Friendly fraud is no longer a rare edge case anymore. It’s the new norm. And it’s costing merchants billions. According to Chargeflow’s Psychology of Chargebacks report, 80% of chargebacks today are abusive — disputes filed where no real fraud ever occurred.

Here’s the most alarming part. There were no stolen credit cards or organized cybercrime behind it—just your customers. 

Sometimes these customers genuinely forget they made the purchase. Or sometimes, they don’t recognize a billing descriptor. But other times, they knowingly dispute a legitimate charge out of frustration or regret, with the belief they can get away with it. 

Regardless of the “why,” the consequences for merchants are devastating. Lost revenue, lost products, escalating fees, brand damage, and even account termination. 

In this guide, you’ll learn:

• What is friendly fraud?
• Why do even good customers file bad claims?
• The psychology behind disputes and how it’s evolved. 
• What you can do to protect your brand —before, during, and after the chargeback.

If you’re still under the assumption that fraud protection starts and ends at checkout, then it’s time to rethink the entire customer journey.

Why Good Customers File Bad Claims

Friendly fraud happens when a legitimate customer disputes a valid transaction, often claiming it was unauthorized, unrecognized, or unsatisfactory — even though the purchase was completely legitimate. 

Sometimes, this may be a genuine mistake. 

Other times, it's deliberate abuse of the chargeback system to force a refund without returning the product or service 

When it boils down to it, friendly fraud differs from traditional fraud in one critical way:

The dispute comes from the cardholders themselves, not from a criminal outsider.  

How Friendly Fraud Differs from Traditional Fraud

Chargebacks were originally designed as a consumer protection tool, a last resort for customers who truly experienced fraud. 

But today, the system is often misused, intentionally or by accident. 

The results?

Merchants are not only losing money and products. They are faced with the burden of proving the transaction’s legitimacy, with often low odds of winning back the dispute. 

41% of chargebacks happen because customers don’t recognize the charge, not because of true fraud. – Chargeflow Psychology of Chargebacks Report, 2025. 

Broader data paints the same picture; according to a 2024 global eCommerce fraud survey, 63% of merchants reported a rise in first-party misuse year-over-year. 

This shows how often friendly fraud isn’t a crime but a customer behavior issue. And the truth is it’s far more widespread and normalized than most merchants realize.

Merchants now estimate that 20% of all their disputes are cases of friendly fraud, which costs on average $74 per incident just to fight it alone, regardless of whether they win or lose. The bigger issue is that merchant win rates in friendly fraud cases hover below 20%.

In today’s environment, to survive, it’s not enough to react to fraud; businesses must understand it, predict it, and prevent it.

The Psychology Behind Friendly Fraud

Friendly fraud isn’t always malicious. 

Most of the time, it’s rooted in common human behavior such as confusion, impatience, regret, or even entitlement. 

At Chargeflow, we studied the behavioral patterns behind friendly fraud extensively. Here are the four biggest psychological drivers fueling this growing epidemic. 

1. Psychological Distance: When a customer disputes a charge online, they’re not dealing with a person but rather a system. This emotional distance lowers the moral barrier to filing a chargeback, even if they know the purchase was legitimate. 
2. Instant Gratification and Entitlement: Consumers today expect and demand speed and convenience. Whether it's fast shipping, instant refunds, or immediate resolutions. When expectations aren’t met, a charge is simply the quickest “fix.” The longer the resolution process takes or feels, the more likely the customer is to take matters into their own hands.  
3. Social Normalization: It is common to see users casually sharing their “hacks” on TikTok and X (formerly Twitter) for getting money back through chargebacks, even against legitimate businesses. What was once considered unethical is quickly being seen as smart consumer tactics.
   

Take a recent viral video posted on X where a customer openly brags about filing a chargeback as he holds his Louis Vuitton bag in his lap. This type of post encourages others to follow his example. 

This video has already reached:

• 11.8 million views
• 1.5K reshares
• 64K likes
• 7.8K bookmarks

This massive engagement only proves how quickly dangerous mindsets surrounding friendly fraud are spreading and how socially acceptable chargeback abuse is becoming. 

When chargebacks are treated as a refund shortcut instead of a last resort, as intended, merchants are left absorbing the financial and reputational damage. 

4. Loss Aversion: Humans are accustomed to feeling the pain of loss more intensely than the pleasure of gain. Therefore, when a customer feels even slightly dissatisfied, like with a delayed delivery or a minor product flaw, the instinct to “make it right” often outweighs ethical considerations.

How Friendly Fraud Has Evolved

Friendly fraud wasn’t always a major concern.

In the past two decades, it’s evolved from an occasional anomaly to a systematic business risk. 

Let’s take a look at how this timeline evolved:

• 1974: Birth of Chargebacks

The concept of chargebacks originated in the U.S. in 1974 as part of the Fair Credit Billing Act (FCBA). The law gave cardholders the right to dispute billing errors, like unauthorized charges or goods not received, to build trust in credit card usage during a time when consumer confidence in plastic payments was still developing.

• Pre-2010:  Rare and Isolated

Chargebacks primarily target true criminal fraud. 

Friendly fraud was extremely rare, and banks and card networks focused almost exclusively on protecting consumers from external theft.

• 2010-2015: The eCommerce Boom and Early Confusion

The rise of eCommerce triggered the first wave of confusion-driven disputes. Merchant descriptors were often unclear, causing accidental chargebacks (“I don’t recognize this charge”). 

The growth of digital goods like subscriptions, gaming, and SaaS has also created new opportunities for friendly fraud to surface. 

• 2015-2020: Refund Culture and First-Party Misuse

Mobile wallets (Apple Pay, Google Pay) and frictionless shopping experiences normalized one-click transactions. 

Consumer expectations shifted toward instant refunds and a “no questions asked” policy. 

First-party misuse began to pop up more frequently, with some cardholders intentionally exploiting the system without guilt.

Businesses lacked the tools to fight back effectively.

• 2020-2022: Pandemic Acceleration and Social Normalization

The COVID-19 pandemic drove a massive surge in online transactions and a massive spike in friendly fraud. 

Return policies loosened. Refunds became even faster. 

Consumers became accustomed to getting money back easily. 

Platforms like TikTok, Reddit, and Twitter normalized chargeback “hacks,” teaching others how to game the system.

Visa and Mastercard introduced Compelling Evidence 2.0 to help merchants respond to rising dispute rates. 

• 2023-2025: First-Party Misuse Becomes the Dominant Threat

First-party fraud officially overtook traditional third-party fraud as the top dispute category. Banks and card networks still leaned heavily in favor of consumers, but initiatives like Compelling Evidence 3.0 began offering merchants more pathways to defend themselves. 

Meanwhile, scammers expanded into exploiting Buy Now, Pay Later (BNPL) platforms and other new payment innovations.

The Hidden Impact on Merchants

When it comes to friendly fraud, it isn’t just the cost of the transaction itself. The true cost and impact run much deeper. 

Here is a breakdown of what merchants lose to chargebacks:

‍Revenue: The sale is lost, and usually the product isn’t recovered.

• Physical goods: Inventory is lost even when you lose a chargeback.
• Higher processing fees: Banks penalize merchants by increasing their dispute ratio.
• Risk of being placed in Visa/Mastercard’s fraud monitoring program: This entails stricter penalties and account scrutiny.
• Increased operational strain: Customer service and fraud teams are spending more hours managing disputes.
• Long-term brand damage: Customers filing these chargebacks may leave negative reviews, discouraging other buyers and eroding trust.

The Hidden Threat

Friendly fraud costs merchants 2-4 times the original transaction amount when factoring in lost products, chargeback fees, labor, and lost customer lifetime value.

This takes a silent but devastating toll on growth.

Why Friendly Fraud is Difficult to Fight

The chargeback system was built to protect consumers, not merchants. When it comes to friendly fraud, this imbalance speaks out loud and clear. 

Let’s break down why fighting friendly fraud is so challenging:

1. Card-Holder First System: Banks and card networks are incentivized to side with cardholders. Even when merchants submit valid evidence, the dispute many times favors the customer, especially when the case hinges on “I didn’t receive it” or “not as described. 
2. Burden of Proof Falls on You: Merchants are required to submit extensive documentation such as transaction logs, delivery confirmation, product descriptions, and communication history, and still, they may lose. For cardholders, they just click “dispute,” and in a few taps, the chargeback is filed, many times with no penalty for false claims.
3. Win Rates Shockingly Low: According to industry data, merchants win only 8.1% of chargebacks when using traditional, manual representation, and success rates are even lower for friendly fraud, which now accounts for 80% of all chargeback cases.

In contrast, merchants using automated dispute solutions like Chargeflow often see win rates exceeding 75%. 

Why the massive gap?

Automation leverages AI-powered insights, behavioral data, and real-time evidence generation to craft more timely, tailored, and persuasive responses— and it does so at scale, without lifting a finger. The result? Higher win rates, less manual labor, and greater protection against revenue loss.

🛑 Read this case study of Chargeflow client Elementor and see how chargeback automation protects merchants from friendly fraud.

How Smart Merchants Are Adapting

Here’s the good news in all of this. Leading merchants aren’t deciding to just react to friendly fraud; no, they’re rethinking how to interact with customers before a chargeback even occurs. 

Here’s a blueprint of how they’re doing it differently:

Smarter Billing Practices

Using clear, recognizable billing descriptions to avoid confusion and confirming large or unusual purchases with quick follow-ups.

Post-Purchase Communication

Sending real-time receipts and shipping updates. Following up after delivery to confirm satisfaction.

📊 Proactive post-purchase communication can reduce chargebacks by up to 30%.

Refund-First Customer Service

CS teams are being trained to issue refunds quickly, before a buyer becomes frustrated and turns to their bank. This reduces risk and gives you control over the interaction.

Investing in Chargeback Automation

Modern tools can flag suspicious behavior before disputes happen, respond to disputes at scale, and analyze patterns of repeat abuse, all without lifting a finger. 

‍Chargeflow’s platform uses AI and behavioral data to stop chargebacks at every stage of the customer journey.

The Bottom Line: Fighting Friendly Fraud Starts with Better Prevention

It is becoming clear to merchants that friendly fraud is no longer the exception but rather the expectation.

Unfortunately, consumer entitlement has met an outdated dispute infrastructure. We’re at the point where the system lets customers treat disputes like refunds. 

But don’t worry, you’re not powerless.

With the right approach, proactive customer service, smarter billing, refund-friendly service, and chargeback automation, you can reduce friendly fraud before it affects your bottom line. Want to learn more? Stay tuned for our upcoming blog on friendly fraud prevention. 

In the meantime, you can check out our comprehensive guide on friendly fraud: The Ultimate Friendly Fraud Guide for eCommerce in 2025