Tom-Chris Emewulu
Chargeflow's Digital Evangelist
Table of contents

Significant milestones have marked the eCommerce industry in the last three years. The pandemic accelerated five years of eCommerce growth into just one. With that comes an increased reliance on digital merchants for consumer purchases. As digital habits become more widespread among consumers, the challenge is clear: disputed transactions also increase with rising transaction volumes.

Research from Juniper shows that by the end of 2023, global fraud loss will reach $38 billion, with North American merchants bearing 42% of the total loss. These figures are expected to rise to $91 billion by 2028.

Additionally, the uptick in AI and behavioral biometrics adoption makes it possible for fraudsters to bypass security measures. The resultant effect is identity theft and unauthorized transactions.

As we navigate these challenges, our focus in this article is on the trends and best practices for chargeback management in 2024. By the end of this piece, you will discover:

  • Common types of chargeback cases to expect in the coming year.
  • The latest techniques for preventing chargeback scams in 2024 and beyond.
  • Strategies used by top online merchants to pre-empt chargeback losses.

Let’s dig in!

Chargeback Trends: The Most Common Types of Chargebacks to Expect in 2024 and Beyond

Where is chargeback fraud headed in the New Year? The following passage will dial you into the evolving patterns of chargebacks. It will help you understand online commerce's main weak points so you can effectively combat chargeback scams in any form they take.

#1: Account Takeover Fraud

Account takeover fraud is when a cybercriminal hijacks a customer’s account. Their purpose is often to wipe out their finances and loyalty points, make unauthorized transactions, or sell the account data on the darknet. The break-in process varies, as cybercriminals use several techniques, including phishing, malware, bot attacks, and social engineering. Analysts say ATO will be one of the leading causes of more than $343 billion in fraud losses to merchants over the next five years. This is due to chargebacks, administrative fees (when the actual account owner realizes what happened), lost inventory, customer attrition, and decreased market share. In the worst-case scenario, it may even cause the entire organization to collapse.

#2: Friendly Fraud

Friendly fraud or abuse of the chargeback system is where a "liar-buyer" makes a transaction with their credit or debit card and subsequently disputes the transaction for a fabricated reason after receiving the purchased goods or services. Friendly fraud is a persistent issue in the US and globally. Visa says that up to three-quarters of all disputes filed by cardholders may be attributed to first-party misuse of the chargeback process.

The financial ramifications sting as well. Industry records show that friendly fraud alone costs businesses an estimated $88 billion annually when you consider indices like the lost cost of inventory, wasted advertisement budget, and other ancillary expenses.

#3: Return Policy and ReShipping Exploitation

Return fraud, also known as return abuse, is a type of friendly fraud. It involves exploiting a store's return policy to defraud it. Although the return process seeks to aid customers and shoppers, some dishonest people use it to gain free products, make money, or inflict damage on the store.

Policy abuse is challenging for merchants because it differs from traditional fraud. Unlike traditional fraud, customers who commit policy abuse might be otherwise well-behaved. It usually does not require access to stolen credentials or accounts. Additionally, it does not require any special skills to commit. The Wall Street Journal reported that processing $100 of returned merchandise costs about $26.50.

"90% of online retailers say consumer misuse of return policies, coupons, and loyalty programs affects their bottom line, but 93% say they must maintain generous policies to keep customers." – Yahoo Finance

Reshipping fraud, on the other hand, occurs when a con artist buys goods using stolen credit cards and ships them to an unsuspecting intermediary or reshipper. The reshipper receives packages at home and gets paid to forward them to another address. The delivery is often in the scammer's hands before the original credit card owner realizes what's happening. That makes it harder to track the culprit. Reshipping fraud harms not only the mules or reshippers but also the sellers.

Online merchants handle every purchase. They are also responsible for shipping the goods to the reshipping mule. When fraudulent activity is detected, the business suffers a loss of merchandise. You also lose the revenue from the sale and incur chargeback fees.

#4: Digital Goods and Subscription Chargeback

A digital goods chargeback occurs when a customer disputes a charge for a digital product, such as software or an online course, after using or benefiting from it. Subscription chargebacks are when a customer disputes a recurring charge for a subscription service, such as streaming, membership, entertainment, or online course, after receiving several months of service. They may claim they never authorized the charge or canceled the subscription but still got billed.

Both instances can be challenging for merchants to contest. The customer may have downloaded or used the product, making verification difficult. The good news, though, is that card networks like Visa and Mastercard know about these ongoing and increasing issues, as new industry standards and regulations show.

#5: The Use of GenAI to Fake ID

2023 witnessed a massive, industry-wide enthusiasm for Generative Artificial Intelligence (GenAI). While the use cases show remarkable promise in many regards, we also see not-so-exciting examples of the dangers of GenAI. For instance, scammers now use these tools to automate, mask, and scale their nefarious activities. Fraudsters can easily create realistic synthetic accounts at scale and bypass verification checks more efficiently with advanced AI tools.

Since regulatory frameworks (on risk management, data governance, fair use, trust, and stability) have yet to catch up with innovations in AI, it's safe to assume the impact of AI on chargeback fraud will be even more pronounced in 2024.

Bing helps a user bypass Captcha. Source: X

Understanding the chargeback trends is crucial. Yet, implementing a comprehensive chargeback management system that incorporates advanced technology, employee training, and customer education is fundamental in shielding your business from the cases we've highlighted.

Ending the Chargeback Pandemic: Techniques for Detecting and Preventing Chargebacks in 2024 and Beyond

The fact of the matter is that chargeback fraud will continue to be prevalent until consumers learn to contact merchants directly (rather than the bank) and industry policy meets advancements in tech. Before then, you, the merchant, must do your due diligence to plug any revenue leaks.

You've got to take resolute and comprehensive chargeback prevention steps. Avoid financial losses, negative effects on buyers, and the possibility of excessive liability. Below are some recommended industry best practices:

Fight Fire With Fire by Streamlining the Chargeback and Dispute Processes

With U.S. online retail and eCommerce sales growing in leaps and bounds in 2023 to reach $1.137 trillion, merchants must enhance their processes to limit chargeback exposure. It may not be feasible to recruit additional staff members to manage disputes. More so, time and resource constraints might impede innovation within the organization. Streamlining chargeback resolution by partnering with third-party service providers helps with chargeback automation and rules tracking. It expedites fraud detection, dispute evidence collection, and filing, resulting in lower chargeback rates and a better reputation.

“Misunderstandings of chargeback rules hinder efforts to recover revenue. 46% of merchants shied away from chargeback disputes simply because the existing staff (and processes) could not interpret complicated and ever-changing chargeback guidelines.” – American Express

A business's reputation and brand value are the holy grail for long-term sustainability. Consumers rely heavily on online reviews to transact. And negative reviews often pose as a deterrent. Negative reviews due to chargebacks erode your company's reputation. It drive off potential customers.

You can use this power in word-of-mouth to your advantage by streamlining chargeback management efforts with dispute automation and data collection. Building brand value requires optimizing multiple touchpoints to overcome challenges like fraud, transaction growth, and organizational scale. How you approach this endeavor sets the tone for your organization's future.

Automate Customer Comms for Enhanced User Experience

Fighting fraudulent chargeback is challenging for financial institutions and merchants. That's especially true when the fraudster is a customer. Research shows that one of the reasons for first-party fraud chargebacks is murky customer communication.

While automating customer communications is not necessarily the silver bullet, it ensures customers seeking self-service can get timely information. Aside from that, automating customer communication gives you a support library with all relevant documentation for disputing cases. Here are some ideas on how to automate customer communications for enhanced user experience:

  1. Map Out the Customer Journey: Identify critical touchpoints and potential pain points in the customer journey to improve communication.
  2. Implement a CRM System: Centralize customer information with CRM software. Use data to personalize communications based on history, preferences, and behavior.
  3. Use Marketing Automation Tools: Schedule and automate email campaigns, newsletters, and other promotional materials with marketing automation software like HubSpot. Segment your audience to send targeted messages to specific customer groups.
  4. Integrate Chatbots and Virtual Assistants: Provide prompt responses to customer inquiries with chatbots. Train chatbots on routine tasks to free up human agents to handle more complicated interactions.
  5. Personalize Communication: Personalize messages and offers by utilizing customer data by tailoring recommendations, promotions, or updates based on past interactions and preferences.
  6. Automate Transactional Notifications: Automatically send order confirmations, shipping notifications, and delivery updates to keep customers informed about the status of their transactions in real-time.
  7. Implement Customer Feedback Automation: Set up automated surveys after customer interactions to gather feedback for process improvement.
  8. Provide Self-Service Options: Develop a knowledge base or FAQ section on your website to allow customers to find answers independently and automate responses to common queries with interactive FAQs or chatbots.
  9. Optimize for Mobile Devices and Provide Human Touch: Optimize for mobile devices and recognize situations where human interaction is crucial to seamlessly transition from automated to human support.

Give your customer service team the tools they need to effectively cater to the needs of your clients.

Develop Tracking Systems for Regulatory Compliance and Case Management

Track brand and processor requirements for managing and responding to chargebacks. For example, Visa launched Compelling Evidence 3.0 (CE3.0) in 2022 for merchants to submit specific data assets (IP address, user ID, device ID/fingerprint, and order delivery address) to their financial institution to fight chargebacks and avoid financial liability. Visa says the associated data elements must match two previously non-disputed transactions with the merchant.

CE3.0 officially launched in April 2023, and 45% of 200 eCommerce merchants in the US and UK reported supporting or planning to support CE3.0 within the next year, according to a Q3 2023 survey by Datos. Policy analysts say Mastercard could launch a similar program soon.

Combining passive authentication tools like device fingerprinting with industry best practices like CE3.0 gives you a significant advantage in battling against chargeback fraud.

Device fingerprinting technology helps collect rich consumer data sets, including device IDs and IP addresses from mobile phones and laptops. These dishonest consumers are usually well-versed in digital technology and often use online and mobile banking systems to transact with eCommerce platforms. Merchants can protect themselves against disputes by keeping a record of this data, which they can use to create digital fingerprints of their customers. These fingerprints can serve as evidence to prove the customer initiated the transaction or help thwart fraud attempts.

Tracking systems serve a vital purpose in identifying chargebacks and their source, whether it is due to errors by the merchant, third-party fraud, or first-party fraud. This empowers merchants to contest meritless chargebacks and tackle the root cause of disputes, which helps prevent cases proactively in the long run. Reporting tools – whether accessed through an API, webhooks, or a web portal – help simplify, standardize, and automate otherwise complex processes that require additional resources, tight deadlines, and potential liabilities.

Merchants using Chargeflow have this tool embedded to help them carefully analyze the underlying dispute data to identify chargeback sources accurately.

Provide a Top-of-the Line Digital Experience to Limit Dispute Exposure

The tremendous opportunities we see in eCommerce today are a foretaste of what's to come. By embracing and riding on the wave — enhancing your platform, offering new products, and curating services that make a distinct difference — merchants can minimize chargeback exposure. Here are some ideas to get you started:

  • Improve the online purchasing journey with a user-friendly, intuitive checkout; share succinct product details, pricing, and shipping information to prevent misunderstandings.
  • Outline return, refund, and cancellation policies, and ensure that terms and conditions are easily accessible and understandable.
  • Implement secure payment gateways with multi-factor authentication, using advanced fraud detection tools to authenticate transactions without causing friction for legitimate customers.
  • Adhere to industry-standard data security protocols (e.g., PCI DSS, 3DS) to protect customer information. Display security badges prominently in strategic places.
  • Invest in advanced fraud prevention tools that analyze transaction patterns and automatically flag or block suspicious transactions to prevent fraudulent chargebacks.
  • Maintain consistent branding across all digital channels, regularly update and upgrade your platform and payment systems, and equip staff with the tools and knowledge to address customer concerns and prevent chargebacks.

Equally vital! Provide consumers with transparent and easily understandable transaction details to avoid confusion related to legitimate transactions. Consider displaying all purchases online with sufficient information, including the full merchant name and contact number. This way, consumers can accurately identify their activity before mistakenly filing a chargeback.

Final Words on Chargeback Management in 2024

Chargebacks attract direct consequences. Examples of that include the loss of sales revenue and merchandise, as buyers do not return goods to merchants after a dispute. Merchants also face chargeback fees of $20 to $100 per case.

However, the indirect consequences can be even more significant. An increase in chargebacks affects the merchant's chargeback rate, leading to long-term effects like penalties from card networks for exceeding monthly chargeback limits. That also attracts restrictions like payment processing limitations, increased service fees, and costly performance revaluations.

Automating the aggregated dispute data increases your chances of achieving favorable outcomes in chargeback disputes and pre-empting losses. Effective dispute data reporting and analysis are essential for gaining valuable insights. Without it, your front-end fraud management system may inaccurately decline legitimate customers while failing to address fraudulent activities. Moreover, streamlining workflows from representment filing to chargeback ruling helps scale low-value disputes and cumbersome procedures, directly impacting the user experience.


Average Dispute Amount
Average Dispute Amount
# Disputes Per Month
# Disputes Per Month
Time Spent Per Dispute
Time Spent Per Dispute
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