What is a chargeback scam?

A chargeback scam occurs when the fraudster in question identifies a merchant account on the merchant’s online store with a POS system. The fraudster will often either phone the merchant, e-mail, or send an email or fax claiming that the user’s bank has discovered fraudulent activity on their credit card account and request that the user cancel the transaction, and provide information to file a chargeback.

A chargeback is a disputed transaction that a merchant reports to credit card companies after a customer has not paid for their goods or services or has made a large purchase. The chargeback is typically settled by the credit card company after a consumer identifies the charge as fraudulent, with the merchant receiving a fee.

Chargebacks are an important tool for merchants.

How chargeback scams work

Chargeback scams occur when a consumer has purchased something online. The fraudster steals the credit card number and makes unauthorized purchases. The victims are contacted and the merchandise is returned to them, along with a promise to refund the money. However, once the victim confirms that they have received the package, they realize that it was fraudulent.

Fraudsters put the victims in debt by charging back the purchases and deducting the amount from their victims’ credit cards. Many victims are fooled by the requests, believing they are working with a legitimate company. They are given the runaround, and they are charged for return shipping costs.

The scale of the problem

In 2015 alone, the FTC received complaints related to card-not-present (CTP) fraud in the amount of $20.2 billion. This is on top of the fraud reported directly to the agency.

This is just a small portion of the total amount of money that’s lost to this type of fraud, however it’s thought that around 70 percent of card-not-present (CNP) fraud is CNP fraud.

According to a report from the United States Secret Service, roughly $21 billion was lost in 2015 to online card fraud, a number which is thought to have doubled since 2011. In 2016, the number of reported card fraud cases is expected to rise.

The rise of card cloning

One of the most common scams that victims face is known as card cloning. This scam can be extremely difficult to spot.

Why online shoppers should be vigilant

This article is written to address the rise of online shopping fraud, which is reportedly a $63 billion industry worldwide. The first point to be made is that online fraud is very easy to carry out, although there is nothing certain about the efficacy of this method of payment. What is certain is that the key reason for scams is people are desperate to acquire what they want on their time, so there is no hesitation to part with money or take a chance on a fake website. People believe there is no harm in making the first payment to a seller without any further verification, even if they are not sure the goods or service being offered is authentic.


A single chargeback scam that targets a specific brand or individual is likely to be as time-consuming and complex as the sophisticated campaign the criminals use. It is a serious issue that any brand or retailer who sells online needs to take very seriously to protect themselves.