The Deceptive Dangers of Friendly Chargebacks: Unmasking the Perils of Digital Transactions – A Case Study on Fraudulent Chargeback Practices

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In today’s digital landscape, e-commerce and electronic payments have become increasingly commonplace. While the convenience of these transactions has enhanced the lives of consumers and businesses alike, it has also unveiled new opportunities for financial misconduct. One such emerging problem is the so-called “friendly chargeback,” which is far from friendly. This article delves into the dangers of such behavior, revealing the arrogance and misconduct that can arise in our digital age.

A Cautionary Tale: Fraudulent Chargeback Practices

To better comprehend the impact and implications of fraudulent friendly chargebacks, let us examine a case involving an alleged senior-level employee at a leading e-commerce, cloud computing, digital streaming, and artificial intelligence corporation. The individual entered into a contractual agreement with Next League Executive Board LLC, a coaching service company, and paid a non-refundable fee for their services. After deciding to opt-out of the program, the individual requested a refund, which the company granted as a gesture of goodwill. However, after receiving the refund, the person again initiated a chargeback, effectively receiving the payment twice and thus committing fraud.

This case exemplifies the dark side of digital transactions, exposing the potential abuse of the chargeback system and the consequences for both parties involved.

The Growing Problem of Fraudulent Friendly Chargebacks

Chargebacks were initially designed to protect consumers from unauthorized transactions and merchant fraud. However, the system has increasingly been abused for nefarious purposes, with individuals exploiting the process to commit friendly fraud, also known as “chargeback fraud”. A new research report from Mercator Advisory Group, Merchant Chargebacks are on the Rise Due to Friendly Fraud assesses the challenges and preventive solutions for this increasing problem that affects merchants of all sizes across vertical markets.

“Merchants are incurring a major pain point dealing with consumer-disputed sales transactions that can lead to chargebacks. This can mean merchants lose not only the sales revenue but also the merchandise and related overhead costs as well,” commented Raymond Pucci, Director, Merchant Services at Mercator Advisory Group, with the figure expected to rise in the coming years.

“No matter where you turn, they’re always right, so you can’t do anything about the problem of chargebacks because, yes, ‘the customer is always right,'” David Katzaed, manager of clothes retailer Big Drop NYC, told CBS News.

Chargebacks occur when banks force a refund for a disputed credit card purchase. They were created as a form of protection for consumers and to streamline returns when customers filed a complaint about a wrongful transaction. But with the growth of e-commerce, chargebacks have become a headache for merchants, with shoppers increasingly taking advantage of regulations aimed at protecting consumers.

How does this affect you? Chargebacks can make goods and services more expensive, as the associated costs of dealing with them are passed along to consumers.

According to the latest data, 86 percent of chargebacks are fraudulent. The practice has become so common that it has earned its own phrase in the e-commerce world: “friendly fraud.”

“Friendly fraud happens when you as a consumer make a purchase, where nobody saw you in person — over the phone or online — and you received the merchandise or the service, and then you got a refund from your bank,” said Monica Eaton, co-founder of a dispute-mitigation firm called Chargebacks911 that helps merchants avoid friendly fraud and recover revenue lost to such transactions.

Consumers “believe it’s a faster resolution, and they don’t actually have an understanding that contacting their bank to get a refund is not the same as contacting the merchant for a refund, and there’s actually a whole series of consequences.”

One immediate consequence is that banks block the payment and reverse the charge to the merchant. Additionally, merchants are hit with a non-reversible fee set by their bank of anywhere from $5 to $35 per item.

“We shouldn’t be guilty first,” said Raoul Didisheim, another retailer who runs the Mariana Antinori boutique on Manhattan’s Upper East Side. “We should be able to show that the customer was here, that they charged something, that we have the proof of their purchase, before they take the chargeback and then send us all the paperwork.”

The steps for investigating a chargeback are tedious and labor-intensive, so most merchants don’t bother with them, especially for lower-cost items. This makes friendly fraud easier to pull off, even if some consumers are unaware that they’re doing anything wrong.

“It starts out very innocent,” Eaton said. “But it actually damages: It creates cost for the credit card company, it can damage the cardholder or consumer’s credit, it creates unnecessary cost for the merchant, and it increases prices the consumer ends up paying for at the end of the day.”

Visa (V) estimates that friendly fraud translates to losses of $11.8 billion, and the FBI identified it as one of the top threats to e-commerce, after “triangulation” schemes and phishing/pharming/whaling scams.

By opting for chargebacks, consumers could unwittingly force merchants to raise prices, as they are forced to factor in the inevitable cost of friendly fraud. This is the main long-term consequence of friendly fraud.

“They [banks] should ask you several questions, ‘Did you contact the merchant, did you receive the merchandise?'” Eaton said. “The problem is that with the growth of e-commerce and so many consumers buying online, there isn’t all the time to do the due diligence.”

Eaton explained that all three players involved in chargebacks — banks, merchants and consumers — should be more transparent about how they interact in an e-commerce setting.

The Consequences of Misconduct and Arrogance

The repercussions of fraudulent friendly chargebacks extend beyond the financial losses suffered by businesses. Individuals who engage in such behavior may face civil and criminal liability, as demonstrated by the case of Akhileilesh Mritunjai. In addition to breach of contract, Akhileilesh may be liable for fraud, defamation, tortious interference with contract, and tortious interference with business relations, depending on their actions and statements.

Moreover, the social and professional consequences can be equally severe. Such misconduct can tarnish an individual’s reputation, jeopardizing their career prospects and damaging their standing in the community. Employers may be reluctant to retain or hire individuals who have engaged in fraudulent activities, while professional networks may be compromised due to a loss of trust.

The Broader Implications of Fraudulent Friendly Chargebacks

The rise of fraudulent friendly chargebacks has far-reaching implications for the global economy and society at large. As businesses grapple with the increasing prevalence of such misconduct, they may resort to more stringent customer verification processes and impose higher costs on consumers to offset potential losses. This, in turn, could lead to a decrease in consumer trust and a reluctance to engage in digital transactions, ultimately hindering the growth and innovation of the e-commerce sector.

Moreover, the abuse of chargeback systems undermines the original intent of consumer protection mechanisms, potentially eroding public faith in the financial system. This could lead to calls for increased regulation and oversight of digital transactions, potentially stifling innovation and creating additional burdens for businesses and consumers alike.

Furthermore, the normalization of fraudulent friendly chargebacks may contribute to a broader culture of dishonesty and unethical behavior. When individuals engage in such activities with impunity, it sends a dangerous message that dishonesty can be rewarded, potentially eroding the social fabric and fostering a climate of mistrust.


As our increasingly interconnected world continues to embrace digital transactions, it is imperative that we remain vigilant against the dangers posed by fraudulent friendly chargebacks. By understanding the consequences of such behavior and working collaboratively to address this growing menace, we can help create a more secure and trustworthy digital landscape for businesses and consumers alike, and prevent individuals from causing nuisance in society. This is an ideal case to ensure robust mechanisms are put into place.

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