Chargeback SpectrumUp to 86% of Chargebacks Are Friendly Fraud? How Is That the Case?

January 8, 2024 | 8 min read

This image was created by artificial intelligence using the following prompts:

A woman shopping on her computer holding a credit card in her hand. She looks sneaky and suspicious, in the style of red and teal.

Chargeback Spectrum

In a Nutshell

It’s important to understand the three fundamental chargeback sources: merchant error, criminal fraud, and friendly fraud. However, determining the source of a chargeback is not always so clear-cut. In many cases, you could say that there is one main dispute source, which in turn, triggers a secondary source that causes the chargeback. It’s relatively uncommon that any case will be only merchant error or only cyber shoplifting. We can call this the “chargeback spectrum.”

Exploring the Chargeback Spectrum — How Do the Three Fundamental Sources of Chargebacks Overlap?

Card networks like Visa and Mastercard have dozens of reason codes that can be used to explain why a cardholder dispute was filed. That said, all chargebacks can be traced back to one of three fundamental sources: criminal fraud, merchant errors, or first-party misuse.

However, we should also clarify that many of those disputes will not slot neatly into just one source. Confused yet?

This is an idea we like to refer to as the “chargeback spectrum.” Today, we’re going to delve into this concept, and explore how this new method of thinking about disputes can help you take a more dynamic approach to detecting — and eliminating — chargeback sources.

Are There Really Just 3 Sources of Chargebacks?

Before we get into the chargeback spectrum, let’s start at the beginning.

Like we mentioned above, we can segment chargebacks into three different categories based on their primary cause. Let’s explore each of these in a little more detail:

Criminal Fraud

Criminal fraud occurs when another party (i.e. a fraudster) uses stolen data to complete a purchase. There are a lot of different tactics they can deploy to accomplish this, but the throughline is a bad actor using someone’s information without permission.

Chargebacks resulting from criminal fraud would be issued with a “Fraud” reason code. For instance, Visa reason code 10.4 (Other Fraud: Card-absent Environment) or Mastercard reason code 4837 (No Cardholder Authorization).

Merchant Error

These chargebacks are a by-product of faulty business practices on the merchant’s part, rather than any malicious intent from a third party. The issue could be something as simple as a billing descriptor that needs to be optimized. Or, it could be something more serious that affects multiple areas of the business without the merchant’s knowledge.

Chargebacks filed using reason code Mastercard reason code 4834 or Visa reason code 12.1 (Late Presentment) would be examples of this.

First-Party Misuse

This happens when a cardholder — whether deliberately or unintentionally — files a chargeback without having a valid reason to do so. Often referred to as “friendly fraud,” these are very tricky situations.

The premise of friendly fraud means that the cardholder is making an invalid claim, and thus, the reason code attached to the dispute cannot be trusted. For example, a buyer wanted to request a refund, but thought it would be easier to contact the bank and request a chargeback, claiming the goods never arrived.

All chargebacks issued by banks will correspond with at least one of the three scenarios outlined above. But, as alluded to, it’s not always a cut-and-dry matter of determining which is the right source.

What is “The Chargeback Spectrum”?

Data suggests that at least 75% — and potentially up to 86% — of all chargebacks can be traced back to friendly fraud. That said, it’s not always clear where friendly fraud ends and merchant error begins. 

For instance, a cardholder may file a dispute, claiming to have purchased goods that did not arrive within the projected delivery window. However, the cardholder failed to attempt to contact the merchant before filing the dispute. This would make the chargeback a case of friendly fraud, but some error on the merchant's part is still a factor.

This is what we mean when referring to the “chargeback spectrum.”

On one extreme end of this spectrum, we have deliberate merchant fraud; the merchant takes a customer’s money, then fails to provide the goods or services promised. On the other extreme, we have cyber shoplifting; the customer makes a purchase knowing that they plan to file a chargeback to try and get something for free.

Merchant fraud chargebacks can obviously be controlled by changing merchant behavior. Then, you could fight back and win against cyber shoplifting through the representment process. But, as mentioned before, most chargebacks aren’t on either end of this spectrum. Instead, they fall somewhere in the middle.

Shared Responsibility. Shared Resolutions.

Looking at most of those chargebacks in the middle of the spectrum, we can see that both the customer AND the merchant share some of the responsibility. The disputes in that middle ground all result from a combination of simple merchant errors and oversights, plus customers who misinterpret industry policy and procedure.

Can you identify the source of your chargebacks? If not, it may be time to call in the pros.REQUEST A DEMO

For example, let’s assume you run a shoe store that sells products online. A customer purchases a pair of shoes from you and requests two-day delivery. But, for a combination of reasons, you end up shipping the product out several days late. As a result, the shoes don’t arrive by the agreed-upon date. But, instead of contacting you about the order, the customer files a chargeback to recover their funds.

Now, the customer is essentially getting those shoes for free. That’s not fair… but it also wouldn’t have happened if you had shipped them out on time.

Here at Chargebacks911®, we say 86% of the average merchant’s chargebacks should be the product of friendly fraud, because most criminal fraud and merchant error chargebacks are preventable. Once you eliminate those chargebacks, you can fight back against the ones you can’t prevent.

Stop Chargebacks at the Source

Different chargeback sources require different tools and strategies to address. That said, the approach you take to managing one chargeback source will influence the strategy you deploy to counter other sources.

For instance, let’s say that 30% of your chargebacks can be traced to friendly fraud, while the remaining 70% are products of criminal fraud or merchant error. If you engage in tactical representment to fight friendly fraud, the best you could do is to recover 30% of your chargeback losses.

However, let’s say you deploy the right tools and strategies to counter merchant error and criminal fraud. You should see the balance of your disputes start to shift; merchant error and criminal fraud will disappear, leaving just friendly fraud chargebacks that you can contest and win.

Eliminate Criminal Fraud

Criminal fraud may be a serious problem now, but it doesn’t have to be. You can deploy a multilayer strategy to intercept and block pre-transactional fraud attacks.

Geolocation, address verification, velocity checks… all these and more are individual components of a much larger fraud mitigation structure. These tools should be backed by fraud scoring, which will allow for simple up-or-down decisioning to flag suspected fraud while adding no additional friction for legitimate buyers.


We can help you with criminal fraud disputes. Chargebacks911 is partnered with many of the top names in criminal fraud risk mitigation. We also work directly with dozens of merchant acquirers and processors, offering easy-integration into our platform.

Eliminate Merchant Error

Preventing merchant error sounds easy, but it’s a lot more complicated than you may realize. Most merchants are simply too close to the problem to identify the minor oversights and simple errors that can produce chargebacks.

You need to engage in a diagnostic process. Examine your business from top to bottom, identifying and resolving simple procedural issues and policy missteps that trigger chargebacks. Most merchants will find it easier to work with a third party that can help by offering an objective, expert eye.

Fight Friendly Fraud

Once criminal fraud and merchant error are eliminated, that just leaves friendly fraud chargebacks, which are winnable through representment.

Tactical chargeback representment means combining advanced machine-learning technologies and human expertise to take apart each dispute. It calls for delving into true chargeback sources, backed by industry data, to prepare airtight representment cases.

A Holistic Approach is Necessary

The process we outlined above is important. But, don’t think of your response to each chargeback source as being totally isolated and siloed. Rather, the insights you gain from addressing one chargeback source should help you contend with the others. This overlap between chargeback sources is an important part of the chargeback spectrum concept.

Let’s say you receive a number of chargebacks from buyers who claim that they can’t recognize your billing descriptor when it appears on their statement. While the buyer should attempt to contact you before disputing the charge, you should also take this as a sign that your billing descriptor needs to be optimized.

As another example, you receive chargebacks from buyers who claim that your refund process was too difficult to navigate, and that a chargeback was an easier option. This indicates that you need to revisit your policies and procedures, and ensure they’re reasonable and easy to interpret.

When you approach chargeback management, think about how eliminating errors can help you better identify criminal fraud. And, how more effective criminal fraud detection will give you better data, making representment more effective, thereby stopping friendly fraud.

This is the secret to truly effective chargeback management: address each chargeback at its source, but always remember that all chargebacks are interconnected. Keeping that in mind will be the key that can unlock a much more effective and efficient response to disputes.

Like What You're Reading? Join our newsletter and stay up to date on the latest in payments and eCommerce trends.
Newsletter Signup
We’ll run the numbers; You’ll see the savings.
Please share a few details and we'll connect with you!
Over 18,000 companies recovered revenue with products from Chargebacks911
Close Form
Embed code has been copied to clipboard