Businesses in North America and Europe are becoming increasingly concerned about fraudulent chargebacks in today’s digital-first economy. Although chargebacks were initially meant to protect customers from actual fraud, a number of companies are currently dealing with an increase in first-party misuse, in which consumers fraudulently challenge valid transactions in order to obtain money.
It is no longer simply useful to know which industries are more vulnerable than others, it is also essential. Knowing which industries are most affected enables Payment Service Providers (PSPs), Payment Facilitators (PayFacs) and merchants to put tailored fraud protection tactics into place that lower dispute volumes, increase approval rates and preserve acquirer compliance.
Fraudulent Chargebacks: What Makes Them Different?
Often referred to as first-party fraud or first-party misuse, fraudulent chargebacks happen when a consumer disputes a valid transaction with their bank, frequently stating that the transaction was not authorized or that they never received the product or service. The use of a stolen payment method without the cardholder’s knowledge is what distinguishes this from actual (third-party) fraud.
The fact that first-party fraud comes from the cardholder themselves makes it very difficult to combat. There are no clear warning signs or incorrect credentials, unlike stolen card fraud. Since the transaction could seem perfectly legal, it can be challenging for merchants to stop or win in these disputes.
To make matters more complicated, the chargeback reason code that the card network provides is rarely indicative of the true reason for the dispute. In order to get around a refund policy, a consumer may fabricate fraud or claim that a digital product was never delivered, even when they have already used it. When attempting to identify patterns, merchants, acquirers and PSPs are blinded by this gap between reason codes and reality.
Businesses must look beyond conventional fraud filters and comprehend how chargeback misuse appears within particular industries in order to effectively handle this growing threat.
High-Risk Industries and Their Fraud Patterns
Not all industries are equally impacted by fraudulent chargebacks. According to data from Mastercard’s most recent “The Chargeback Window of Opportunity Report”, fraudulent chargeback volumes in some high-risk industries, such as gaming, gambling, and cryptocurrency, exceed an astonishing 50% worldwide. Because of its particular characteristics, each sector has its own specific likelihood of being a subject of abuse.
Gaming
Friendly fraud is extremely common in the online gaming sector. Users frequently contest microtransactions, in-game purchases, and promotional credits, particularly parents of children or those who regret their digital purchases. These transactions are more difficult to verify during representation since digital products are intangible. This misuse results in irrecoverable losses and high dispute percentages in the US and Europe, where card-not-present transactions predominate in gaming ecosystems.
Gambling & Sports Betting
Operators in this industry deal with a steady flow of small-to-mid-value betting and high transaction volumes. To get over geographic constraints, fraudsters usually utilize VPNs or spoof locations, which increases the risk of fraud and legal issues. Some people use “chargeback-as-a-loan” strategies, where they wager, lose, and then contest the charge to get their money back. In regulated markets like the UK, where operators must strike a balance between risk exposure and compliance, this tendency is especially harmful.
Crypto & Digital Asset Platforms
The irreversible nature of blockchain transfers presents a challenge for cryptocurrency exchanges. There is no way to recover money once it has been transferred from currency to cryptocurrency. Fraudsters swiftly onboard by taking advantage of KYC flaws or using credentials they have stolen, which results in chargebacks after the cryptocurrency assets are removed. Acquirers are wary about servicing this vertical because these conflicts can give rise to money laundering concerns, particularly in the US and EU where AML restrictions are stringent.
A customized chargeback prevention plan begins with an understanding of these industry-specific weaknesses.
Why Vertical-Specific Deflection Strategies Work
There is no one-size-fits-all approach to preventing fraud, particularly in high-risk businesses. Because fraud profiles in industries like gaming, gambling and cryptocurrency vary greatly, it is crucial to implement vertical-specific fraud deflection tactics. Using general-purpose tools frequently creates weaknesses that experienced scammers may quickly take advantage of.
Tools such as 3D Secure 2.2 (3DS) help authenticate users during risky in-game purchases in the online gaming industry, protecting against card misuse by unattended minors and, more generally, reducing instances of friendly fraud. Applying 3DS dynamically based on transaction size or behavior is crucial because imposing it for every transaction can severely degrade the user experience.
Transaction velocity checks and identity pattern analysis are useful tools for crypto exchanges because they can identify anomalous currency-to-crypto conversions or rapid account creation, which are frequent indicators of card testing or synthetic identity fraud. If these checks are implemented before the customer can transfer assets from the system then high-risk activity can be identified before it reaches a point where recovery is no longer feasible.
Transaction scoring, which considers factors like IP mismatch, booking history and historical patterns, might prevent chargeback-prone bookings in the travel industry, where high transaction values and loose cancellation policies encourage fraud. To limit exposure, travel merchants can also use geo-based risk levels.
More generally, fraud deflection lowers TC40 complaints and chargebacks, two important indicators tracked by monitoring tools such as Visa’s VAMP and Mastercard’s SAFE. Businesses can reduce their exposure without depending entirely on reactive dispute procedures by halting high-risk transactions prior to approval.
Offering merchants vertical-optimized fraud solutions is now a competitive need for PSPs and PayFacs that serve high-risk verticals in the US and Europe.
How PayShield Helps High-Risk Merchants Stay Protected
Sometimes Off-the-shelf fraud technologies are insufficient for high-risk businesses. Instead, they need intelligent, flexible security tailored to the specific risks of each vertical. With the help of PayShield’s multi-layered strategy, acquirers, PSPs and merchants can reduce chargeback losses and proactively prevent fraud.
Transaction Risk API
Through the analysis of behavioral signals, geolocation data and identification factors, PayShield’s Transaction Risk API provides real-time risk grading. This is particularly important in sectors like cryptocurrency exchanges, gaming, gambling, or last-minute travel reservations since it enables companies to identify fake identities, bot-driven sign-ups and high-risk payment attempts prior to authorization.
3D Secure 2.2 (3DS)
PayShield makes selective 3D Secure 2.2 enforcement possible for sectors like gaming and gambling that are vulnerable to digital fraud. For low-friction microtransactions in particular, this allows merchants confirm transactions with significant risks without compromising the customer experience.
Chargeback Alerts & Dispute Intelligence
PayShield is an expert in handling Chargeback Alerts, particularly for large-volume clients, for both the Mastercard (Ethoca) and Visa (Verifi) networks. We are a best-fit option for PSPs, PayFacs, merchants and high-risk acquirers who require effective and economical Alert coverage due to our high-volume capabilities and flexible pricing. In order to reduce operational costs, our Dispute Intelligence technology also can automatically automate responses to all Chargeback Alerts.
When combined, these technologies provide a dynamic fraud deflection framework designed for high-risk settings, protecting bottom-line revenue while lowering chargeback ratios and reducing Verifi TC40/TC15 exposure.
Summary
The number of fraudulent chargebacks is still on the rise, and the most frequently targeted businesses include gaming, gambling and cryptocurrency. In addition to monetary losses, these industries must contend with heightened regulatory scrutiny and processing risk in both the US and European markets.
Merchants and payment stakeholders need to go beyond typical fraud tools in order to remain safe. Chargeback prevention, fraud rates and long-term reputation can all be quantified by putting vertical-specific deflection measures into practice, such as transaction risk assessment and 3D Secure.
At PayShield, we provide adaptable, scalable solutions tailored to your sector to enable PSPs, PayFacs and high-risk merchants to safeguard profits and lower exposure. We provide specialized help to fit your risk profile, whether you oversee a high volume of Chargeback Alerts or require extensive pre-transaction risk screening.
Get in touch with PayShield today to find out how our fraud protection stack can improve payment security and lower chargebacks for your company.
