The hidden pattern: How issuing banks can spot and stop serial disputers and refund fraud

While banks spend millions protecting against card fraud and account takeovers, there's a quieter threat draining their profits: serial disputers. These individuals exploit the very systems designed to protect consumers, turning chargebacks into a mechanism for organized refund abuse.

The numbers are staggering. What started as isolated "friendly fraud" cases has evolved into organized fraud-as-a-service operations, complete with TikTok tutorials and professional refund services.

For issuing banks and card issuers, understanding and addressing this challenge is critical to protecting their bottom line and maintaining the integrity of the payments network.

This blog post dives into the world of serial disputers, a category that includes sophisticated refund fraudsters and those who weaponize "empty box" claims. We will clarify the distinctions between different types of disputes, explore the tactics used by these abusers, and outline a path forward using advanced technological solutions, like Rivero's Amiko, to identify, track, and ultimately prevent this rising threat.

Defining the Battlefield: Disputes, Fraud, and Friendly Fraud

Let's clear up some terminology first, because the payments industry loves throwing around words like "disputes," "fraud," and "chargebacks" as if they're all the same thing.

• Cardholder Disputes: This is the broadest term, representing any formal challenge a cardholder makes against a transaction on their statement. The reasons for a dispute can range from a legitimate error (a duplicate charge or a merchant error) to fraud. A dispute is a process, and its resolution can either be in the cardholder's favor, the merchant's favor, or be reversed.
• Fraud: In its purest sense, fraud is an intentional act of deception for personal gain. When a dispute is classified as fraud, it means the cardholder claims the transaction was made without their authorization. This typically involves a stolen card or compromised account details. The intent is malicious and involves a third party stealing the cardholder's identity or payment information. The industry has well-established protocols for handling this type of fraud, including reporting to law enforcement and blocking accounts.
• Friendly Fraud (or Chargeback Fraud): This is a gray area and is, in many ways, the root of the serial disputer problem. Friendly fraud occurs when a cardholder makes a legitimate purchase but then disputes the charge with their issuing bank, often claiming the transaction was fraudulent or a merchant error. The cardholder's intent is to get a refund without returning the goods or services. Common examples include a customer who buys a product, enjoys it, and then claims they never received it, or a child making an in-app purchase without a parent's permission. While the term "friendly" might suggest a non-malicious act, it is a deliberate deception and a significant source of financial loss for both merchants and issuers.

The serial disputer is an evolution of the friendly fraudster. Instead of a single, opportunistic act, a serial disputer makes a habit of it, systematically filing disputes across multiple accounts and transactions. They often leverage sophisticated tactics to avoid detection, making them a significant challenge for traditional fraud detection systems.

The Anatomy of Serial Disputers: Beyond the Individual

Serial disputers operate in two primary ways: as individuals who repeatedly exploit the system, and as part of a more organized network, which the industry is now referring to as "Fraud-as-a-Service."

Individual Serial Disputers: These are a growing problem for issuers. They are not one-time offenders but repeat players who have identified a loophole in the chargeback process. They might make a purchase, receive the item, and then immediately file a dispute claiming "item not received" or that the box was "empty." Their goal is to get a refund while keeping the product. They learn which claim codes are least likely to be challenged and which merchants have the weakest dispute resolution processes.

Fraud-as-a-Service (FaaS): This is the more alarming trend. As highlighted by experts in the field, FaaS is flourishing on social media platforms like TikTok and messaging apps, moving from the dark web to the surface web. These services offer a "fraudster-for-hire" model where an individual can pay a fee (often a percentage of the desired refund) to have an experienced fraudster handle the entire chargeback process on their behalf.

The FaaS operators have developed sophisticated scripts and methods, and because they are not directly linked to the original transaction, they are difficult for traditional fraud systems to flag. They're ghosts in the machine, and as we've seen with other payment industry trends, the more complex the ecosystem becomes, the more opportunities for abuse emerge.

The Challenge of Identity: Tracking a Cardholder Despite PAN Changes

One consideration for issuers in combating serial disputers is the issue of identity persistence. A cardholder's Primary Account Number (PAN), which is the 16-digit card number, can change frequently due to card expiry, reissuance after a fraud event, or replacement. At first glance, this might seem to allow a serial disputer to simply get a new card and appear as a “new” customer. In practice, most issuers can identify all PANs connected to a customer, whether active, closed, or reissued, typically through a stable customer ID in the core banking system. This makes the risk of “starting fresh” lower for issuers, though it can still present challenges in edge cases.

Just like how Cembra modernized their cardholder support, banks need to think beyond individual transactions and look at the whole customer relationship.

Fighting Back with Smart Technology

Combating a sophisticated and organized threat like serial disputers requires an equally sophisticated and technologically advanced solution. Traditional, manual case management is simply not equipped to handle the volume and complexity of these disputes. This is where advanced solutions, such as Rivero's Amiko, become essential.

Amiko is a comprehensive dispute and fraud management platform designed specifically for issuing banks. Its capabilities go beyond simple case tracking to provide an end-to-end solution for fighting fraud and dispute abuse.

1. Amiko's Virtual Agent Capabilities: The First Line of Defense

The first interaction a cardholder has when they want to dispute a charge is often with a bank's customer service. Amiko’s Self-service Virtual Agent acts as a virtual fraud and dispute agent, providing an immediate, intelligent response within a user's app or portal.

Intelligent Triage: Instead of relying on a human agent who might not be able to spot subtle patterns, the chatbot can be trained with "curated skills" to handle various dispute conversations. It can ask the right questions to determine if a dispute is a legitimate error, a simple friendly fraud claim, or part of a larger pattern. Moreso, the Virtual Agent challenges the customer if something is suspicious, marks the claim as ‘questionable’ in order to alert the agent and rejects the claim if there are clearly no grounds for chargeback.

Data Enrichment: The virtual agent can leverage data from merchant collaboration networks like Ethoca and Verifi to enrich transaction data with digital receipts and other relevant information. This provides immediate context, allowing the system to quickly resolve simple cases and escalate suspicious ones

2. Process Automation & Smart Case Management

The true power of Amiko lies in its ability to automate the entire dispute lifecycle, from initial claim to final resolution. This automation is particularly critical for combating serial disputers, who exploit manual gaps in dispute handling to repeatedly file fraudulent claims. By tracking disputes across cards, accounts, and customer identifiers, Amiko ensures repeat offenders are flagged early, preventing them from abusing the system.

All-in-one case handling: Amiko consolidates the entire process into a single platform. This includes communication with the cardholder, collaboration with merchants, and handling official scheme disputes (e.g., Mastercom, VROL). This eliminates the need to switch between multiple systems, reducing human error and improving efficiency, and thus ensures that serial disputers cannot take advantage of inconsistent documentation or delays, as every case is recorded accurately.

Automated case creation: Instead of manual data entry, Amiko can automatically create cases and pre-fill data, including the necessary chargeback codes. This ensures accuracy and speed, which are critical in a time-sensitive process.

Smart User Guidance: The platform guides agents through the dispute process, ensuring they follow the correct steps and that all deadlines are met. This is particularly important for junior agents or in high-volume situations, preventing costly mistakes and lost disputes.

Intelligent Document Handling: Amiko provides a central hub for all case documentation. It can automatically detect document types (e.g., invoices, shipping receipts) and highlight important tags, ensuring all relevant evidence is easily accessible for the agent. Similar to how SIX recognized the need for streamlined dispute management, banks are realizing that automation isn't just nice to have, it's essential.

3. Proactive Fraud Recovery through Data Analytics

Amiko's robust search & customized views feature is where issuers can proactively combat serial disputers. With over 100 filter criteria, an analyst can:

Identify repeat offenders: By cross-referencing dispute history with persistent identifiers, issuers can flag cardholders who repeatedly file disputes, even with different cards.

Spot emerging dispute trends: Our dashboard capabilities are constantly evolving and provide issuers with tools to spot emerging dispute trends. At the same time Amiko allows users to export dispute data in the form of various reports, making it easier to track and share in your organization,

By moving beyond reactive fraud recovery to a proactive, data-driven approach, issuers can identify and prevent serial disputers before they cause significant financial damage.

Conclusion: From Reactive to Proactive

The rise of serial disputers and organized "fraud-as-a-service" represents a new frontier in the battle against financial crime. For issuing banks, it is no longer enough to react to individual fraudulent transactions. The key to long-term success lies in adopting a holistic, cardholder-centric approach that leverages technology to identify and track patterns of abuse.

We're not just talking theory here. Banks like PostFinance are already seeing the benefits of taking a comprehensive approach to dispute management. When you combine intelligent automation with proactive pattern detection, the results speak for themselves:

• Faster dispute resolutions
• Higher success rates on legitimate claims
• Dramatic reduction in dispute abuse
• Improved customer satisfaction (because legitimate disputes get resolved quickly)

Even our recent discussions on industry podcasts highlight how banks are recognizing that the old ways of handling disputes simply don't work anymore.

The good news? Banks don't have to fight this battle with outdated tools. By adopting a cardholder-centric approach and leveraging intelligent automation, you can:

• Identify patterns that manual processes miss
• Stop serial disputers before they cause major damage
• Protect your bottom line and reputation
• Provide better service to legitimate customers

The question isn't whether serial disputers will continue to evolve. They will. The question is whether your bank will evolve faster than they do.

Ready to take the fight to serial disputers? The technology exists, the patterns are identifiable, and the solution is proven. All that's left is making the decision to move from reactive to proactive dispute management.

Want to see how Amiko can help your bank identify fraud patterns and prevent dispute abuse? Talk to our team about building a smarter approach to dispute management