Credit Card Fraud PreventionDon't Monkey Around With Fraud: See it, Stop it, & Say Something

A Step-by-Step Gameplan for Credit Card Fraud Prevention

Global annual credit card fraud losses will reach $49.32 billion by 2030. Keep in mind, though, that these are the direct fraud losses; there are ancillary costs associated with fraud that we need to consider as well.

False positives, higher overhead, chargeback fraud... all of these are interconnected as part of a larger problem of abuse in the market. If we don’t devote serious resources to credit card fraud prevention, total losses will easily surpass $100 billion this year. The volume of cardholder information floating around in the ether means that merchant credit card fraud prevention is more essential than ever.

How Credit Card Fraud Costs Impact Merchants

Credit card fraud impacts cardholders initially, but buyers can recover their losses by filing chargebacks with their issuing banks.

When this happens, the cardholder’s issuer forwards a chargeback notification to the merchant and forcibly reverses the fraudulent transaction. The issuer then takes money out of the merchant’s account and provides a provisional credit to the cardholder to cover their fraud losses.

As the merchant, you bear the cost of fraud. Apart from losing out on revenue from the sale, you’re forced to shoulder fraud losses well beyond the face value of the transaction, including:

These costs add up over time. Plus, if you aren’t careful, your chargeback ratio may exceed limits imposed by the card networks, meaning you could lose the right to process card payments entirely.

Looking at all those things in aggregate, it’s clear why you should prioritize credit card fraud prevention. But, where to start, exactly?

Step One: Conducting a Fraud Risk Assessment

Credit card fraud is commonplace. According to MerchantSavvy, 36% of merchants in 2022 experienced payment card fraud, while another 9% and 7% said they experienced virtual card and mobile wallet fraud, respectively. But, how do you know how vulnerable your business, specifically, is to credit card fraud?

You’ll need to conduct a multi-step risk assessment. This will help you uncover which parts of the buyer journey — and which buyers themselves — pose a risk to your business.

Start by examining your digital infrastructure. Make note of security weaknesses that exist at the account creation, login, checkout, payment, and return stages.

Try to think like a scammer. How would they exploit your systems to their advantage?

For example, could a lack of multi-factor authentication at login make your business (and your customers) more vulnerable to account takeover fraud? Could the lack of velocity checks at checkout make you a target for card testing scams?

Next, review past fraud trends and chargeback reason codes to see if you can identify any patterns. Are certain payment methods, products, services, or geographies overrepresented in fraudulent transactions? For instance, if your subscription services are disproportionally involved in credit card fraud, it could signal that you may need to rework your cancellation, billing, or card on file policies.

Step Two: Defining Your Fraud Tolerance Level

The unfortunate truth is that you can’t stop all attacks. Some amount of credit card fraud is inevitable, and you may wish to accept a slightly elevated level of risk in order to avoid generating excessive friction for legitimate buyers.

There’s a tradeoff between fraud risk management and buyer friction, which you can control by adjusting your fraud triggers and pruning your fraud prevention toolbox.

Fraud Tolerance Spectrum

Step Three: Select & Configure Fraud Prevention Tools

Now that you’ve conducted a fraud risk assessment and defined your risk tolerance level, you’ll need to select and deploy fraud prevention tools that make sense for your business.

Your payment gateway and processing service providers will typically have some tools you can use. Some are baked into the fees you pay for payment processing, and are offered at no additional cost, while others are add-ons that you can pay for on a per-transaction or monthly recurring basis. Examples include Stripe Radar, Shopify Fraud Analysis, PayPal Fraud Protection Advanced, and Square Risk Manager.

You can also explore third-party platforms, which are additional services that you can integrate with your existing payment gateway. These include Signifyd, Kount, Riskified, Sift, Radial, Forter, Ekata, and more.

You can deploy custom rule engines at checkout that screen for anomalies and mismatches. Some of the tools you can deploy to generate fraud indicators include:

These tools, coupled with other security measures like 3-D Secure 2.0 and fraud scoring, can help you detect, isolate, and block attempted attacks before they do damage to your business.

Step Four: Train Your Team

Software-based fraud detection systems are a good start, but you can’t rely on them alone. While automated systems serve as a critical first line of defense, you’ll need human expertise in the form of manual fraud reviews and customer support to backstop complex and high-stakes threats that often fly under the radar.

In other words, you’ll need to invest extensively in fraud awareness training for staff.

Coach customers service representatives to be on the lookout for fraud. Create escalation procedures that empower customer-facing staff to report suspected threats or anomalies.

Providing pleasant, responsive, and helpful customer service, especially to disgruntled or frustrated customers, is also an effective way to prevent chargebacks. Customers who feel that you care about their concerns and are willing to make it right may be less inclined to call their bank to dispute a charge.

Step Five: Integrate Prevention Into Customer Experience

The best way to protect your business without elevating friction at checkout to make fraud detection a background event; something that goes on without anybody really noticing.

If possible, make fraud checks entirely invisible. Risk scoring, behavioral analytics, and AVS tools, for example, screen transactions without requiring additional action by customers.

Sometimes, additional verification is needed. If you need buyers to respond to multi-factor authentication or CAPTCHA challenges, be sure to provide real-time order feedback to prevent delays or verification failures.

No matter what you do, avoid alienating legitimate customers in the name of fraud prevention. Prioritize usability, and provide a smooth and customer-friendly checkout experience.

Step Six: Monitor, Measure, & Improve

You can’t manage what you don’t measure. So, make sure to quantify your fraud prevention outcomes.

Use data to refine your fraud rules and run A/B tests on rule changes or tool performance to prevent overly strict rules from torpedoing legitimate orders. In addition, take a data-informed approach to amending your return policies and your approach to customer service.

Specifically, track key performance indicators (KPIs) like your:

This is the percentage of transactions flagged or lost to fraud. For example, if 10 out of the 1,000 orders you receive per month are involved in fraud, then your fraud rate is 1%.

According to MRC’s 2025 Global Fraud and Payments Report, eCommerce merchants experience an average order fraud rate of 3%, down 0.3 percentage points from 3.3% in 2024.

This is the percentage of revenue that is lost to fraud. This KPI helps contextualize your order fraud rate based on its impact on your top line.

To illustrate, suppose the 1,000 orders you receive per month generate a total of $150,000 in revenue. If those 10 fraudulent orders involve $2,000 in revenue, then your revenue fraud rate is 1.33%. The truth is that it’s likely much higher, though; the same MRC report mentioned above also reveals that businesses lost 3.6% of their annual revenue to payment fraud, up from 2.8% in 2024.

This metric, also known as your chargeback ratio, is the percentage of transactions that result in first-cycle chargebacks. If you receive 1,000 orders per month, and five of them end in a chargeback, then your chargeback rate is 0.5%, which is just slightly lower than the average chargeback rate across all industries (0.6%).

If your chargeback rate is too high, you may have restrictions imposed to your processing capabilities, or may even lose your account altogether. To remain in good standing, you should aim to keep your chargeback ratio as low as possible, and ideally below 0.5%.

This percentage, also known as your false decline rate, is the number of legitimate, non-fraudulent transactions that are declined by your payment processor or the cardholder’s issuer due to suspicions of fraud. For instance, if you receive 1,000 order attempts per month, and 60 of them are falsely declined, then your false positive rate is 6%.

False decline rates are relatively high relative to true order fraud, revenue fraud, and chargeback rates. The MRC report cited above found that 32% of sellers report having a false decline rate between 2–5% in 2025, while 14% of merchants experienced false decline rates over 10%.

This metric measures the percentage of your transactions that are escalated to manual review. For instance, if you receive 1,000 orders a month and you review 125 of them manually, then your manual review rate is 12.5%.

While time- and resource-intensive, some merchants make heavy use of manual reviews. eCommerce merchants subject 25% of their orders to manual review on average. That’s down two percentage points from 27% in 2024.

Need Help?

The important point to remember is that credit card fraud prevention isn’t a simple matter of using one or two basic tools. It’s an ongoing, evolving, and multilayer practice.

Also, there’s no one-sized-fits-all approach to fraud and chargeback management. But with the right strategy, tools, and support, you can keep bad actors at bay without sacrificing the buying experience for genuine customers.

At Chargebacks911®, our end-to-end chargeback management solutions help you combat first-, second-, and third-party fraud. Our dual-layered approach, combining prevention with  representment, helps you minimize your chargeback ratio and maximize your dispute win rate.

Contact us for a complimentary no-obligation ROI analysis today.