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Friendly fraud

Friendly fraud, also known as first-party fraud or chargeback fraud, refers to the practice where a cardholder disputes a legitimate transaction they authorized, often falsely claiming it as unauthorized or fraudulent, leading to the reversal of the payment and financial loss for the merchant.^[1]^[2] This form of abuse differs from traditional criminal fraud, such as account takeover by third parties, as it typically involves the cardholder themselves or an authorized household member initiating the purchase before disputing it.^[3] Common causes of friendly fraud include unintentional errors, such as forgetting about a recurring subscription or subscription renewal, or confusion over unrecognizable charges on statements due to unclear merchant descriptors.^[1] Intentional instances may arise from a desire to retain goods or services while reclaiming funds, such as disputing a purchase after receiving and using the product, or "cyber-shoplifting" where consumers claim non-delivery despite evidence to the contrary.^[2]^[3] Examples often involve family members using stored payment details for approved purchases, like a child subscribing to a streaming service, only for the parent to later dispute it as unauthorized.^[1] The impacts of friendly fraud are significant for merchants and the broader payments ecosystem, with losses often exceeding the original transaction amount due to refund obligations plus processing fees.^[2] As of 2023, globally it accounted for approximately 70% of all credit card fraud disputes and contributed to an estimated $132 billion in annual industry costs.^[1] As of 2022, in the U.S. alone, friendly fraud-related chargebacks totaled over $25 billion yearly, representing up to 75% of all such disputes filed by cardholders.^[2] Beyond direct financial harm, it erodes merchant trust in payment systems, increases chargeback ratios that can lead to higher processing fees or account termination, and prompts overzealous fraud prevention measures resulting in false declines of legitimate orders.^[3] To mitigate friendly fraud, merchants can implement representment processes, submitting compelling evidence like delivery proofs, IP matching, or prior credential use to overturn disputes, as enabled by Visa's Compelling Evidence 3.0 guidelines introduced in 2023.^[2] Advanced tools, such as transaction alert systems in banking apps for clearer descriptors and AI-driven fraud detection, help reduce unintentional disputes while identifying patterns of abuse.^[1] In 2025, Mastercard expanded its First-Party Trust solution to additional markets to further combat friendly fraud.^[4] As of 2023, friendly fraud was rising with annual growth rates around 33% driven by economic pressures and e-commerce expansion.^[5]

Definition and Overview

Core Definition

Friendly fraud, also known as chargeback fraud or first-party fraud, occurs when a legitimate cardholder disputes a valid transaction with their card issuer, falsely or mistakenly claiming it was unauthorized, unrecognized, or not as described, in order to obtain a refund while retaining the goods or services.^[1]^[6]^[7] This form of fraud differs from traditional third-party fraud, where an unauthorized individual uses stolen card details, as it involves the authorized cardholder themselves initiating the dispute.^[8]^[9] The basic mechanism of friendly fraud revolves around the chargeback process, a formal dispute system governed by card network rules from organizations such as Visa and Mastercard. When a cardholder contacts their issuer—the bank that issued the credit or debit card—the issuer investigates the claim and, if deemed valid, reverses the transaction by debiting the merchant's account through the acquirer (the merchant's bank) and the intermediary card network. This results in an automatic refund to the cardholder and often the permanent loss of merchandise or services for the merchant, as the goods are typically shipped before the dispute arises.^[10]^[11]^[12] Key terms in this process include chargeback, which refers to the formal reversal of a transaction initiated by the cardholder; issuer, the financial institution providing the payment card to the consumer; acquirer, the bank or processor handling the merchant's transactions; and card networks, such as Visa and Mastercard, which facilitate communication and enforce rules between issuers and acquirers.^[13]^[14] A common example is a customer who receives a product, experiences buyer's remorse, and then disputes the charge with their issuer by claiming it as fraudulent or not received, leading to a successful chargeback despite the transaction being legitimate.^[15]^[16]

Distinction from Other Forms of Fraud

Friendly fraud, also known as first-party fraud, fundamentally differs from true fraud, or third-party fraud, in that it is perpetrated by the legitimate cardholder who authorizes the initial transaction, whereas true fraud involves an external actor using stolen payment details without the cardholder's knowledge or consent.^[7]^[8] In true fraud cases, the unauthorized purchase occurs at the point of sale, often through compromised credentials like stolen credit card numbers, leading to immediate detection challenges for merchants.^[17] By contrast, friendly fraud arises post-transaction when the cardholder disputes a valid charge, such as claiming non-receipt of goods despite successful delivery.^[18] Unlike merchant fraud, where the seller engages in deceptive practices like misrepresenting products, overcharging, or failing to deliver as promised, friendly fraud targets legitimate transactions after a successful and authorized sale by an honest merchant.^[19] Merchant fraud originates from the business side, eroding customer trust through intentional seller misconduct, while friendly fraud shifts the burden onto the payment ecosystem when customers exploit dispute mechanisms against compliant sellers.^[9] Friendly fraud also contrasts with refund abuse, which involves customers repeatedly requesting direct refunds from the merchant under false pretenses, such as claiming defects in undamaged items to receive replacements or cash.^[20] In refund abuse, the interaction remains between the buyer and seller, often leading to operational strain on the merchant's customer service. Friendly fraud, however, circumvents the merchant entirely by filing a chargeback directly with the card issuer or bank, leveraging card network rules to reverse the payment while retaining the product or service.^[21] The intent behind friendly fraud exists on a spectrum, ranging from unintentional errors—such as forgetting a subscription charge or confusing transactions—to deliberate exploitation where the cardholder knowingly misrepresents the purchase to obtain a refund.^[22] Regardless of intent, all instances of friendly fraud stem from an initially authorized and legitimate purchase by the account holder.^[23] This distinguishes it from more malicious frauds, as the "friendly" aspect refers to the involvement of verified customers rather than anonymous criminals.^[24] As of 2025, industry reports indicate that friendly fraud accounts for up to 75% of all chargebacks, underscoring its prevalence compared to other fraud types within the disputes ecosystem.^[25]

Historical Development

Origins in Chargeback Systems

Chargeback mechanisms originated in the mid-20th century alongside the expansion of credit card systems, which were designed to facilitate consumer purchases while providing protections against potential abuses. The Diners Club card, launched in 1950, marked one of the earliest widespread credit payment options, initially limited to restaurants but expanding to broader retail use.^[26] This was followed by Bank of America's BankAmericard in 1958, which introduced revolving credit balances and laid the groundwork for modern networks like Visa, rebranded in 1976.^[27] These early cards operated in an analog environment, relying on paper imprints and manual verification, where disputes were handled informally through issuers to resolve merchant errors or unauthorized charges.^[28] The formalization of chargebacks as a structured process emerged through key U.S. legislation in the late 1960s and 1970s, aimed at bolstering consumer confidence in credit. The Truth in Lending Act of 1968 required clear disclosure of credit terms and initiated broader protections against deceptive practices.^[29] This was expanded by the Fair Credit Billing Act of 1974, which explicitly enabled consumers to dispute billing errors, including unauthorized transactions, non-delivery of goods, or faulty products, within 60 days of the statement date.^[27] Under the Act, cardholders' liability was capped at $50 for unauthorized use, shifting the primary responsibility for investigation and resolution from consumers to card issuers and merchants.^[26] The legislation addressed rising concerns from mail-order and in-person purchases, where consumers faced risks like lost shipments or merchant insolvency, positioning chargebacks as a vital safeguard to encourage credit card adoption.^[28] In the pre-digital era, chargebacks were infrequent and primarily addressed legitimate consumer grievances rather than widespread abuse, due to the cumbersome paperwork and manual verification required. Disputes involved submitting written notifications and supporting documentation, such as receipts or correspondence, which deterred frivolous claims and kept volumes low—often focused on tangible issues like undelivered catalog goods.^[29] This analog friction ensured that chargebacks functioned mainly as a corrective tool for billing inaccuracies or criminal fraud, with minimal exploitation possible given the verification hurdles.^[27] A pivotal development occurred in the 1970s when major card networks standardized chargeback procedures to streamline operations amid growing transaction volumes. Visa and Mastercard (the latter formerly the Interbank Card Association, established in 1966, which introduced Master Charge in 1969 and rebranded to Mastercard in 1979) implemented uniform rules for processing disputes, including timelines for issuer notifications to merchants and evidence requirements.^[26] These protocols codified the liability shift, requiring merchants to prove transaction validity or absorb the reversal, while networks acted as intermediaries to enforce compliance.^[28] By the late 1970s, this framework had solidified chargebacks as an integral component of the payment ecosystem, initially serving protective rather than exploitative purposes.^[29]

Evolution with Digital Commerce

The proliferation of friendly fraud accelerated in the 2000s alongside the explosive growth of e-commerce platforms such as eBay and Amazon, which expanded rapidly after 2000 and facilitated anonymous online transactions without face-to-face verification.^[30] This boom in digital shopping made it easier for consumers to initiate chargeback disputes, as the lack of physical interaction reduced accountability and encouraged testing the simplicity of reversal processes.^[31] By the late 2000s, friendly fraud accounted for 30% to 50% of all chargebacks in e-commerce, reflecting how the shift to card-not-present transactions amplified opportunities for post-purchase disputes.^[31] In the 2010s, the adoption of mobile payments and subscription-based services further intensified the issue, as these innovations enabled seamless, recurring transactions that consumers could later dispute en masse, often citing forgotten charges or dissatisfaction.^[32] A notable example occurred around 2010 when internal Facebook memos revealed the platform's tolerance of "friendly fraud" in social gaming contexts, where minors made unauthorized in-app purchases using parents' credit cards, leading to subsequent chargebacks that highlighted vulnerabilities in shared digital accounts.^[33] These developments underscored how mobile and app-based commerce expanded the scale of family-related and accidental disputes. Recent trends indicate sustained escalation, with friendly fraud growing by 33% in 2023 according to Signifyd's analysis, driven by the normalization of digital disputes amid economic pressures.^[34] In 2024, first-party fraud, encompassing friendly fraud, accounted for 36% of all reported fraud globally, up from 15% the previous year, with 72% of merchants reporting increased friendly fraud chargebacks.^[35]^[36] Projections estimate that by 2026, chargeback fraud losses will reach $28.1 billion globally, a 40% increase from 2023 levels, to which friendly fraud significantly contributes as streamlined mobile apps facilitate quicker purchases and easier reversals.^[36] Contributing factors include the inherent anonymity of online purchases, which obscures transaction details and reduces perceived risk for disputants; one-click buying features, popularized by platforms like Amazon, that promote impulse buys prone to later regret; and issuer policies that favor cardholders in disputes to maintain customer satisfaction, often resulting in automatic chargeback approvals without merchant recourse.^[37]^[38]^[39]

Types of Friendly Fraud

Accidental Disputes

Accidental disputes represent a subset of friendly fraud where legitimate customers initiate chargebacks due to genuine errors or misunderstandings, without any intent to deceive merchants or payment processors.^[40] This form arises when consumers fail to recognize valid transactions on their statements, leading them to dispute charges erroneously through their issuing bank.^[41] Common examples include forgotten recurring subscriptions that renew months after the initial sign-up, or confusion between a requested refund and the formal chargeback process, where a customer mistakenly escalates a pending return into a dispute.^[42] The primary causes of these disputes stem from consumer forgetfulness, particularly with automated or low-value payments that blend into regular spending patterns.^[43] Poor transaction labeling by merchants, such as vague billing descriptors like generic codes (e.g., "GLOBALPMTSYS-9284"), exacerbates the issue by making legitimate charges appear suspicious or unfamiliar.^[42] Additionally, issuer alerts or bank notifications often fail to provide sufficient context about the purchase, prompting customers to act on incomplete information.^[40] In digital services, accidental disputes frequently occur with streaming trial subscriptions that auto-renew after the free period ends unrecognized, or in-app purchases on mobile devices that are later disputed as "unrecognized transactions."^[41] Industry surveys indicate that such unrecognized charges drive nearly 60% of all cardholder disputes, highlighting their prevalence within friendly fraud cases.^[42] These scenarios affect a substantial portion of chargeback activity, with estimates suggesting invalid disputes—many accidental—comprise about 75% of total chargebacks according to Visa data.^[40] While many accidental disputes can be resolved by merchants providing transaction evidence like receipts or order confirmations, they still impose financial burdens.^[40] Merchants typically incur flat chargeback fees ranging from $15 to $100 per incident, plus potential losses from reversed transactions and administrative efforts.^[44] Overall, accidental friendly fraud contributes to broader industry costs estimated at tens of billions annually, underscoring the need for clearer communication to mitigate these errors.^[41]

Intentional Exploitation

Intentional exploitation in friendly fraud refers to deliberate actions by customers who knowingly misuse the chargeback process to obtain refunds for legitimate purchases while retaining the goods or services. This form of fraud often stems from buyer's remorse, where individuals receive the product but falsely claim non-delivery or non-receipt to their card issuer. Other examples include exploiting return policies by initiating chargebacks after a merchant denies a refund, or engaging in "wardrobing," the practice of purchasing apparel or accessories, using them briefly for an event, and then disputing the charge to recover the payment.^[45]^[46]^[47] The primary causes of intentional exploitation include strong economic incentives, such as acquiring items at no cost, coupled with the perceived ease of online dispute processes and minimal risk of repercussions for the customer. Cardholders frequently view chargebacks as a risk-free alternative to direct returns, especially when merchants have strict policies or when the transaction involves high-value items. This behavior contrasts with accidental disputes, which arise from genuine misunderstandings rather than premeditated gain-seeking.^[7]^[48] Such exploitation commonly occurs with physical products in sectors like retail, particularly electronics and clothing, where tangible items can be used before disputing the charge. Digital goods, such as software or streaming services, are less prone to this type of fraud due to their non-returnable nature and immediate delivery. In high-risk industries like retail, intentional friendly fraud represents a significant portion of disputes. Friendly fraud, of which intentional exploitation is a significant portion, accounts for approximately 70-75% of all chargebacks according to industry estimates. Intentional cases represent around 61% of friendly fraud incidents.^[47]^[5]^[49] Trends indicate a surge in friendly fraud during 2025, including intentional exploitation within subscription models, where customers consume services for several billing cycles before filing disputes claiming unauthorized charges. This rise is driven by increasing familiarity with chargeback mechanisms and the proliferation of recurring payment structures in e-commerce. Forecasts suggest a 40% increase in friendly fraud cases by 2026, exacerbating challenges for subscription-based businesses.^[50]^[51]

Family and Shared Account Fraud

Family and shared account fraud represents a subset of friendly fraud where legitimate account holders dispute transactions made by family members or others with access to shared payment methods, often claiming the charges as unauthorized despite partial or implied permission. This typically occurs when one family member, such as a child or spouse, uses a shared credit card, digital wallet, or saved payment details without explicit approval for the specific purchase, leading the primary account holder to initiate a chargeback upon reviewing the statement. For instance, a teenager might make in-app purchases for video games or virtual items using a parent's linked card on a family-shared device, prompting the parent to dispute the charge as fraudulent.^[52]^[53] The primary causes stem from inadequate oversight of shared financial resources and communication gaps within households. Shared devices, such as tablets or family computers with autofill payment options, enable easy access for minors or relatives, while digital wallets linked across multiple users exacerbate the issue by storing card details conveniently but insecurely. Additionally, intra-family disagreements over spending—such as viewing a purchase as excessive or unintended—can prompt disputes framed as unauthorized use, even if the initial access was semi-permitted. Underage users, in particular, contribute due to limited awareness of financial consequences, often bypassing parental controls on apps or services.^[52]^[53]^[54] Common scenarios frequently involve digital entertainment and subscriptions, where impulsive purchases occur on platforms with integrated payment systems. Examples include children subscribing to streaming services or buying digital goods in mobile games, or spouses making unplanned online orders using a joint account, only for the other partner to contest the transaction later. These incidents have become more prevalent with the rise of mobile commerce and app ecosystems since the early 2010s, as social media and gaming platforms increasingly incorporate seamless in-app billing that family members can access inadvertently.^[52]^[53] A key challenge in family and shared account fraud lies in its ambiguity, which blurs the boundary between genuine unauthorized access and friendly fraud, complicating detection and resolution for merchants and payment processors. The relational context often results in chargebacks that appear legitimate at first glance, as the account holder's denial aligns with common fraud indicators, yet the transactions originate from trusted IP addresses or devices within the household. This semi-authorized nature makes it difficult to distinguish from true fraud without detailed family dynamics, often leading to higher dispute acceptance rates.^[52]^[53]

Economic and Industry Impacts

Costs to Merchants and Businesses

Friendly fraud imposes substantial direct financial burdens on merchants, primarily through chargeback fees ranging from $20 to $100 per dispute, the full loss of transaction revenue, and additional inventory costs for physical goods that cannot be recovered.^[55]^[56] In the United States, these losses are estimated at $100 billion annually, including $89 billion in merchant losses, based on 2023 data.^[57] These are driven largely by first-party disputes where customers exploit return policies or claim unauthorized transactions on legitimate purchases. Indirect costs further compound the impact, including heightened reserve requirements where acquirers hold 5-10% of monthly sales volume to cover potential disputes, elevated processing fees that can increase by up to 0.5-1% for high-risk accounts, and significant administrative overhead—estimated at $40 or more per chargeback when accounting for staff time on investigations and appeals.^[58]^[54]^[59] E-commerce merchants bear the brunt of these expenses, with friendly fraud accounting for approximately 75% of all chargebacks in the sector due to the prevalence of card-not-present transactions.^[60] High-risk industries such as travel and gaming experience dispute rates of 1-5%, exacerbating losses through higher volumes of exploitative claims like non-delivery disputes or buyer's remorse.^[61]^[62] Over the long term, these cumulative costs prompt merchants to implement risk mitigation measures, such as raising product prices to recoup losses or restricting services like international shipping and flexible returns, which can limit customer access and growth opportunities.^[63]

Effects on Consumers and Payment Ecosystems

Friendly fraud imposes indirect but significant burdens on consumers by elevating the overall cost of goods and services. Merchants often pass on the financial losses from chargeback disputes—estimated to cost up to double the transaction value including merchandise, fees, and administrative efforts—to all customers through price increases. For instance, industry analyses indicate that these costs contribute to higher retail prices in affected sectors like e-commerce. Additionally, to mitigate risks, merchants may limit offerings of high-risk items, such as digital downloads or international shipments, thereby reducing product availability and consumer choice. Frequent disputers risk being blacklisted by merchants or payment processors, restricting their access to future purchases across networks.^[54]^[63]^[60]^[40] Within the broader payment ecosystem, friendly fraud exacerbates tensions between issuers, acquirers, and merchants, as issuers frequently side with cardholders in disputes, leading to higher liability for merchants and strained partnerships. Payment networks like Visa and Mastercard have responded by ramping up investments in advanced fraud detection, including AI and machine learning technologies; Visa alone has allocated over $12 billion in the past five years to such initiatives to combat rising disputes. This escalation in detection efforts increases operational costs for networks and erodes overall trust in digital payment systems, as repeated incidents foster skepticism among users and businesses alike regarding transaction reliability. As of 2024, first-party fraud accounted for 36% of all reported fraud globally, up from 15% the previous year.^[39]^[64]^[65]^[64]^[66] On a systemic level, friendly fraud contributes to substantial global economic pressures, with global card-not-present fraud losses—largely driven by chargeback abuse—projected to reach $28.1 billion by 2026, a 40% surge from 2023 levels.^[36] This growth heightens regulatory scrutiny on payment providers to balance consumer protections with merchant safeguards, while spurring innovations in secure payment technologies like enhanced data-sharing protocols. Although these developments ultimately strengthen ecosystem resilience against broader threats, they introduce friction for legitimate disputes, complicating resolution processes for honest consumers and potentially deterring participation in digital commerce.^[67]^[68]

Prevention and Mitigation Strategies

Technological and Detection Methods

Pre-transaction tools for detecting friendly fraud leverage advanced analytics to assess risk before a transaction is completed. AI-driven fraud scoring systems evaluate multiple data points, such as customer behavior, purchase history, and transaction patterns, to assign a risk score that flags potential friendly fraud scenarios like accidental disputes or shared account misuse.^[69] Device fingerprinting collects unique device attributes, including browser type, screen resolution, and installed fonts, to identify returning users and detect inconsistencies that might indicate exploitation.^[70] IP geolocation verifies the transaction location against the cardholder's billing address, while velocity checks monitor the frequency of transactions from the same IP or device, flagging rapid or unusual patterns that could precede disputes.^[71] These tools help prevent types of friendly fraud by integrating into payment flows to block or review high-risk orders in real time.^[72] Post-transaction detection focuses on machine learning algorithms that analyze dispute histories and patterns after a purchase. Platforms like Signifyd and Riskified use ML to review order data, customer interactions, and chargeback trends, identifying anomalies such as intentional exploitation where a legitimate buyer later disputes a charge.^[34]^[7] These systems automate pattern recognition to differentiate friendly fraud from true fraud, enabling merchants to gather evidence proactively. Compelling evidence submission under Visa's CE 3.0 framework requires detailed proofs, such as digital signatures or delivery confirmations, to challenge disputes effectively and reduce liability for first-party misuse.^[73]^[74] Emerging technologies offer enhanced security through immutable and personalized verification. Blockchain creates tamper-proof transaction records, preventing chargeback fraud by providing a decentralized ledger that verifies purchase authenticity and reduces disputes over transaction legitimacy.^[75] Biometric verification, including facial recognition or fingerprint scanning, confirms cardholder intent at checkout, making it harder for accidental or intentional disputes to succeed by linking the transaction to the authorized user.^[76] Adoption of these technological methods has demonstrated significant effectiveness in reducing chargeback rates in e-commerce environments.^[77] Integration with payment gateways like Stripe and Adyen allows seamless deployment, where fraud scoring and detection tools operate within existing workflows to approve more legitimate orders while minimizing disputes.^[78]^[79]

Policy, Education, and Procedural Approaches

Customer education plays a pivotal role in mitigating friendly fraud by addressing common causes such as transaction confusion and forgotten purchases. Merchants can implement clear billing descriptors that match their brand name and include contact information, helping customers recognize legitimate charges and reducing accidental disputes. ^[43] Sending detailed order confirmation emails with transaction details, such as date, time, amount, and item descriptions, further jogs customer memory and prevents misunderstandings that lead to chargebacks. ^[80] For subscription-based services, providing reminders seven days before trial periods end and 24 hours prior to recurring charges, along with easy cancellation instructions, educates users on billing cycles and minimizes unintentional disputes. ^[81] Procedural measures emphasize transparent internal processes to encourage resolution before disputes escalate. Establishing generous and clearly communicated return policies can reduce chargebacks, as approximately 55% of American consumers report that such policies make them less likely to pursue disputes over payments. ^[80] Pre-authorization holds for high-value transactions allow merchants to verify intent and release funds only upon fulfillment, while requiring signed delivery confirmations for physical goods addresses non-delivery claims, which account for 33% of chargebacks. ^[80] Additionally, merchants can black list repeat offenders by tracking dispute patterns per customer and encouraging direct contact through accessible support channels like live chat or phone before filing a chargeback, fostering honest resolutions. ^[43] Maintaining comprehensive records, including receipts, tracking numbers, and communication logs, supports effective dispute handling without relying on automated systems. ^[43] Policy implementations involve training and collaborative efforts to build a fraud-resistant environment. Merchant staff training on empathetic dispute resolution equips teams to investigate claims thoroughly and guide customers toward refunds or adjustments, reducing escalation rates. ^[54] Partnerships with card issuers enable real-time alerts for potential disputes, allowing proactive outreach, while incentives such as loyalty points for resolving issues directly reward honest behavior and deter exploitation. ^[82] Adopting standardized procedures under regulations like Regulation E ensures consistent handling of electronic fund transfers, setting clear consumer expectations from the outset. ^[54] These approaches have demonstrated effectiveness in lowering unintentional friendly fraud, with clear communication and policies reducing chargeback instances stemming from confusion, which 47% of merchants believe to be the primary cause of first-party misuse. ^[81] When combined with technological methods, such as automated alerts, they form hybrid strategies that further enhance prevention by addressing both behavioral and systemic factors. ^[82] As of early 2025, chargeback rates have risen by 19% overall in the previous year, underscoring the importance of evolving prevention strategies amid increasing e-commerce activity.^[83]

Legal and Regulatory Aspects

Governing Regulations and Standards

In the United States, the Fair Credit Billing Act (FCBA) of 1974 provides key protections for consumers against billing errors on credit card accounts, mandating that card issuers investigate disputed charges within two billing cycles, not exceeding 90 days, for amounts over $50.^[84] This regulation requires issuers to provisionally credit the consumer's account during the investigation and prohibits adverse credit actions until resolution, thereby facilitating chargeback processes that can encompass friendly fraud scenarios.^[85] Complementing the FCBA, the Electronic Fund Transfer Act (EFTA) of 1978 governs debit card and electronic fund transfer disputes, limiting consumer liability for unauthorized transfers to $50 if reported within two business days and requiring financial institutions to resolve errors within 10 business days, with provisional credits provided.^[86] These laws establish foundational timelines and responsibilities for issuers in handling disputes, including those related to debit-based friendly fraud.^[87] Card networks have introduced specific rules to address chargebacks, including those driven by friendly fraud. Visa's Compelling Evidence 3.0 (CE 3.0), implemented effective April 15, 2023, elevates the evidentiary threshold for fraud-related disputes under reason code 10.4 by allowing merchants to submit proof of cardholder participation, such as signed delivery confirmations or IP matching, from transactions up to 365 days prior, thereby reducing unwarranted reversals.^[88] Similarly, Mastercard's First-Party Trust program, expanded in 2025, enables data sharing among merchants and issuers to identify patterns of intentional misuse, shifting liability assessments toward verifiable evidence of first-party fraud while maintaining consumer protections.^[68] Internationally, the European Union's Revised Payment Services Directive (PSD2), effective from 2018, mandates strong customer authentication (SCA) for electronic payments, requiring at least two independent factors—such as knowledge, possession, and inherence—to verify user identity and mitigate fraud risks, including friendly disputes.^[89] On a global scale, the Payment Card Industry Data Security Standard (PCI DSS), maintained by the PCI Security Standards Council, sets requirements for secure payment processing, including network protection, access controls, and regular vulnerability assessments, applicable to all entities handling cardholder data to prevent exploitation that could lead to chargebacks.^[90] Version 4.0 of PCI DSS, with updates including multi-factor authentication and targeted risk analysis, became mandatory for certain requirements as of March 31, 2025.^[91] As of 2025, card networks have intensified policies targeting first-party fraud, with initiatives like Mastercard's expanded First-Party Trust and Visa's ongoing CE 3.0 refinements emphasizing collaborative data analytics to balance consumer dispute rights with merchant safeguards against abuse.^[92] These updates reflect a broader regulatory push to adapt to rising digital transaction volumes while curbing fraudulent chargebacks.^[66]

Dispute Resolution and Merchant Rights

The chargeback process begins when a cardholder disputes a transaction with their issuing bank, typically within 10 to 120 days after the purchase or expected delivery date, depending on the card network rules.^[93] The issuer reviews the claim and, if approved, reverses the transaction, debiting the merchant's account through the acquirer. The acquirer then notifies the merchant, who has 7 to 45 days—varying by network, such as 30 days for Visa and 45 days for Mastercard—to respond with compelling evidence, including address verification system (AVS) matches, card verification value (CVV) data, delivery confirmations, and proof of customer acknowledgment like signed receipts or IP logs.^[94]^[95]^[96] Merchants hold specific rights to challenge chargebacks through representment, where they submit evidence to their acquirer to demonstrate the transaction's legitimacy and seek reversal. Success rates for representment typically range from 20% to 40%, though they vary by dispute type and evidence quality, with physical goods often yielding higher wins due to tangible proofs like shipping records.^[97]^[98] If representment is denied, merchants can escalate to pre-arbitration, a negotiation phase where networks like Visa or Mastercard issue alerts allowing parties to settle informally, often within 10 to 20 days.^[99] Denied pre-arbitrations may proceed to formal arbitration by the card network, where an independent review decides the outcome, though merchants must file within strict windows, such as 10 days for Visa.^[100]^[101] Friendly fraud disputes pose unique challenges for merchants, including stringent time limits that limit evidence gathering and low representment win rates—often below 30%—stemming from issuers' bias toward protecting cardholders under consumer-friendly regulations. Legal recourse remains rare, typically limited to small claims court actions against identified repeat offenders, but requires substantial proof of intent and is seldom pursued due to high costs and low success.^[102]^[7]^[103] In cases of non-delivery claims, merchants have successfully reversed chargebacks by providing GPS-tracked shipping data alongside carrier confirmations, proving item receipt at the cardholder's address. Emerging 2025 trends indicate AI-assisted representment tools are enhancing outcomes, with platforms predicting win probabilities and automating evidence submission to improve reversal rates compared to manual processes.^[104]^[51]^[105]

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Apr 1, 2025 · Friendly fraud happens when a customer identifies a purchase as fraudulent and disputes it, when it is in fact legitimate.
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“Friendly Fraud” is on the rise. Visa's new Compelling Evidence 3.0 ...
According to Visa internal reporting, friendly fraud can account for up to 75% of all chargebacks. “Friendly fraud is not always friendly, especially from a ...
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A Quick Look at the Legal History of Chargebacks - ChargebackHelp
Mar 19, 2025 · Learn about the key developments in the legal history of chargebacks that shaped today's payment systems and the laws that govern them.
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History of Chargebacks From 300 BC to 2024
Jun 13, 2024 · This guide will cover the history of fraudulent transactions, chargebacks, and fraud prevention technology. Keep reading to learn more.
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History of Chargebacks & Online Payment Processing - SEON
In 1974, the Fair Credit Billing Act decreed that consumers who noticed a suspicious credit card transaction could contest it with their bank. The goal was to ...
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A Brief History of Chargebacks - MidMetrics
Jun 23, 2022 · While the laws of the 1960s and 1970s created the chargeback, the evolving nature of commerce, fraud, and technology in the intervening decades ...
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Credit Card Fraud: How Big Is The Problem? - Practical Ecommerce
Apr 23, 2008 · “Thirty to 50 percent of chargebacks are from friendly fraud,” says Dan Clements, president of CardCops.com, a Connecticut-based company ...
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Fighting Back: 10 Ways To Prevent Recurring Billing Chargebacks
Aug 26, 2016 · “Most recurring payment chargebacks are due to friendly fraud, so it's easy to imagine the considerable potential loss of revenue chargebacks ...Missing: mobile | Show results with:mobile
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Facebook knowingly duped game-playing kids and their parents out ...
Jan 24, 2019 · “Devs” meant game developers, and “cbs” meant chargebacks. “FF-minor” was Facebook's term for “friendly fraud” involving a minor. Stewart ...
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Chargeback Stats: All the Key Dispute Data Points for 2025
Apr 8, 2025 · Merchants estimate that friendly fraud represents only 45% of their chargebacks on average. Chargeback data shows the rate to be considerably ...
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6 Factors Influence the Recent Surge in Friendly Fraud
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Amazon Patent Expires: 1-Click Buying Goes Global
Jan 23, 2017 · Shoppers' accidental clicks and impulse buys will generate more friendly fraud. The ease in which children will be able to authorize ...
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Friendly Fraud Hurts Merchants, Issuers and Cardholders: Here's How
Jan 31, 2019 · That means when friendly fraud occurs, the merchant loses the goods/services and is saddled with the cost of the chargeback. But that's just the ...
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Accidental Friendly Fraud: a Fast-Growing Online Threat
Jun 20, 2024 · In this post, we'll take a look at accidental friendly fraud. We'll see how it differs from other chargeback sources and examine what you can do to protect ...Missing: anonymity | Show results with:anonymity
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What Is Accidental Friendly Fraud? - SEON
Accidental friendly fraud occurs when customers dispute payments and initiate chargebacks – in error – for purchases they did in fact make.Missing: definition | Show results with:definition
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What Is Accidental Friendly Fraud? A Merchant's Guide - Justt
Accidental Friendly Fraud: These are legitimate customers disputing charges due to genuine confusion without fraudulent intent. Deliberate Friendly Fraud ( ...Missing: definition examples
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A deep dive into friendly fraud - Nuvei
Friendly fraud is often accidental and stems from confusion surrounding the purchase, whereas refund abuse is an intentional effort to exploit a store's refund ...
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Chargeback Fees: What Merchants Need to Know - Justt
The chargeback fee levied by acquirers or payment service providers (PSPs) typically ranges from $15 to $50 for merchants with a normal risk profile.
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Feb 21, 2025 · Friendly fraud can occur when a family member or authorized user on a cardholder's account makes a purchase without the cardholder's knowledge ...
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What is Wardrobing? Stop Refund Abuse - Chargebacks 911
Jan 30, 2025 · Wardrobing is a form of first-party fraud. It happens when a shopper buys an item that they intend to use or wear just once, then return it to get their money ...The Financial Impact of... · How to Identify a Case of... · Tips to Prevent Wardrobing
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Fashion Chargebacks and Fraud
Sep 14, 2021 · If the merchant suspects wardrobing and refuses to give a refund, there's a good chance the customer will try to get a chargeback instead. It's ...
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May 24, 2024 · Friendly fraud is when a customer deliberately or accidentally commits fraud by disputing a legitimate chargeback. ... Versus the 46.85% win rate ...Missing: percentage | Show results with:percentage
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https://chargebacks911.com/wardrobing/
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Top 5 fraud trends affecting high-risk merchants in 2025
May 7, 2025 · In 2025, friendly fraud is expected to increase as consumers become more familiar with chargeback processes and as subscription-based models ...
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The Ultimate Chargeback Statistics 2025: Trends, Costs, and Solutions
Jun 24, 2025 · U.S. merchants face 10% of global volume, losing $4.61 per fraud dollar. Friendly fraud (~75% of cases) and CNP fraud ($28.1B by 2026) drive ...
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The Complete Guide to Understanding and Preventing Friendly ...
Jun 4, 2025 · Friendly fraud creates a significant financial burden that extends far beyond the simple loss of a sale. Each chargeback triggers a cascade of ...
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Sep 26, 2025 · As a general rule of thumb, you can expect chargeback fees to range between $20 to over $100 per dispute. However, the payment processor you use ...
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Apr 30, 2025 · Chargeback fees are non-negotiable costs, typically $15-$100, merchants pay when cardholders dispute a charge, and the bank reverses it.
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Businesses are losing $100 billion a year from 'friendly fraud,' report ...
Jul 25, 2024 · "Friendly fraud" or "first-party fraud" has led to $100 billion in loss for businesses, according to a report from Socure.<|separator|>
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Jul 7, 2025 · On average, most banks require a reserve of 5-10% of the merchant's expected monthly sales volume. What Merchants Are Required to Have a Reserve ...If I Don't Get Any... · How To Obtain Reserve Funds... · Frequently Asked Questions
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The Hidden Costs of Payment Processing No One Talks About
Jan 15, 2025 · Chargeback Costs Beyond Fees: Chargebacks can cost merchants an average of $40 per dispute once you factor in administrative time and lost ...
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The Ultimate Friendly Fraud Guide for eCommerce in 2025
How Friendly Fraud Affects Cardholders ... False and fraudulent chargebacks hurt merchants the most. But it also has some repercussions for perps. While prison ...Missing: growth mobile
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Chargeback Rate by Industry and Business Type - SwipeSum
Sep 10, 2024 · Explore the average chargeback rates across key industries, from Education & Training (1.02%) to Restaurants (0.12%).
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Merchants spend $100,000 to $500,000 on chargeback technology annually, with 12% of large enterprises claiming chargeback technology costs increased by more ...
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How Friendly Fraud Drives Up Your Business Costs - Entrepreneur
Nov 4, 2024 · Friendly fraud increases merchant costs, impacting all consumers. Invalid chargebacks lead to higher fees, potential blacklisting.<|control11|><|separator|>
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Holiday First-Party Fraud Costs Businesses $100B - Socure
Jan 16, 2025 · This includes $89 billion from chargebacks, promotional abuse and return fraud, and $18 billion in credit card fraud losses. Holiday Pressure.<|control11|><|separator|>
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Jun 25, 2025 · The global cost of chargebacks to merchants is forecasted to rise to $42 billion by 2028, with nearly half being reported as fraudulent, ...Missing: losses | Show results with:losses
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Jan 23, 2025 · Models can analyze factors such as customer purchase history, return rates, and chargeback patterns to flag potential friendly fraud cases.How is machine learning used... · Examples of machine learning...
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5 Essential Fraud Detection Rules Every Merchant Should Know
Feb 23, 2023 · Rule 1: Review High-Risk Orders · Rule 2: Analyze Order Velocity · Rule 3: Check IP Address Geolocation · Rule 4: Monitor Device Fingerprinting ...
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Nov 22, 2024 · Velocity checks are a fraud prevention tool designed to monitor the pace at which buyers submit transactions.
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How to Prevent Friendly Fraud in Event Ticketing - Softjourn
Rating 5.0 (3) Device Fingerprinting and IP Geolocation: Verify consistency between user device information, location data, and billing details. Integrated Fraud Prevention ...
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Visa is continuing to refine and improve the rules for addressing friendly fraud or first party misuse within the payment ecosystem.
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The Visa Compelling Evidence 3.0 (CE 3.0) update introduces new rules that help merchants combat first-party misuse (friendly fraud) by weighting a cardholder's ...
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CFLedger: Preventing chargeback fraud with blockchain
This type of fraud is also known as “friendly fraud” because customers often make claims that seem believable and honest. Chargeback fraud is becoming a big ...
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Feb 28, 2025 · Biometric authentication creates an unforgeable proof of identity, preventing unauthorized disputes and reducing financial institutions' ...
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The average chargeback-to-transaction ratio decreased 21.6% between 2020 and 2021. ... fees, chargeback fines, labor costs for management, and much more. However ...
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Signifyd offers a configurable financial guarantee against chargebacks, ranging from fraud-only protection to a total chargeback liability shift. ... Adyen, ...
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a cardholder fails to recognize a charge and files a ...Missing: Adyen | Show results with:Adyen
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Jogging a Customer's Memory to Prevent Friendly Fraud - Verifi Inc
using chargeback management tools like Verifi's Order ...Missing: anonymity one- buying
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Friendly Fraud: The 2025 Guide to Stop Chargeback Abuse
According to Visa, friendly fraud can account for up to 75% of all chargebacks filed by cardholders. Reputation Damage. Friendly fraud can harm a merchant's ...<|control11|><|separator|>
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First-Party Fraud Surpasses Scams to Become the Leading Form of ...
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Aug 29, 2024 · Visa cardholders typically have up to 120 days from the original transaction or expected delivery date to file a dispute.
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Visa Chargeback Time Limits: The 2025 Guide
Oct 21, 2024 · Visa chargeback time limit rules give acquirers 30 days from the dispute processing date to file a case on the merchant's behalf. For Processing ...Breaking Down Visa... · Phases of the Visa... · Visa Pre-Arbitration...
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[PDF] Dispute Management Guidelines for Visa Merchants June 2024
This document covers dispute requirements and best practices for processing transactions that are charged back to the merchant by their acquirer. Audience. This ...
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Chargeback Representment: A Step-By-Step Guide to Improve - Kount
Jun 18, 2024 · Merchants can respond to consumer disputes with a chargeback representment. Here's how to create a winning case.
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How often do merchants win chargeback disputes, and what is the ...
May 13, 2025 · Accertify found that the median win rate for fraud-coded chargebacks is 36.5%, with a rate of 56.6% for non-fraud chargebacks.
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Dec 4, 2021 · Pre-arbitration is the last chance for the merchant and the issuing bank to settle a chargeback before arbitration begins.
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Arbitration Chargeback: The Last Step in the Dispute Process
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up from just 34% in 2023. The average chargeback now costs $74 per dispute.
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Feb 1, 2024 · These instances, collectively known as “friendly fraud,” can comprise a significant portion of chargebacks, exceeding two-thirds in certain ...
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Learn how effective carrier monitoring can minimize chargebacks by improving delivery accuracy and enhancing customer communication.<|control11|><|separator|>
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Chargeback autorepresentment: Win disputes with Solidgate
May 23, 2025 · Discover how Solidgate's AI-powered Autorepresentment helps merchants fight friendly fraud. Win more disputes and lower chargeback rates.<|separator|>