Chargebacks, where merchants must electronically return funds to customers for successfully disputed transactions, are an inevitable part of business.
In many cases, chargebacks arise from customers being dissatisfied with products or services, but they can also stem from avoidable misunderstandings, such as unclear billing descriptors, delayed shipments, or refund confusion.
But far too often chargebacks occur as a result of criminal acts. And unfortunately, as I will explain, contact centers are one of the places where these occur.
Many eCommerce merchants will readily admit that invalid chargeback claims — commonly referred to as “friendly fraud” — are a growing problem for their businesses. One which costs them merchandise, administrative costs, fees and penalties, and higher expenses, like for customer service/contact centers.
…too often chargebacks occur as a result of criminal acts.
Revenue Losses
Every invalid chargeback filed translates to revenue loss. To illustrate, compare a chargeback to a typical refund:
- With a refund, an equitable exchange occurs.
- The customer returns the merchandise in exchange for their money back.
But a chargeback puts the merchant at a disadvantage. When a cardholder files a dispute, they often fail to return the item(s) purchased. This means the merchant loses out on both inventory and revenue from the sale.
Merchants are also assessed chargeback fees, which range between $20 and $100 per transaction. Chargeback fees are administrative fees that help banks cover the overhead costs of handling disputes. Merchants are responsible for these charges even if the chargebacks they receive are deemed fraudulent and overturned.
That would be bad enough on its own. But, to add insult to injury, most of the chargebacks that merchants get slapped with will be invalid. Data compiled by Visa estimates that as many as 75% of all chargebacks filed against merchants are fraudulent.
And, in the last three years, 72% of merchants surveyed as part of the 2024 Chargeback Field Report say they experienced a rise in invalid disputes. Among them, the average increase stood at 18%.
In short: we’re seeing cardholders file more chargebacks, and file them with more reckless abandon than ever before.
Customer Service Costs
There are other costs to consider as well. Like the time investment involved in chargeback disputes.
A skilled customer support team can usually resolve customer inquiries within minutes. But a chargeback can take weeks — or even months — to resolve. It can require substantial evidence, time spent waiting for responses, and going through multiple cycles of dispute resolution.
This means merchants must spend considerable resources on personnel, including training, and on their enabling technologies, which come at the expense of running and building up their business.
Resolving these issues when they happen through proactive customer support can increase the chances of retaining the customer and encourage them to contact the merchant first should issues arise, thereby reducing long-term revenue implications. The income from the customer almost always outweighs the expense of outreach.
But methods that can help generate a customer’s loyalty can only help before a dispute is escalated to a chargeback. Once an issuing bank has filed a chargeback against the merchant, the only potential solutions are to accept the losses or fight back through dispute representment.
Yet even if a merchant subsequently wins and reverses a dispute, the fees are not refunded, and they have most likely lost that customer’s loyalty. The merchant must eat the overhead spent preparing the response, too; there’s no compensation for that.
Contact Center Security Concerns
Unfortunately, customer service has become a common vector for fraud, including friendly fraud, which can pose security risks for merchants’ contact centers in multiple ways. Here are some key concerns.
Social Engineering and Fraudulent Chargebacks
Fraudsters may call the contact center pretending to be customers to gather details that help them file chargebacks. They might pressure agents into issuing refunds while still intending to dispute the charges through their banks. Skilled social engineers could manipulate agents into disclosing transaction details that make their chargeback claims more convincing.
Account Takeovers (ATOs)
Contact centers are often targeted for account takeover (ATO) fraud. A scammer posing as a legitimate customer might request changes to account details. Weak authentication protocols in customer service (e.g., relying on basic, knowledge-based verification like names and addresses) make this an easy method for fraudsters. Then, the legitimate user files a chargeback once fraud is discovered.
Data Exposure Risks
In poorly secured call centers, sensitive payment details or transaction histories might be accessed by unauthorized parties, including rogue employees or external attackers. Recorded calls containing sensitive payment data (e.g., card numbers, customer IDs) could be a target for cybercriminals if not properly encrypted or stored securely.
Fraudsters may call the contact center pretending to be customers to gather details that help them file chargebacks.
Call Spoofing and Fake Chargeback Disputes
Fraudsters may use spoofed phone numbers that appear to belong to banks or card issuers, tricking contact center agents into processing unauthorized refunds. In some cases, fraud rings use scripted conversations to deceive customer service agents into providing refunds before filing chargebacks, effectively “double-dipping” on their fraudulent claims.
Other Players Pay, Too
Merchants get hit the hardest when it comes to chargebacks. Risk management firm LexisNexis reports in its “True Cost of Fraud” study that every dollar lost to fraud ultimately costs merchants $4.60 to prevent, fight, and resolve.
But it’s really a problem for the whole payments ecosystem. Banks that issue credit cards, for example, also end up spending more time handling invalid customer disputes.
Considering that merchants file hundreds of millions of chargebacks every year, according to our industry research and knowledge, this translates to several billion dollars wasted.
Additionally, the subsequent investigations required can further drain resources and erode profits. A key contributing factor to this problem is customers’ lack of sufficient transaction information, leading to unnecessary disputes and straining call center resources. According to Aite-Novarica (via TSYS), providing cardholders with clearer transaction details could reduce call volume by about 25%.
Hence, a well-planned strategy can result in significant monetary savings and improved customer satisfaction. Given the cost, time investment, and customer retention implications, preventing chargebacks through proactive customer support before they happen is indeed more cost-effective than fighting them after they have occurred.
Developing the Right Response
Simplifying and improving the quality of the customer service experience is one of the best things that merchants can do to avoid disputes. Execution does not need to be complex; just five ingredients are necessary.
1. Shorter Hold Times
A cardholder who can file a chargeback using their bank’s mobile app, all without the hassle of picking up the phone and speaking to anyone, will naturally prefer the former unless the latter is just as frictionless. This means that an acceptable average wait time should last no longer than two minutes; ideally, a customer’s call should be answered in as little as 20 seconds.
Once the customer connects with an agent, their issue should be addressed promptly and, if possible, in a single call. Crucially, this means avoiding an experience in which a customer is transferred from department to department because no agent is able to resolve the caller’s grievances.
2. Empowered Staff
Merchants should empower customer service representatives to issue refunds, provide store credit, or otherwise offer compensation to disgruntled customers. As a best practice, refund privileges should not be “gated” behind supervisors or second-line managers. Instead, frontline agents should be able to use their discretion and judgement to reverse transactions on the spot.
3. An Omnichannel Mindset
An omnichannel approach is a must for customer service for two reasons. The first is that shoppers today, especially younger ones, may not default to picking up the phone. To cater to different preferred methods of contact, customer service representatives must be cross-trained to resolve complaints through alternative channels, including live chat, SMS, social media, and email.
Second, eCommerce merchants that lack a physical storefront are at an inherent disadvantage. While customers can interact with brick-and-mortar merchants in-store, shoppers have no way of approaching eCommerce sellers in-person. For this reason, online merchants must be exceedingly easy to contact if they are to earn the trust and confidence of their customers.
4. Implementing Breakthrough Technology
Contact centers can’t rely on resolving customer complaints manually while still hoping to get ahead of chargebacks. Instead, they should enlist proactive support that use cutting-edge technologies like AI-enabled answering and transcription services.
Pairing these tools with models that can analyze caller sentiment and distill customer interactions into key takeaways can empower customer service representatives to make better decisions about how to resolve complaints.
Another example is a branded caller ID, which allows merchants to display their company’s name, and in some cases their logo, when outbound calls are made to customers. It can prompt customers who might otherwise ignore messages to return calls and texts. This proactive outreach can help resolve issues, provide support, and prevent misunderstandings that might otherwise lead to disputes.
5. Preventing, Detecting, and Mitigating Fraud
Customers interact with contact centers directly. So, customer service representatives are uniquely positioned to play a role in fraud detection and prevention.
In practice, this means implementing strong authentication protocols to verify customer identities and defeat scams like ATO fraud. Online retailers, for instance, may ask callers to confirm their email addresses, usernames, and phone numbers. The calls should proceed only if they can get a match on all three data points.
…preventing chargebacks…before they happen is indeed more cost-effective than fighting them after they have occurred…
Financial institutions and banking providers should put even more stringent verification measures in place. At a minimum, representatives should ask callers for the last four digits of their Social Security numbers and for their email addresses, along with security or challenge questions.
Additionally, SMS-based one-time codes, which can be initiated by representatives upon customer contact, can be layered on top of standard security measures to thwart unauthorized access.
Beyond this, contact centers should establish and stick to best practices. Secure data handling standards, recording and monitoring customer interactions for red flags, and training representatives to identify and respond to social engineering tactics are all important.
All Part of a Comprehensive Strategy
These five tactics, when simultaneously present, can help merchants use contact centers to their fullest advantage. Implementing swift, single-call resolutions, empowering frontline agents to offer compensation, embracing a comprehensive omnichannel approach, using breakthrough technology, and fraud prevention, detection and mitigation are not merely good ideas; they are strategic necessities.
Ultimately, merchants must remember that the contact center is their first line of defense against customer dissatisfaction. And in an increasingly fraud-prone landscape where mere dissatisfaction often leads to friendly fraud, contact centers can be a critical and powerful tool in preserving hard-earned revenue.
This article appears in July 2025.
