Your Business Credit

How to protect your business against e-commerce chargebacks

Your Business Credit with Elaine Pofeldt

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for

Ask Elaine a question, or see if your question has already been answered in the Your Business Credit answer archive.

I regularly receive fraudulent chargeback claims for digital goods from overseas. How can I protect myself?

You can go after those foreign fraudsters, but the process can be time-consuming and expensive. To be better prepared to deal with these claims, I’d suggest you take a look at:

  1. Your current payment acceptance methods 
  2. How you’ve managed previous disputes in the past
  3. New technological solutions to combat e-commerce chargebacks
Expert Q&A

Check out all the answers from our credit card experts.

Dear Your Business Credit,

I run a business that is supplying digital goods to consumers. I regularly receive fraudulent claims from outside of my country. The cases are always decided in the customer’s favor since I mainly use PayPal and they offer “no seller protection for digital goods.”

Can I sue the individuals fraudulently making these claims or take any further action to retrieve the money stolen from me? – Sam

Dear Sam,

That sounds frustrating – and you are certainly not alone in being victimized by online fraudsters. According to the LexisNexis True Cost of Fraud report, online merchants lose 1.91 percent of their revenue to fraud.

Friendly fraud (also known as “cyber shoplifting”), in which consumers say they have not received a digital product – either with the goal of getting to keep it for free or because they don’t know they’ve received it – and try to get a refund, is a major problem for many digital merchants.

 See related: 8 tips for merchans to avoid credit card chargebacks

Going after fraudsters in foreign countries

It certainly is possible to go after fraudsters in other countries.

Because the laws and court systems of each country are different, you would likely need to consult with an attorney who lives in the country where the fraud was committed or who knows the laws there to determine if it is worthwhile.

  • If, for instance, you’re selling pricey webinars and experiencing multiple thefts, it might be worthwhile, but if you’re selling small-ticket items, perhaps not.
  • You also will need to consider the value of your time if you go after overseas claims.
  • Claims in a foreign jurisdiction are bound to take longer, given that you will be less familiar with how the system works there.

How to protect yourself against international fraud

I’d suggest that you instead take a look at your payment acceptance methods and procedures to make sure you are not inadvertently leaving openings for fraudsters to take advantage of you.

  • PayPal’s seller protection was expanded in 2015 to cover digital goods and services.
  • Still, you need to keep very good records, such as proof a customer downloaded a product, to make a strong case for yourself if, for instance, a buyer says he or she never received a product.
  • For more information on what is required, see PayPal’s guide

Some experts recommend having customers sign a contract or terms of service outlining what they will get for their money, for additional proof in chargebacks.


Tip: You should never process a transaction that you believe is fraudulent. There are some situations in which merchants may be liable for processing fraudulent transactions. See “7 merchant tips to understanding EMV fraud liability shift.”

How to defend yourself better against fraud claims

As you note, however, PayPal has decided against you in the past.

I would suggest doing a quick analysis of those disputes to see if there are common threads as to why they were resolved against you.

  • Sometimes listing them all on a spreadsheet may enable you to look at them in fresh ways.
  • Were you lacking in the records you needed to make your case? Perhaps there is a technological solution you could put in place to collect the proof PayPal needs to decide in your favor.

Given how fast scams take root and change, it might also be worthwhile to contact a specialized firm that fights chargebacks to see if it has any recommendations specific to your industry.

There are a number of services like this that you can find through an internet search. Ask other merchants in your industry for a recommendation for a good one.

Use tech to identify fraudulent transactions

Depending on what type of e-commerce store you run, there may also be plug-ins you can use to identify signs of a fraudulent transaction.

Plug-ins aren’t infallible – they can come up with false “positives” and cause you to turn away honest customers – so you may have to experiment until you find a good one.

There are some new developments on the horizon.

  • Ethoca, a Toronto-based company, is testing a product calledEliminator, which quickly connects issuers and merchant systems to get a thorough view of a customer’s transaction data.
  • A bank can use the tool to quickly see if someone has a pattern of making purchases from a particular merchant – for instance, purchasing mobile games repeatedly – and forgot about one purchase or is having buyer’s remorse.
  • Ethoca also has created a network of merchants and banks to share data on customer disputes in real time to help with fraud prevention.

Meanwhile, I’d recommend getting to know other digital product merchants and participating in online forums, too. They can be a great source of unofficial information, practical tips and workarounds that may help you out.

Good luck – and let me know if you come across any solutions that work well for you.

What’s up next?

In Your Business Credit

What merchants should do when they suspect card fraud

Suspect fraud on an otherwise approved credit card purchase? As a merchant you may be liable if you don’t follow the card network’s guidelines. Here’s what you should know.

Published: July 30, 2018

See more stories
Credit Card Rate Report Updated: August 21st, 2019
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.