Growing Reports of Chargeback Abuse
Businesses across the UK are reporting an increase in “friendly fraud,” a type of chargeback scam in which customers claim they did not make a purchase that they knowingly completed. When the cardholder disputes the transaction, the bank issues a refund and the merchant absorbs both the cost and an additional processing fee. A spokesperson for UK Finance said chargebacks remain an important consumer protection but acknowledged that some claims are fraudulent.
Business Owners Describe the Financial Impact
Rusty Nart, who owns Green Monkey London in Tooting and Fingers Kebab in New Addington, said he has seen more chargeback scams at both locations. He explained that scammers often take advantage of a three-month window to dispute payments, particularly when transactions are made over the phone. He said the scam affects margins significantly because merchants must return the money and pay a £28 fee plus VAT. Nart said he has begun keeping physical receipts and cross-checking dates and addresses so he can investigate claims himself. He recovered funds after visiting several customers directly but said he does not recommend other business owners follow that approach due to safety concerns.
Scale of the Problem and Global Trends
Worldpay data shows all forms of credit card fraud, including friendly fraud, cost UK businesses £551.3m in 2023. The LexisNexis Risk Solutions Cybercrime Report found friendly fraud rose from 15% in 2023 to 36% in 2024 worldwide, making it the most reported fraud category. Analysts predict continued growth into 2026, citing worsening economic pressures that increase financial temptation among consumers.
Industry Response and Fraud Prevention Services
As fraud rises, more companies are offering tools to help merchants respond. Ariel Chen, CEO of Chargeflow, said he entered the sector after his former subscription-box business suffered extensive losses from non-criminal chargebacks where customers selected “I didn’t receive” with a single click. He now sells systems designed to help merchants manage and challenge fraudulent claims.
Payment technology firm SOTPay said cardholders who attempt friendly fraud may face account closures and credit record consequences. Some legal experts note that friendly fraud can fall under the Fraud Act 2006 as fraud by false representation, carrying potential penalties of up to 10 years in prison if tried in Crown Court.
Balancing Consumer Protection and Merchant Losses
Adam Scarrot of UK Finance told BBC Radio London the behaviour is still fraud and harms businesses, even though chargebacks themselves serve a vital purpose for genuine customers. Scarrot explained the process: banks raise chargebacks through card schemes such as Visa or Mastercard, and merchant enquirers evaluate whether claims are valid before retrieving funds from businesses. He said the system aims for an “even balance” between protecting legitimate consumers and legitimate merchants.
Guidance for Businesses Facing Rising Claims
Scarrot advised companies to adopt prevention measures, especially when payments are taken by phone or email. He recommended confirming orders by text before releasing goods, keeping detailed records, using couriers with proof of delivery, and investing in fraud-prevention tools. Other suggested steps include clear refund policies, customer-friendly terms, and improving service interactions so fewer disputes become chargebacks.
Impact on Small Businesses and Ongoing Industry Efforts
UK Finance said all types of businesses are affected but smaller firms experience the greatest strain. It added that work continues across the finance sector to identify fraudulent claims and ensure chargeback disputes are handled consistently and fairly.
Featured image credits: Pix4free
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