Chargebacks Are on the Rise: What to Look Out for in 2025

As eCommerce continues its rapid growth, transaction volumes are soaring—and with them comes an increase in chargebacks. Mastercard predicts that global chargeback volumes will rise by a staggering 42% between 2023 and 2026, resulting in an estimated $37 billion (£30 billion) in lost revenue.

Alongside malicious fraud types such as identity theft, account takeovers, and fast fraud, a significant portion of revenue lost to chargebacks stems from an issue known as “friendly fraud”—a term that belies its serious consequences. Friendly fraud occurs when customers dispute legitimate transactions, often due to misunderstandings, buyer’s remorse, or even deliberate deception. Unfortunately, merchants bear the brunt of these disputes, absorbing both financial losses and reputational damage.

Despite regulators’ efforts to combat fraud, new tools and initiatives are being leveraged by both legitimate customers and criminals alike. As merchants prepare for 2025, it’s crucial to understand the evolving chargeback landscape and identify the key risks to watch out for in the coming year.

Key Drivers Behind the Increase in Fraud

• Surge in Online Shopping: The rise in online shopping directly correlates with an increase in chargeback volumes.
• Convenience: Customers prioritise quick resolutions, often opting for chargebacks through their banks, which are perceived as faster and easier than working with merchants.
• Incomplete Investigations: Banks frequently emphasise customer satisfaction, creating a bias in favour of consumers during dispute resolutions.
• Sophistication of Fraudsters: Fraudsters are employing advanced tactics and technology to evade detection, making it harder for merchants to prevent fraudulent transactions.

Inadequate Merchant Preparedness: Many merchants lack proactive risk mitigation strategies or support from dedicated chargeback management services.

Key Threats and Top Tips for Merchant Protection

To manage and mitigate fraud effectively, merchants must understand the various types of fraudulent activities likely to occur in online transactions. Fraud can range from criminal actions, like identity theft, to opportunistic behaviors, such as friendly fraud. These activities not only lead to chargebacks but also erode customer trust and damage business reputations. Below are common fraud scenarios and practical steps for safeguarding your business:

Criminal Fraud

• Identity Theft
  • What It Is: A fraudster uses stolen personal information, such as names or financial details, to make unauthorised purchases.
  • How to Protect Yourself: Implement robust verification processes or AI tools to flag inconsistencies in customer information.
• Stolen Payment Details
  • What It Is: Fraudsters use stolen card information for purchases. The legitimate cardholder disputes the charge, leaving the merchant at risk.
  • How to Protect Yourself: Use tools like CVV verification, address matching, and fraud detection systems to identify unusual transactions before processing.
• Account Takeover
  • What It Is: Criminals gain unauthorised access to a customer’s account, often through phishing or weak passwords, to make fraudulent transactions.
  • How to Protect Yourself: Encourage strong customer authentication practices, like two-factor authentication, and monitor accounts for unusual behaviour.
• Synthetic Identity Fraud
  • What It Is: Fraudsters create fake identities by combining real and fictitious information to make purchases or open accounts.
  • How to Protect Yourself: Invest in advanced fraud prevention tools that validate email addresses, phone numbers, and payment details against trusted databases.

Friendly Fraud

• Buyer’s Remorse
  • What It Is: Customers regret a purchase and dispute the charge instead of requesting a refund.
  • How to Protect Yourself: Offer a clear, accessible return policy to make resolution easy without resorting to banks.
• Forgotten Purchases
  • What It Is: Customers fail to recognise legitimate transactions on their bank statements and file disputes.
  • How to Protect Yourself: Provide clear, detailed receipts and ensure your business name appears consistently on statements.
• Misunderstanding of Merchant Policies
  • What It Is: Customers file disputes due to unclear policies, such as return deadlines or shipping timelines.
  • How to Protect Yourself: Clearly display policies on your website and during checkout. Follow up with emails to reinforce key terms.
• Subscription Cancellations
  • What It Is: Customers forget about recurring charges and dispute them.
  • How to Protect Yourself: Send renewal reminders and simplify the cancellation process.
• Accidental Purchases by Family Members
  • What It Is: Family members, like children, make unauthorised purchases using saved card information.
  • How to Protect Yourself: Encourage secure payment methods and provide policies for handling such disputes.
• Double Refund Requests
  • What It Is: Customers exploit the system by requesting a refund from the merchant while filing a chargeback with their bank.
  • How to Protect Yourself: Maintain detailed records of issued refunds to contest fraudulent chargebacks.
• Cyber Shoplifting
  • What It Is: Customers falsely claim items were not delivered or were defective to obtain refunds while keeping the products.
  • How to Protect Yourself: Use delivery tracking, require signatures for high-value items, and maintain thorough records of shipments and communications.

Key Takeaways for a Fraud Free 2025

As merchants navigate the evolving online transaction landscape, both criminal and friendly fraud present significant challenges. These forms of fraud can result in costly chargebacks, impacting profits and customer trust.

To protect their businesses in 2025, merchants should adopt a proactive approach by:

• Leveraging advanced fraud detection tools.
• Clearly communicating policies to customers.
• Implementing secure payment practices.

Additionally, partnering with a chargeback management company can provide specialised expertise to handle disputes efficiently and recover lost revenue. By taking these steps, merchants can safeguard their profits, strengthen customer loyalty, and build a resilient, fraud-proof business for the future.