Chargebacks and fraud 2025: Fighting advanced fraud tactics with equally sophisticated strategies
Digital purchases make up 63% of all merchant transaction volume, according to Mastercard's 2025 State of Chargebacks report. But with that digital transaction growth comes an increased risk of disputes. Global chargeback volume is set to reach 261 million in 2025 and 324 million by 2028, while Europe’s chargeback volume will grow by a predicted 27% from 2025 to 2028.
Every business, whether online or in-person, faces some percentage of disputes. The problem lies in determining how many chargebacks are due to legitimate issues with a payment or product, versus how many are the result of fraud and unauthorised payments.
A 2024 MRC report reveals that merchants associate the most widely accepted payment methods as the riskiest, as fraudsters are drawn to commonplace payment methods that are easy to hide behind. Nearly 80% of merchants rank chargeback and fraud rates as one of the most important KPIs to track as payment method acceptance grows.
To stop chargebacks in their tracks, you must make prevention your main goal.
How advancements in fraud affect chargebacks
The European Payments Council’s 2024 Payments Threats and Fraud Trends report details a long list of trending fraud tactics observed in recent years. Per the report, fraudsters have evolved their approach to focus on people rather than technology, using strategies like social engineering to access confidential information and payment data. Some examples relevant to ecommerce include:
- Remote support scams where fraudsters pose as bank employees or merchants to gain card information and other credentials
- Smishing, a type of fraud that uses fake texts that include a person’s bank name
- Cloning ecommerce and banking websites
- Creating fake ecommerce sites, with a priority on credit transfers that are difficult to reverse
Social engineering can wreak havoc on your financial infrastructure and customer trust.
ENISA reports that phishing attacks serve as a leading intrusion access point for 60% of fraud in the EU. Once hackers have access to a business or institution’s systems, ransomware is the most impactful threat used to gain sensitive information.
Now, imagine how much more complicated identifying and preventing instances of social engineering becomes when fraudsters bring artificial intelligence (AI) into the picture. Although AI can be a useful tool for fraud prevention, it can be equally if not more effective for committing fraud.
A 2025 fraud report uncovered that more than 50% of fraud attempts use AI for the purposes of creating deepfakes, synthetic identities, and phishing scams. Additionally, 92% of the financial institutions surveyed for the report have observed fraudsters using generative AI as a key tool. However, AI can also be used as a defense against itself, with 90% of financial institutions revealing they used AI-powered solutions to combat new forms of fraud.
Bob’s Guide, a digital publication on financial technology, highlights a critical point regarding the risk of AI-powered fraud and the creation of synthetic identities:
“Stealing this information is much easier when an LLM can produce vast amounts of convincing text at the touch of a button and continue to reply to targets just as an AI chatbot could.”
AI has the ability to automate many steps in a fraudster’s strategy, particularly when it comes to generating a false or stolen identity. It adds a new level of sophistication to online fraud that must be addressed through advanced technologies capable of detecting AI content and patterns.
The technological and cost hurdles of addressing chargeback fraud
You need to fortify your business against the threat of AI-powered chargeback fraud. But how much will that cost you, and are your IT teams up to the challenge?
The MRC’s 2025 Global eCommerce Payments and Fraud Report names fraud as a top imperative, noting the difficulty of managing and reducing the operational costs of fraud prevention.
As for the leading technologies in the quest to curb fraud, the report found that over 50% of merchants already use or plan to use generative AI tools, with 63% planning to increase spending on fraud prevention tools and technologies over the next two years. Unfortunately, the report also discovered that more than 80% of merchants are struggling with data and technology challenges, such as:
- Effective use of data
- Improving AI and ML tools
- Overcoming gaps in fraud tools and features
Managing chargebacks is already a complex process that can result in penalties and rate increases for merchants if not dealt with competently. You must both implement the right technologies to address your specific risks and deal with the costs of these technologies.
Investing in security is well worth your money, so long as the solutions you choose prevent chargebacks and disputes successfully. Choose the wrong technological partner, and you can end up with high operational costs and the consequences of poor dispute management.
Building a chargeback strategy that can adapt to changing fraud trends
Prioritising preventative actions that reduce chargebacks should be your main objective as a merchant. The following tools and best practices can help you achieve this goal:
1. Use tokenization to increase security at checkout
Technologies like tokenization make payments far more secure and, in turn, make disputes less likely.
Visa announced in 2024 that its proprietary tokens saved roughly USD 650 million in fraud losses compared to the year prior, along with generating more than USD 40 billion in incremental revenue. Since the launch of the technology in 2014, Visa has issued more than 10 billion tokens.
Tokenization can protect your revenue from fraudulent chargebacks in four steps:
- A token is issued that is associated with a specific customer and merchant.
- Sensitive payment data, like card numbers, is replaced by a unique string of characters.
- The token transmits the payment data from the merchant’s payment gateway to the payment processor and can only be decrypted once it reaches its destination.
- If the token is intercepted, the data it carries is meaningless without the key, which cannot be obtained without access to the payment processor’s or the payment service provider’s system.
2. Embrace AI-powered decision-making
You can’t win the fight against chargeback fraud without AI on your side.
AI fraud detection models continuously learn from transaction data and can quickly adapt to new fraud tactics. The right AI-powered fraud tool can provide you with insights into customer identities and behaviours that help you determine if a chargeback is an instance of fraud.
The ability to pinpoint suspicious activity can block high-risk transactions without disrupting legitimate ones, all before the payment is processed. AKA, your payments at most risk of chargeback are halted before they ever reach the payment processor or bank.
3. Customise your fraud rules
The fraud risks you face are unlikely to be exactly the same as those of another merchant. Factors such as geographic location and industry can influence how and why a fraudster targets you.
Customising your fraud rules gives you the flexibility to align your configurations with your business model and transaction types. Ecommerce businesses, for example, need the ability to allow purchases from a wide range of locations. Their fraud engines must have the scalability to assess hundreds, if not thousands, of payments per day, especially those coming from new customer accounts.
More customisation options bring the opportunity to balance your fraud prevention measures with a good customer experience, so finding a solution that can be tailored to your business logic is key.
4. Monitor fraud patterns and disputes in real-time
Fraud is dynamic and in constant motion. Taking weeks to analyse chargeback reports leaves you and your customers extremely vulnerable in situations where immediate action is necessary.
Real-time monitoring empowers you to spot unusual activity as it happens, such as sudden spikes in disputes, suspicious login attempts, or multiple failed transactions from the same source.
Instant tracking and reporting of your chargeback patterns allows you to adjust your defenses as soon as your system flags a potential instance of fraud. Seek out solutions offering a custom dashboard that unifies your view of chargeback alerts, ongoing disputes, and other critical data.
Conclusion: Prioritising a proactive approach and strategic partnerships
There’s no time to wait when it comes to preventing chargebacks.
To tackle the challenges of fraudulent disputes, merchants need strategic partnerships with companies that can provide effective preventative tools without driving up operational costs.
Through a combination of tokenization, custom fraud rules, real-time monitoring, and AI-powered fraud detection, you can build a payments setup capable of keeping out fraudsters in every scenario.
About payabl.
payabl. powers merchant growth by simplifying payments and payment security. Offering a variety of payment products for both online and in-person transactions, payabl. helps merchants keep their money in motion and improve overall financial visibility. The core mission driving payabl. is to be the financial services partner of choice in the EU and UK.
Learn more about payabl. solutions at payabl.com.
