargebacks and fraud?

There are a number of steps to ensure protection against chargebacks and fraud. The preferred course of action for protection depends heavily on how your business facilitates transactions. With the implementation of chip cards, the retail face-to-face world has become a much more secure place. Retailers need to ensure they have up to date equipment with chip card technology. Businesses should make sure their employees are trained on how to identify signs of fraudulent cards. ID verification at the time of purchase has been proven to significantly reduce the occurrence of fraud. If an employee asks for an ID this will reduce the chance of a stolen card being used at the point of sale. For some merchants, implementation of a policy requiring face-to-face payments is also helpful.

What about businesses that operate in the “card not present” space?

Most of our merchants operate in what’s called the “card not present” (CNP) space. This space has seen the fastest increase of fraud and chargebacks relative to retail merchants. This is why it is especially important today for merchants to take necessary steps to protect against fraud and chargebacks. Some helpful tips are as follows:

  • Always verify identity before processing a sale
  • If you receive a “take card” message from your equipment, never force the sale. This is the equipment’s way of warning there is fraud associated with the card.
  • Post card authorization numbers for employees to call in on any transaction they feel is suspicious. This will never be known to the cardholder and is always available.
  • Have your credit card authorization form reviewed by your merchant service provider to ensure all required information is being collected.

How can I implement a plan to protect my business?

Drafting a plan to tackle chargebacks and fraud should be conducted with an expert who knows how to assess and deal with the threat. There are many factors which are applicable to certain industries. While general tips for chargeback and fraud reduction are helpful, a qualified expert can help shift unnecessary liability away from your business. Contact your payment processor and ask if they have someone on their team who can conduct an assessment of your business and tailor a plan.


-Chelsie Cooper- CPP, Owner/Founder of Afirmpay and Second Generation Payment Professional.