Preventing fraudulent disputes

Fraud is the most common reason for disputes – from stolen card details to so-called "friendly fraud". In this guide, you'll learn how fraudulent disputes happen and what you can do to prevent them and reduce their impact on your business.

Malicious fraud is when a third party steals a customer's card or details and then makes a purchase without the customer's knowledge or consent. Most such cases are only spotted after they've happened, when the customer notices and reports irregular activity on their account.

You can help prevent fraud at the point of payment by using 3D Secure authentication (3DS).

3DS requires customers to complete an extra authentication step with their bank when making a payment – usually asking them to enter a password or a code sent to their phone to verify the payment.

As well as ensuring the customer is who they say they are, 3DS authentication also shifts the liability for fraud-related chargebacks from you to the card issuer. In other words, the customer's bank cannot raise a fraud dispute against the transaction if it has been successfully authenticated with 3DS.

You can also set up rules to flag or prevent suspicious transactions. For example, you might want to flag and manually review any unusually large transactions.

Friendly fraud occurs when the customer makes a legitimate transaction but then later claims it is fraudulent. This may be deliberate or accidental.

You should gather as much data about the transaction as possible, like the customer's name, email, billing address and postal code. This makes it easier for us and the customer's bank to verify that the customer is legitimate, and is useful as evidence if the payment is later disputed.

To win fraudulent dispute cases you need to demonstrate a link between the person who received the product/service and the genuine cardholder, or prove that the cardholder legitimately made the payment and has received the product/service. You should keep any screenshots, emails, or other evidence that proves:

If you sell digital goods, you should keep a description of the merchandise downloaded, the date and time of the download, and as much as possible of the below:

If you sell physical goods, shipping to a verified billing address and requiring a signature on delivery can help defend against fraudulent disputes. If you deliver to an unverified address, you won't be able prove that the order was sent to the legitimate cardholder if the payment is later disputed.

If the merchandise was delivered to the cardholder's business address, you should have proof that the right merchandise was delivered, and proof that the cardholder was present at the address at the time of the delivery.

Clearly state your order process and return policy on your website, and ask your customer to agree to them at checkout. This can help prevent cases of accidental friendly fraud where, for example, a customer experiences a delay in an order being delivered so contacts their bank stating that they have not received the goods that they paid for.