First-Party MisuseAccidental Chargeback Abuse Has Negative Consequences For Merchants, Just Like Deliberate Abuse

First-Party Misuse: An Accidental, Yet Costly Problem in the eCommerce Space

Have you seen the latest data from Mastercard about global chargeback volume?

Apparently, cardholders will file 337 million chargebacks in 2026. That’s an increase of 42% over the number of chargebacks filed in 2023.

Chargebacks are meant to protect consumers against fraud and abuse. The problem is that it’s never been easier to file a chargeback, and as a result, most of those 337 million chargebacks will be filed without a valid reason.

One category of chargeback abuse comes in the form of “first-party misuse.” This is a seemingly benign form of chargeback abuse that occurs by accident.

Cardholders who engage in first-party misuse aren’t necessarily out to defraud sellers. That doesn’t really make it “better” for merchants, though. Every chargeback has tangible consequences for merchants, regardless of why they happen. In this light, cardholder intent doesn’t matter; what matters is how merchants are affected.

In this article, we’ll offer an overview of first-party chargeback misuse. We’ll discuss how it works, what sets it apart from more deliberate and malicious forms of chargeback abuse, and what merchants can do to prevent it.

What is First-Party Misuse of the Chargeback Process?

First-Party Misuse

[noun]/fərst • pär • dē • mis • yo͞oz/

First-party misuse of the chargeback process occurs when a cardholder unintentionally initiates a chargeback against a legitimate transaction.

There are countless reasons why a cardholder might file a chargeback without having a valid reason to do so.

Many cases of first-party misuse are essentially accidental cases of friendly fraud. The cardholder files a chargeback, or a chargeback was filed on the cardholder’s behalf by the bank. There was no valid reason for the chargeback, but there was also no malicious intent behind the invalid chargeback.

At the other end of the spectrum, buyers deliberately abuse the chargeback process to take advantage of merchants. They’re trying to get products or services for free, at the seller’s expense.

From the merchant’s perspective, it’s kind of a distinction without a difference. First-party misuse, friendly fraud, chargeback fraud — whatever term you use, they all lead to similarly negative outcomes.

Merchants stand to lose revenue and inventory every time a customer disputes a charge. Merchants are also on the hook for chargeback fees, which are assessed by acquiring banks or payment networks and typically range from $20 to $100 for every chargeback the merchant loses. These are just some of the potential consequences of first-party fraud.

How Does First-Party Misuse Happen?

There are a lot of different situations that fall under the mantle of first-party misuse. Here are a couple of the most common examples:

Distinguishing Accidental First-Party Misuse From Chargeback Fraud

We’ve talked before about the chargeback spectrum. This refers to the broad gray area that exists between totally unintentional chargeback misuse and deliberate chargeback fraud.

Accidental chargeback misuse exists on the more benign end of this spectrum. Like we said, they can happen when cardholders file chargebacks after misidentifying legitimate charges as fraud, or being confused about proper transaction policies or procedures.

Friendly fraud is the next step up: it’s not as benign, but it’s not overtly malicious like chargeback fraud. Friendly fraud can be intentional, even if the cardholder is not really trying to swindle you. For example, filing a chargeback in response to buyer’s remorse, or because the buyer wants to cancel a subscription without having to go through official channels.

Chargeback fraud, the most severe form of chargeback abuse, is deliberate, malicious, and overtly illegal. What sets chargeback fraud apart is that it involves clear, bad intention. For instance, a cardholder commits chargeback fraud when they engage in cyber shoplifting. In short, chargeback fraud involves deliberately misusing a chargeback request to steal from merchants

Is First-Party Misuse Illegal?

First-party misuse, like all forms of fraud, is technically illegal. However, it’s virtually inconceivable that a cardholder who engages in first-party misuse could get in trouble with the law.

Of course, that’s not to say that first-party misuse isn’t a problem. All chargebacks, no matter where they lie on the chargeback spectrum, are costly for merchants. But, like we said, many cardholders do this with no malicious intent, and thus could not usually be considered “at fault” for criminal activity.

Cardholders have been prosecuted for abusing chargeback requests in the past. However, these are usually cases of egregious and obvious chargeback fraud.

The Impact of First-Party Chargeback Misuse

We touched on this a bit at the beginning of the post. But, let’s get into a bit more detail here, and give you a better impression of the scale of the problem.

When one of your customers files a chargeback, you lose the revenue from that initial sale. You also lose the cost of any merchandise already shipped to the buyer, plus incidental costs like shipping, interchange, and other overhead expenses. You’ll also be assessed a chargeback fee, which your bank charges you to cover their costs associated with the chargeback.

All these ancillary costs are reflected in the Fraud Multiplier, published by LexisNexis Risk Solutions. In 2024, the average merchant ended up paying $3.02 for every dollar disputed by cardholders:

Over time, chargebacks can add up, and begin to reflect badly on your chargeback ratio. If your chargeback ratio gets too high, you could face consequences up to and including your bank account being frozen or terminated.

Why First-Party Misuse Is So Hard to Detect & Prevent

First-party misuse is difficult to identify and prevent because it flies under the radar of most fraud prevention systems.

With third-party fraud, geolocation red flags or failed Address Verification Service (AVS) mismatches can raise alarms before the actual dispute hits. Chargebacks involving first-party misuse, however, raise no red flags at the point of sale. There’s a good reason for this.

Like any other friendly fraud claim, first-party misuse chargebacks are valid purchases. The problem lies with the cardholder’s post-transaction behavior. First-party misuse remains an invisible threat until the moment the chargeback is filed.

Compounding this conundrum is the fact that:

How Merchants Can Respond to First-Party Misuse

First-party misuse occurs after a purchase is made and goods are delivered. Unfortunately, this renders fraud detection tools ineffective at stopping it.

Fraud detection tools are designed to flag and block suspicious card transactions before they go through. There’s no way to know if a completed transaction will be disputed later, meaning these tools can’t combat post-transaction threats like first-party misuse.

That’s not to say you’re helpless here, though.

You can respond to first-party misuse by engaging in chargeback representment. This is a process that allows you to fight invalid chargebacks.

You’ll need to gather evidence and form rebuttals against chargebacks filed by the cardholder and issuing banks. Merchants who submit compelling evidence and rebuttal letters within the required time window may be able to reverse chargeback resulting from first-party misuse.

How to Prevent First-Party Misuse of Chargebacks

You can prevent first-party misuse by tackling common mistakes and misunderstandings that lead to unintentional chargebacks. We recommend that you:

Use short and clear billing descriptors that make it easy to identify the transaction. Refrain from using vague descriptions or corporate names. Use your common (doing business as) name.

Remind customers in advance of a recurring charge. Don’t let ongoing charges or subscription payments, even if they were authorized in advance, catch cardholders off guard.

Process refund requests quickly; ideally on a same-day basis. If a cardholder requests a refund and does not receive it in a timely manner, they may initiate a chargeback to “expedite” the process. Rapid refunds can mitigate this.

Have a clear, no-questions-asked return and cancellation policy. Cardholders who find it easy to cancel or request a refund are more likely to work with you first before filing a dispute with their bank.

Provide excellent customer service in the form of proactive communication and near-instance email/phone response times. You want to do whatever you can to create the impression that, when customers have questions or concerns, it will always be easier to call you than to call the bank.

Offering free order tracking for all deliveries will give customers more insight as to where their goods are. It will help reassure buyers that their purchases are on the way, and that their goods have not been lost in transit. It’s also a good idea to request delivery confirmation for high-dollar value orders.

Consider backing products or services with warranties or satisfaction guarantees. This will give buyers the impression that you stand behind your merchandise, and that you’re not some fly-by-night operation that will disappear with their money.

Because many first-party misuse disputes are mere misunderstandings, make your return and refund policies buyer-friendly and impossible to misinterpret. Ensure product photography and descriptions are hyper-accurate to set clear customer expectations before they buy and remove ambiguity that could be used in a dispute.

While transaction and authentication data can’t prevent first-party misuse, it can help you win the resulting disputes. At checkout, capture and log all supporting data, such as the customer’s IP address, device details, login credentials, and a timestamped record of their acceptance of your terms of service.

Integrate your systems to flag customers with a history of disputes so that you know who the most likely culprits are. In addition, leverage shared intelligence networks that track known chargeback offenders outside of your ecosystem so that you can keep tabs on organized, serial friendly fraudsters.

Tools like Ethoca Consumer Clarity and Verifi Order Insight provide real-time, enriched details about a transaction after the sale. When a cardholder logs into their banking app to review charges, this tool inserts your logo and detailed order information (like items purchased) directly into the transaction line, which can help prevent chargebacks that arise out of cardholder confusion or forgetfulness.

Alert services like Ethoca Alerts and Verifi CDRN intercept disputes before they morph into full-blown chargebacks. These networks send you an alert and give you a window of up to 72 hours to defuse the situation by pre-emptively refunding cardholders.

The Intentions are Better, but the Outcomes are the Same

Cardholders who engage in first-party misuse may not do so maliciously. But, for merchants, the consequences are the same. All disputes result in lost revenue and higher fees.

For this reason, the best way to fight first-party misuse is simply to prevent it. Deploying an end-to-end chargeback management strategy that stops unwarranted disputes from occurring is a must for any merchant who wants to operate profitably at scale.

Backed by an industry-leading performance-based ROI guarantee, the suite of comprehensive chargeback solutions offered by Chargebacks911® can help merchants combat disputes, no matter where they lie on the chargeback spectrum. Contact us for a no-obligation analysis today.