What is 'Friendly Fraud'?

Friendly fraud, or first-party fraud, occurs when a legitimate cardholder makes a purchase but later disputes it, claiming they didn't authorize it or didn't receive the item. Differentiating this from actual criminal fraud is a major challenge for banks.

Why is reconciliation important in disputes?

A chargeback involves moving money three times: the original purchase, the refund (chargeback), and potentially a 'representment' if the merchant wins. Without tight reconciliation, banks often lose track of the funds and fail to write off or recover the correct amounts.

Blog Post

Dispute Operations
December 14, 2025

Handling Chargebacks and Dispute Resolution in Modern Banking

The explosion of e-commerce has brought a parallel explosion in disputes. For Issuing Banks, handling chargebacks has evolved from a back-office nuisance to a critical customer experience battleground. In 2026, the volume of "Friendly Fraud" combined with strict scheme timelines (Visa's VCR and Mastercard's DRC) means that manual dispute processing is no longer sustainable. Banks must automate not just the workflow, but the financial reconciliation of these complex events.

The Anatomy of a Dispute

Lifecycle of a chargeback: Presentment, Dispute, Chargeback, Representment.

Dashboard showing dispute win/loss ratios and financial impact.

A dispute is not a single event; it is a multi-stage legal and financial process governed by the card schemes.

1. The Claim: The customer contacts the bank. Automation starts here by integrating dispute intake into the mobile banking app, forcing the user to select a specific transaction and reason code.
2. The Chargeback: If valid, the bank reverses the transaction. This debits the merchant via the scheme.
3. Representment: The merchant fights back with evidence (e.g., delivery proof). The bank must review this evidence—often within 30 days—or lose the funds.

The "Friendly Fraud" Epidemic

"Friendly Fraud" (or first-party misuse) occurs when a legitimate cardholder disputes a valid charge—either out of confusion (unclear billing descriptor) or malice. It accounts for up to 70% of all disputes.

Automation Defense: Modern tools use data enrichment (like Ethoca or Verifi) to show the customer detailed merchant info (logo, map location) before they file a dispute. This deflects invalid claims instantly.

Integrating with the Ecosystem

You cannot manage disputes in a spreadsheet. Your system must talk directly to the global rails.

1. Direct Scheme Links (VROL & Mastercom)

Platforms like Reconwizz integrate via API with Visa Resolve Online (VROL) and Mastercard Mastercom. This allows the operations team to submit a chargeback with one click, without re-typing data into the scheme portals.

2. The Reconciliation Nightmare

This is where most banks fail. A dispute creates a financial mess:
- Day 1: Transaction debits customer.
- Day 15: Bank refunds customer (Dispute Debit).
- Day 45: Merchant wins (Representment Credit).
- Day 46: Bank redebits customer.

Each of these movements appears in the Daily Settlement File. If your reconciliation tool cannot link the Day 45 credit back to the Day 15 debit, you end up with a massive "unreconciled" bucket in your GL.

Conclusion: Automation is Compliance

Managing chargebacks is no longer just about customer service; it's about financial control. By automating the lifecycle and tightly integrating it with your reconciliation software, you ensure that every dispute is resolved fairly, quickly, and with zero financial leakage.

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