Avoid wasting valuable time and resources with these chargeback fraud prevention tips

Credit card use is on the rise, thanks to the convenience and versatility they offer, which includes protections in the form of chargebacks — a way for people to get their money back when their cards are stolen, used without permission, or when some other error occurs.

However, a process designed to protect consumers from fraud is often used as a way to commit fraud. It’s also mistakenly used as a substitute for refunds — nearly three-quarters of cardholders believe they’re a valid alternative, even as they cause untold financial headaches for your self-care business. 

Fighting back against chargebacks requires a keen understanding of the credit card dispute process and the ability to create and leverage robust store policies. We’ll walk you through everything you need to know, from how chargebacks work to ways you can increase your chances of winning a dispute.

Understanding how to spot a chargeback

Let’s start by defining what a chargeback is — and what it isn’t.

A chargeback is technically not a refund. A refund is a voluntary process between you and your client. Say your client put down a required deposit for an appointment. Then something comes up in their schedule and they have to cancel three days before they’re supposed to show up. Your cancellation policy requires at least 48 hours' notice. Since they’re within that window, you cancel the appointment and refund their deposit. Smooth and easy.

Now, let’s say that the client actually cancelled the night before their appointment. Your cancellation policy explicitly states that they must cancel within 48 hours or they forfeit their deposit. Upset about this policy, your client goes to their bank and requests that they force your business to cancel the charge and place the funds back into their account.

This is a chargeback: An involuntary process where the bank steps in to mediate payment disputes between you and your client. The chargeback process was initially created to protect clients from unauthorized payments or credit card theft. However, recent years have seen an explosion in fraudulent or unnecessary chargebacks, with fraud making up nearly half of all chargeback volume as of 2025.

Read What Is a Chargeback and How Does It Impact My Self-Care Business? to learn more.

How the credit card dispute process works

Now that you know what a chargeback is, understanding how banks and credit card providers process them will help you maximize your chances of winning a dispute. 

The credit card dispute process starts when the client submits a claim through their bank or credit card provider. The client must also provide a reason for the chargeback claim.  

Next, the bank will notify you that a chargeback is taking place, temporarily removing the funds from your account while the dispute process happens. They’ll also provide you with a reason code based on the reason the client provided. This code is usually a series of four numbers and is the bank’s way of designating the reason behind the chargeback.

At this point, you can either accept the chargeback or dispute it. If you decide to dispute, you’ll now need to provide evidence to the bank why the chargeback is invalid. You’ll likely need to include documents during the chargeback dispute management process, like:

• Any relevant policies, along with how they’re displayed in your physical location and digital communication.

• Signed policy agreements and other legal documents. 

• A rebuttal letter that provides additional context.

Once you’ve provided these documents, the bank will take between 15-20 days to review them. They will then make their ruling, either releasing the temporary hold on the funds and awarding them to your business, or withdrawing the funds and placing them into your client’s account.

Read 7 Tips on How to Win a Chargeback Dispute as a Merchant for a deeper dive into protecting yourself against chargebacks.

Chargeback fraud prevention: How to protect your business

You won’t be able to prevent chargebacks from happening entirely. Still, you can take steps now to reduce the chances of one happening while bolstering your defenses to ready yourself when the time comes. Here’s how.

Define your policies

From cancellations to memberships to refunds, virtually every aspect of your business is governed by policies — whether you write them down or not. Codifying them will provide clients with the necessary information at the point of purchase, while establishing boundaries that you can use to defend yourself against chargebacks.

Explain the terms and conditions behind what you’re doing with your clients’ money, along with what products and services are eligible for refunds and how they can request them. Then, place them prominently throughout your store, post them on a policy page on your website, and include relevant policies in any digital communications.

Maintain detailed records

When a chargeback happens, you’ll have an opportunity to explain why their claim is invalid. That’s where your records come in. Storing physical and digital copies of client profiles, appointment records, communications, and signed policy papers will all provide you with ammo in the fight against fraudulent chargebacks. 

Get more tips that will help you defend against chargebacks by reading 7 Best Practices for Chargeback Prevention to Protect Your Beauty Business.

Know your rights

While many of the laws and regulations in place to prevent credit card fraud are designed to protect consumers, you also have rights that protect your business from fraudulent chargeback claims.

• The right to defend yourself: The ability to present evidence that backs up your business is baked into the chargeback process.

• The right to information: Banks will also provide reason codes explaining why a payment dispute has been made.

• The right to only pay the original purchase price: If you lose the payment dispute, you will only be required to pay back the amount the client spent on the product or service. This does not include any additional fees the bank may charge during this process.

Read Merchant Chargeback Rights: What Aesthetics Business Owners Must Know to find out more.

Keep an eye out for gift card fraud, too

Chargeback fraud isn’t limited to the products and services people buy. Some fraudsters like to use gift cards to launder their actions, using stolen credit cards to buy and either use or resell gift cards for profit. 

Gift card fraud can be more challenging to track down than typical credit card fraud, and the chances of someone redeeming the card before you can cancel it are extremely high. All of these factors are why gift card fraud has caused over $210 million in damages in 2024.

The best way to protect yourself against gift card fraud is to use these tried-and-true chargeback fraud prevention methods:

• Check IDs when accepting credit cards at the point of purchase, especially when a new client buys gift cards.

• Be aware of irregular gift card purchases, such as an amount on a single card much greater than a standard visit or lots of small purchases across multiple cards.

• Investigate email addresses associated with gift card purchases — a random string of letters and numbers could indicate that the client is using a burner account and is using it to commit gift card fraud.

Stop gift card fraud before it starts by reading The Hidden Cost of Convenience: How Gift Card Fraud Fuels Credit Card Disputes.

Chargebacks are inevitable for any business that accepts credit cards. Knowing your rights and taking the time to define and post your policies goes a long way towards minimizing their impact on your business.