June 04, 2025
by David Goodale
How to fight (and prevent) fraud reason code chargebacks
(Slightly edited from video transcript for greater readability)
Key Takeaways
Hello, David here at Merchant-Accounts.ca. This is our Fighting Chargeback series, where I'm trying to give the best advice, I can on how to fight chargebacks with specific chargeback reason codes. Today, we're tackling how to fight chargebacks that came from a fraud reason code. Stay tuned. We'll dig in in one second.
Fighting Fraud
Winning a chargeback is a little bit like climbing a mountain. You might want to do it, but it's a lot of hard work and if you don't put in that work and you're not prepared, it's a recipe for disaster. Especially for fraud reason code chargebacks. These are very hard to win because you have to prove that the cardholder really did order something and they really did receive it, and that can be hard to do. When I give these talks, I try to give honest advice. If you're getting a fraud reason code chargeback and you don't have any way to prove that it was legitimate. There's no secret way to win. I don't have Jedi mind tricks; I can't make magic happen. What you can do is where you are fighting a fraud reason code chargeback. You can look at what went wrong here.
Planning
It's a lot about planning, not being retroactive. I'll start by saying, consider using 3DSecure. If you use 3DSecure, you literally can't get fraud reason code chargebacks. Now we have other content on the YouTube channel about what 3DSecure is, but it's an extra step in the checkout process where instead of you sending the transaction right to the payment processor first you send it to your 3DSecure provider saying, I'm about to do an e-commerce transaction and I want you to 3DSecure this transaction so that this card holder can't claim fraud in the future because you're validating their identity. 3DSecure version two is pretty good. The cardholder usually can't even tell that it's a 3DSecure transaction. It's just an extra API call that happens in the background. When you do it, as a merchant, you can't get a fraud chargeback. Now it's beyond the intended scope of this discussion. I'm going to stop there. Go to the merchant accounts.ca, YouTube channel if you want to learn more about 3DSecure. With that, I'm going to move on to the next section.
The next section, starts with, did you validate this order? Did you call the customer? Have they ordered from you previously? One of the things that I tell people, especially you are to consider what you're selling. If you're selling an expensive thing, it's going to attract fraud. In fact, the higher the value, the more important it is to screen for fraud. If you have a new customer that's never purchased from you before and you're selling high-value items and you're looking at this order and, your Spidey sense is tingling, do a Google Meet or a Microsoft Teams session with them, get them on camera and say, Hey Bob, we appreciate your business. If you have any questions about the order, I'm happy to answer them. Your customer gets something out of it too. This is an expensive item for our security as well as your own, as the cardholder. We just like to make sure that it's you. Can you please hold your ID up to the camera so that we can just validate your identity? If you do that, is it perfect? No, but it goes a long way towards eliminating any potential for fraud. Now if you do get a fraud chargeback, don't get upset at the processor because we can't stop it. It comes from the card holder sending a complaint to their bank and then the card issuing bank tells us about it. We have no choice but to tell you we didn't cause the dispute. Now, in terms of fighting that dispute, you do have a few tools when you process a transaction, there are a few signs of whether it's a good transaction.
Your payment processor should support AVS, that is the address verification and security check. When an order comes through, you'll be able to tell if the address, the billing address that the customer entered is the same that the bank has on file. If you shift to that address, that is a pretty good weapon to include in a dispute response when you're fighting that fraud chargeback, hey, we got this order from Bob AVS at 1 2 3 Main Street matched and we sent it to 1 2 3 Main Street. It's not a perfect solution, but that will help you win the dispute. You can also look at CVV, the three-digit security code on the back of the card. It should match when it comes through on an order. It's not a perfect solution, but it's helpful and indicative and you can include that when you're compiling your chargeback response.
Even if the address matches, even if you ship to the billing address, and even if CVV matches, the cardholder can still claim fraud. 3DSecure is the magic pill, but outside of 3DSecure, there's no magic technical tool that will help you win these chargebacks.
Have records of how you validated the transaction. What did you do after receiving the transaction, but before shipping? Did you call to validate that customer? You should let your customer know that you record the conversation for your security, as well as their own, to validate the order. That way you can provide a recording of that conversation if it becomes necessary. If you emailed them, send copies of the email. (Just know that emails are questionable evidence and may or may not be accepted).
Fraud is easier to prevent than deal with after it happens. A few years ago, 3DSecure didn't even exist. If I had done this recording a couple of years back, I would've said: "There is no magic tool to protect you from fraudulent transactions". Thankfully, there is now. That's not to say that 3DSecure is perfect, because it can increase click-offs and customer friction. However, if you get a lot of fraud it's an excellent tool to consider.
Conclusion
In summary, this particular video is more about understanding what information you can put in a chargeback response to show that this was a validated order. You simply must screening orders before shipping. The better job that you do at validating your customer's identity before an item goes out the door, the better chance you're going to have of fighting and winning any chargebacks that come in with a fraud reason code.
If you are getting a lot of fraud, and chargebacks and need help, or if you do have a business, you'd just like to get a quote for credit card processing, please do reach out to us at Merchant-Accounts.ca. I hope you found this video helpful. It is hard to win fraud reason code chargebacks. I empathize with any viewers who are stuck with them because they know it's so frustrating. If you are getting hit with fraud, reach out to us. We would be happy to try to help you on an ongoing basis. Thanks for watching and have a nice day there. Bye now.
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My name is David Goodale, CEO at Merchant Accounts.ca. I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.
Toll free: 888-414-7111 ext. 5
Direct: (905) 901-2254
david.goodale@merchant-accounts.ca