Chargeback Prevention

Chargebacks for Telecom Companies

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All merchants get hit with chargebacks, but not all merchants get hit with the same kind of chargebacks. The type and frequency of chargebacks can vary a lot from industry to industry, along with the predominant reason codes and the ratio of valid to invalid chargebacks.

With myriad product offerings and points of contact for payments, telecommunication companies can find chargebacks to be an especially challenging problem to get under control. To effectively contain them, you have to understand your own chargeback situation inside and out. What do merchants in the telecom industry need to know about preventing and fighting chargebacks?

New call-to-actionChargebacks serve an important role in protecting customers from fraud and preserving their confidence in card payment systems, but for the merchants who bear the ultimate financial liability for chargebacks, it can be hard to see the upsides. The good news is that many chargebacks are illegitimate and can be fought, and more still can be prevented ahead of time with the right methods.

Effective chargeback management processes are vital for telecom merchants, who sell goods that are high-value targets for fraudsters (cell phones, prepaid cards), offer subscription-based services, and accept payments through various card-not-present interfaces. These are all factors that can increase a merchant’s exposure to chargebacks.

Left unchecked, a chargeback problem can cost you significant amounts of revenue—more than double the disputed transaction amount, when fees and overhead are considered—and put your merchant accounts in jeopardy. Telecom companies can ill afford any disruption to their payment processing services, so keeping your chargeback rate within acceptable limits is a must.

How Do Chargebacks Impact Telecom Merchants?

Telecom providers are a magnet for fraud. In addition to the factors related to their products and payment acceptance methods, telecom companies also store highly valuable and sensitive user data, making them one of the most lucrative targets for account takeover attacks.

Altogether, telecom fraud costs more than $32 billion per year globally, and while not every instance of fraud will result in a chargeback, these numbers should make the perils of a laissez-faire approach to fraud and chargebacks clear.

The scheme most frequently encountered is subscription fraud, which will almost always end in a chargeback. This is when a fraudster signs up for a subscription-based service (like a cellular plan) with the intention of using it for as long as possible without paying for it.

One way to do this is by making payments with stolen credit card numbers. Eventually, the real cardholder will find out and file a legitimate chargeback.

Another option is for the fraudster to use their own card to make payments, but file a chargeback under false pretenses to get their money back later. Illegitimate chargebacks like these are considered “friendly fraud” because they originate with what appears to be a real customer operating in good faith.

Subscription payments can also be the target of unintentional friendly fraud chargebacks, as customers often forget about automatic recurring payments and mistakenly report them as fraud when they see them on their bank statements.

How Can Telecom Merchants Prevent Chargebacks?

To prevent chargebacks, you need to understand why they’re happening and where they’re coming from. The answers can be found by analyzing your chargeback data. Chargebacks that result from merchant error are among the easiest to prevent—once you know why they’re happening, you can take steps to prevent the errors from recurring.

Manage Chargeback In-House Or OutshoreUnintentional friendly fraud often results when cardholders fail to recognize charges on their bank statement. You can prevent these by using clear merchant descriptors and sending out reminders before recurring payments are charged.

True fraud chargebacks can be minimized by following best practices for reducing fraud and by using appropriate anti-fraud tools. The old standard is fraud filters that use machine learning and artificial intelligence to assign a risk score to transactions, but these tools have to be configured and monitored carefully to prevent false positives from affecting your legitimate customers.

This leaves the intentional friendly fraud chargebacks, which are hard to predict and difficult to prevent ahead of time. You can, and should, fight friendly fraud chargebacks through the representment process. With the right evidence, you can beat them and get your money back.

When Should Telecom Merchants Fight Chargebacks?

True fraud disputes and legitimate merchant error claims are valid chargeback reasons. Fighting these chargebacks is a waste of time; the cardholder is within their rights to demand their money back and engaging in chargeback representment will not be successful for the merchant.

It is important, however, to review all chargebacks and determine which ones are valid. Chargebacks that are based on false claims can be fought through chargeback representment, which involves resubmitting the transaction along with compelling evidence that shows why the chargeback should be reversed. The type of evidence you will need to submit will vary depending on the reason code of the chargeback you’re fighting.

Always keep detailed transaction records, receipt copies, correspondence with customers, and other documents that might be useful in establishing the true facts of a purchase should a chargeback rear its head in the future.

Telecom merchants should take note that most credit card networks have very specific requirements for handling recurring billing payments and the disputes that arise from them. Follow these guidelines carefully to prevent such chargebacks and document your policies and actions to create an evidence trail.


The telecom business is high stakes, fast-paced and demanding. Hiring, training, and maintaining a chargeback management unit may be one of the best ways to keep disputes under control, but doing it in-house is not always the most cost-effective option.

A knowledgeable chargeback firm with experience across multiple industries can be an affordable solution that helps you make sense of your chargeback data, formulate a workable chargeback defense plan, and assist you in executing that plan and keeping it up-to-date. Fraudsters look at telecom companies and see a ripe field of opportunities for theft and exploitation. With the right allies on your side, you can protect your customers and your revenue from their depredations.

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