Chargeback fraud is on the rise: online businesses had to face a 20 billion dollar cost because of them in 2021 alone. Your e-commerce or digital company is not safe from that, though using cybersecurity to your advantage could help you. So, what are the hidden links between cybersecurity and chargeback fraud?

Chargeback fraud has many moving parts, and most of them are unknown to civilians. Social engineering plays a big part in performing this cybercrime, meaning anyone could be a victim if they’re exposed online. Poorly planned rules and weak security also put businesses in jeopardy.

Is your chargeback percentage too high? You may face trouble with threat actors and payment processors at the same time, and that’s enough to force you to downsize or close shop. Fortunately, you can improve your cybersecurity efforts to fight against fraud.

What’s Chargeback Fraud?

Chargeback fraud happens when a cybercriminal performs a fraudulent purchase with the hope of filing for a chargeback, thus keeping the money and the item purchased. It’s a huge problem for online businesses because they have few tools to defend themselves – other than cybersecurity.

A small cybersecurity effort can yield big results when it comes to stopping online fraud. We’ll explain the many ways a business owner can stop cybercriminals below. Understanding how chargeback fraud works is key before making a move.

A caveat: it’s important to understand facing chargebacks is part of doing business online, and you can’t stop them all, no matter what you do. Your aim should be reducing the chargeback percentage you deal with.

How Does Chargeback Fraud Happen?

Cybercriminals will purchase an item, receive it, and file for a chargeback, hoping the payment processor company sides with them. Similar cases include criminals making purchases with stolen credit card numbers. Both cases constitute fraud in different ways.

Why do cybercriminals resort to online fraud so much? Because it’s often easy to do and comes with little consequences. It’s difficult for payment processors to investigate every fraud case, especially when we’re talking about small amounts of money.

However, these payment companies will start to investigate once they notice a pattern. Until then, you have to rely on your own cybersecurity efforts to stop these cybercrimes.

Why Is Cybersecurity Important To Prevent Chargeback Fraud?

Your cybersecurity strategy will play a big part in stopping fraud attempts. For example, asking customers to register using a strong password and recommending they enable multi-factor authentication is enough to stop a huge number of fraud tactics.

More hands-on cybersecurity strategies (such as performing regular audits) will shed light on certain patterns that’ll show why cybercrime continues to hurt your business. Understanding the hidden links between cybercrime and cybersecurity is key – and that’s why we’ll explain them below.

It’s important to understand chargeback fraud is far from the only type of online fraud threat actors will perform. In fact, it’s not the most common one.

Different Types of Cyber Fraud

• Chargeback Fraud. This type of fraud is the main point of this article – but far from the only one. Chargeback fraud consists in exactly what it sounds like. Someone will perform a purchase, receive an item, then file for a chargeback – without sending the item back. In certain cases, cybercriminals will use stolen credit card numbers. After that, legitimate users will file for a chargeback, forcing the business to pay for the bill.
• Friendly Fraud. This type of fraud is often confused with chargeback fraud but comes with certain differences. Cybercriminals perform chargeback fraud, while distracted or less-than-tech-savvy people perform friendly fraud: it often happens because someone forgot about a credit card purchase, made a mistake with the return policy, or similar. Close to 90% of all fraud attempts fall under friendly fraud.
• Loyalty Fraud. Similar to chargeback fraud, hackers will try to take advantage of a loyalty program. Certain businesses run this type of program to push customers to buy more items and hand loyalty points in return. Hackers will take advantage of this system by attempting to get these points without making purchases.

5 Hidden Links Between Chargeback Fraud and Cybersecurity

1. Social Engineering Plays a Strong Part

Cybercriminals look for victims online. They scout social media to see who is an easy target or who exposes themselves too much on Instagram, Twitter, and similar websites. These criminals look for information to orchestrate a well-thought cyberattack.

Let’s take an elderly person as an example. They have a Facebook account they use every now and then, uploading pictures of their family and themselves. A cybercriminal will gather information from those posts, then target the victim: they can do so by impersonating a bank clerk, a credit card company employee, or similar.

They’ll steal their credit card information – and then use that to purchase products online. The credit card owner will file for a chargeback when that happens.

2. Hackers Bend the Rules To Rob Businesses

Cybercriminals don’t necessarily impersonate other people to perform chargeback fraud. Sometimes, they put the money down using their own account, get the product, and file a chargeback, hoping to get both the money and the product without paying.

It’s a huge problem for payment processor companies. Small claims are not important enough to warrant an investigation, so these companies often side with the customer when they happen. That puts businesses at risk: they have few tools to defend themselves.

3. Weak Web Security Could Cost You

Hackers can perform a huge number of attacks on your website. Most of them will happen without you knowing, meaning it’ll be a long time until you do something to stop what’s going on.

For example, hackers can perform cross-scripting attacks. These cyberattacks come in many forms, though one of the most damaging is injecting code into your site that has long-lasting effects: a hacker can compromise your site and have it send customer data their way.

Investing money in a cybersecurity audit could help you detect holes in your web security – and closing them could help you save a lot of money in the process.

4. Malware Is Enough To Make Trouble

There’s little you can do to stop customers from infecting their devices with malware. That doesn’t mean malware doesn’t play a big part in online fraud. Stealing bank information is the first thing hackers do when they infect a victim with malware.

Having stolen credit card numbers helps hackers perform chargeback fraud: they’ll make a handful of purchases to either siphon the money out of their victims’ accounts or get free products in the process.

The losing party is always the business: as you know, payment processor companies will side with the customer (or cybercriminal).

5. It’s Not Always Fraud

There’s a fine line between friendly fraud and an honest chargeback. Sometimes, it’s hard to tell chargeback fraud from friendly fraud apart as well. It’s also easy to jump the gun and see everyone as a potential scammer because of that.

We recommend taking a step back and collecting your thoughts if you think you’re facing a chargeback fraud attempt. Take the time to perform a small audit and see whether you can recognize signs of fraud.

At the same time, see if you can employ any of the 4 things below to stop fraud.

4 Ways To Stop Chargeback Fraud

1. Install Anti-fraud Software

The first step in stopping fraud is to use the right software. You can no longer choose to automate security or not – hackers move too fast to manually detect their actions and defend yourself from them.

For that reason, looking for the best anti-fraud software is often the first thing you must do to stop fraud. You shouldn’t wait until fraud happens – because this type of software won’t help you then. Being proactive is always better than being reactive when it comes to cybersecurity.

2. Implement Real-time Fraud Control

Implementing real-time fraud control means stopping cybercriminals before they can make a purchase. Waiting to dispute a chargeback often ends in money loss if you’re on the business side and not the customer side.

There are plenty of tools (other than software) available that’ll detect fraudsters when they’re about to pull the trigger, so you can stop them on the spot. For example, you can work with global merchant networks that predict when a purchase will lead to a fraudulent chargeback.

3. Perform Routine Audits (And Trigger Special Ones)

Monitoring and performing audits are the cornerstone of modern cybersecurity. Detecting suspicious activity is often enough to stop cybercriminals from succeeding.

Did you like the idea of installing anti-fraud software? Then you’d be glad to know there are monitoring software options for you to try. Doing audits come hand in hand with monitoring, so it’s a good idea to learn about both.

4. Hire Anti-Fraud Professionals

Hiring pros who can do the job better than you’ll ever do is always a good idea. Of course, these people don’t come cheap. Are you losing too much money to fraud? You shouldn’t think about it too much unless you want to continue losing money that way.

Anti-fraud professionals do everything we’ve listed above – but better. They’ll run audits to see what’s the issue, what software you need, and will explain how to perform real-time control.

There are a few things you can do on your own to stop digital fraud. Check them below.

3 Tips To Improve Your Chargeback Cybersecurity Efforts

1. Study Cybercrime To Recognize It

Fraud is often the same all around and throughout history. However, there are subtle changes in the way cybercriminals perform their crimes. Studying those subtleties will help you realize what’s going on – and, more importantly, tell when someone will try to attempt a cybercrime.

There’s a common tactic amongst cyber fraudsters that consists in asking for a chargeback directly to you. They’ll claim their purchased item is defective. In doing so, they’ll explain they don’t want to go through the hassle of calling their credit card company. If you comply and wire them the money, they’ll file a chargeback and get twice as much money from you.

For that reason, it’s always a good idea to play by the book, though that won’t guarantee payment processors will side with you – as you’ll see below.

2. Watch Who You Do Business With

Chargeback fraud has two endpoints: your payment processor and threat actors. If either one backs down, you won’t lose money when someone attempts to steal it from you via fraud.

How can you stop payment processors from helping hackers? It’s tough. The best way possible is to research who you’ll hire to do the job. Sometimes, it will be close to impossible to stop processors from siding with fraudsters. Credit card companies seldom investigate and prefer to side with would-be customers at once. Check chargeback rates before hiring a payment processor.

At the same time, threat actors are the ones initiating the attack. The best way to stop them is to make it difficult to steal money from you. We’ll explain how to do so below.

3. Enforce Strong Security Measures

A small dose of technology can boost your cybersecurity in ways you can’t imagine. For example, Microsoft claims that enabling multi-factor authentication protects an account against almost every cyberattack.

No method is infallible, of course, but that doesn’t mean a handful of preventive measures won’t cause enough trouble for threat actors, forcing them to stop. In other words, you have to set up your e-commerce or business webpage in such a way that hackers feel it costs too much time and energy to attack it.

What’s the best way to prevent fraud? Make it too costly and too time-consuming. That way, cybercriminals will look elsewhere for a victim.

Final Thoughts

We at U.S. Cybersecurity recognize that chargeback could be a huge concern for your online business. It can cost you a lot of money. At the same time, facing too many chargebacks could force payment processors to stop doing business with you, putting extra financial strain on your business. Understanding cybersecurity is a must to stop that from happening. We are standing by and ready to assist you.