In 2023, card-not-present fraud accounted for $9.49 billion (73%) of card payment fraud losses in the U.S., according to eMarketer. While banks and credit card companies work tirelessly to reimburse customers and recoup stolen funds through chargebacks, this post-incident response often leaves both financial institutions and their customers exposed to recurring scams, identity theft, and a persistent erosion of trust.
Chargebacks were never designed to serve as the frontline defense against fraud—they are a reactive measure meant to resolve errors, not prevent criminal behavior. And yet, many institutions still rely heavily on them to manage scam-related losses. For banks and credit card companies navigating an increasingly complex fraud landscape, it’s time to question whether this is enough, and what can be done to proactively protect customers.
The Mechanics Behind the Scam: How Fraudsters Exploit the Gaps
Chargeback processes can be exploited in several types of fraud, including social engineering scams, romance fraud, and identity theft. Here’s a common pattern: scammers manipulate victims into authorizing a payment—say, by impersonating a bank representative, government agent, or tech support provider (all forms of imposter scams.) Because the payment was authorized, the transaction may not qualify for a chargeback under existing rules, leaving victims financially liable.
Similarly, criminals who steal consumer credentials through phishing or malware attacks can make high-value purchases or transfers before fraud is detected. By the time a chargeback is initiated, the damage is already done. Even when successful, chargebacks often represent only a partial recovery of losses.
Fraud rings also exploit the time delay in chargeback investigations—typically ranging from 30 to 90 days—to cash out quickly and move on before banks can respond. This leaves institutions playing a game of whack-a-mole, chasing symptoms rather than eliminating root causes.
Why Current Methods Aren’t Working
Most fraud mitigation strategies today focus on detection after the fact—after a suspicious payment has been made, or after a victim reports unauthorized activity. This reactive approach is not only costly but also inadequate in the face of scams that target victims psychologically, convincing them to make seemingly legitimate transactions.
Moreover, fraud liability frameworks can place banks and credit card companies in challenging legal territory. In cases of authorized push payment (APP) fraud, for example, institutions often argue they fulfilled their duty by authenticating the transaction—even if the customer was misled. Regulators in the UK and EU are already pressuring banks to shift toward shared liability models, and U.S. lawmakers are beginning to examine similar frameworks.
From a business perspective, the reliance on chargebacks has hidden costs: reputational damage, increased operational workload, lower customer retention, and exposure to regulatory scrutiny. Simply refunding money isn’t enough to rebuild trust when a customer has experienced identity theft, emotional trauma, or data loss.
Proactive Prevention: Building Smarter Defenses
To stay ahead of scammers, financial institutions need to invest in proactive fraud prevention strategies, not just resolution mechanisms. This includes real-time behavioral analytics, transaction risk scoring, and AI-powered scam detection that can assess not just the data, but the context around each interaction.
For instance, advanced systems can flag unusual payment behavior based on deviations from a customer’s normal transaction patterns or identify phrases in a phone call, chat, or email that are consistent with common scam scripts. These tools can prompt timely interventions—such as warnings, payment holds, or extra verification steps—before a transaction goes through.
Additionally, banks and credit card companies can integrate identity verification tools that go beyond passwords and two-factor authentication. Dynamic biometric authentication (such as voice or behavioral biometrics) adds friction for fraudsters while keeping the experience seamless for genuine users.
There is also growing potential in real-time scam detection. These systems are designed to recognize deceptive patterns as they unfold—analyzing language cues, behavioral anomalies, and transaction context to distinguish between legitimate communications and likely scam attempts. By identifying these subtle indicators before a transaction is completed, financial institutions can intervene at the moment of risk and prevent losses before they occur.
Shifting the Paradigm: What Credit Card Companies Can Do Next
Credit card issuers have a unique opportunity—and responsibility—to reshape how fraud is approached. That starts with redefining the role of chargebacks as part of a broader fraud ecosystem, rather than the primary solution.
Some key moves include:
- Strengthening real-time decision-making by integrating contextual data signals from across devices, channels, and customer profiles.
- Educating customers about high-risk behaviors, especially around impersonation scams that lead to authorized but coerced transactions.
- Partnering with telecom and tech platforms to shut down scam infrastructure such as spoofed numbers or phishing domains.
- Participating in cross-sector fraud intelligence networks that pool insights to spot coordinated attacks faster.
Ultimately, effective fraud prevention is about making scams harder to execute in the first place, not just making them easier to clean up after.
Beyond Refunds: A Smarter Approach to Fraud
Chargebacks serve an important purpose, but they are not a strategy. In a landscape where scammers are more organized, more adaptive, and increasingly targeting consumers through manipulation rather than brute force, reactive solutions will always fall short.
By investing in proactive, context-aware prevention tools and cross-sector collaboration, credit card companies and financial institutions can move from damage control to real protection. That shift won’t just reduce losses—it will strengthen trust, improve customer experience, and build resilience into the very fabric of the payments ecosystem.
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