Chargebacks Payment security

Fraud Notifications vs. Chargeback Notifications: Need-to-Know

2020 October 2


Fraud Notifications vs. Chargeback Notifications: Need-to-Know

Fraud and chargebacks are often directly related, as chargebacks may be caused by fraudulent activity. However, they do not necessarily come together. This blog post will help you understand the difference between fraud notifications and chargeback notifications and know when you may receive one or the other.

What is fraud?

In the financial industry, fraud refers to illegal transactions, i.e. payments made without the real cardholder’s permission or made with stolen card information. For example, a cardholder accidentally lost their card, and a fraudster found the card and managed to use it on a merchant’s website. If the card had been reported lost or stolen, the payment would have been declined with the reason Pick up card or Hot card. This way the fraudulent purchase would have been prevented.

When do merchants receive fraud notifications?

There are various factors which issuing banks consider as signs of fraud. Issuing banks send fraud notifications to merchants to warn them of potential risks. Fraud notifications are usually sent in the following cases:

  • The customer made several purchases with different cards during a short period of time.
  • The cardholder made a purchase from a country different from the one where their payment card was issued.
  • The customer has experienced several payment transaction failures before a successful one.
  • The payment card has already been used for suspicious transactions in other online shops.
  • The customer’s name is distinctly different from the spelling of the email address.
  • The order amount is strikingly different from the average shopping cart.

What to do if you receive a fraud notification?

A fraud notification is not a chargeback, but it may become one if certain measures are not applied. You should regard it as a sign that a certain customer may be involved in fraudulent activity. We recommend contacting the customer about the issue and getting as much information about the transaction as possible. If you are sure that the transaction was indeed fraudulent, you should refund the amount to prevent chargebacks. Here are the most important steps that you should take after receiving a fraud alert:

  • Verifying whether the customer’s name coincides with the name in their email; 
  • Verifying whether the shipping address seems credible and whether it is not a postal box;
  • Making sure that the shipping address is similar to the billing address;
  • Searching for the email and other contact details of the customer in the white pages, search engines, and social networks;
  • Checking whether the customer made several purchases within the same day or the last couple of days;
  • Checking whether the purchase amount is strikingly different from the average shopping cart;
  • Verifying all the data of the order;
  • Contacting the customer;
  • Freezing the order if you have not shipped the items yet;
  • Issuing a refund to the card if the customer appears to be a fraudster.

Sometimes a fraud notification may come prior to a chargeback notification. You cannot dispute fraud notifications, as they serve only as a warning, but you can dispute chargebacks. 

What is a chargeback?

When a cardholder notices a payment in their bank statement which seems suspicious or unknown, they can dispute the payment, i.e. file for a chargeback. A chargeback is a payment refund officially claimed by a cardholder from their card issuing bank. The issuing bank investigates every chargeback to decide the outcome. If the chargeback claim seems valid, and the cardholder did not make the payment, the cardholder receives the funds back. If the payment is proven to be valid, the merchant keeps the funds. 

When do merchants receive chargeback notifications?

There are various reasons why a customer may ask for a chargeback. Visa and Mastercard mark chargebacks with different reason codes. We recommend you to read about Mastercard chargeback reason codes and Visa chargeback codes.

Cardinity receives a notification about a chargeback on the merchant’s behalf and forwards the details to the merchant. The issuing bank withdraws the disputed funds from the merchant’s Cardinity account. The merchant can initiate a chargeback resolution process to prove that the disputed payment was valid. More detailed information about chargeback notifications can be found in our support system.

What to do if you receive a chargeback notification?

It is very important to note that Cardinity, as a payment processor, neither initiates chargebacks nor participates in the decision-making. We do not have any influence on the outcome. However, when we receive the notification on your behalf that your customer has filed a chargeback, we immediately inform you.

You have the right to prove that the transaction was valid, or you can ignore the chargeback and automatically lose the disputed funds. If you decide to prove that the payment was valid, you must gather compelling evidence and provide it to us so we could forward it to the issuing bank. All the data about the customer and the purchase should be included in one file. It should be clear who the customer was, and which website they paid on.

To sum up

Fraud notifications are merely a sign that there might be something wrong with a particular transaction, whereas chargeback notifications inform you about the real problem that has already happened. By paying special attention to fraud notifications, you can prevent chargebacks. Be alert and take all the necessary steps to protect your online business. Stay in touch with us for more insightful articles!


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