Australian small businesses are facing a growing fraud threat that doesn’t always look like a scam at first glance. Chargebacks, where customers dispute legitimate transactions with their bank are emerging as a costly and frustrating issue, leaving business owners out of pocket and with little recourse.

While traditional scams often involve stolen data or fake invoices, chargeback abuse operates in a grey area, making it harder to detect and prevent. Plus, in a cost-of-living crunch, the problem appears to be getting worse.

“Cost-of-living pressures are influencing behaviour, with some consumers disputing legitimate purchases,” says Richard Valente, Vice President Customer Experience Strategy at TP in Australia. “At the same time, organised crime groups are becoming more sophisticated in how they exploit system loopholes.”

Chargebacks: A system open to misuse

Chargebacks were designed as a consumer protection mechanism – a safety net for cases of fraud or undelivered goods. But increasingly, they’re being misused by both opportunistic individuals and organised fraud networks.

“The system often favours the consumer,” Valente explains. “That means businesses are left to absorb the loss, especially if they don’t have strong evidence or processes in place to challenge disputes.”

For small businesses operating on tight margins, even a handful of chargebacks can have a serious financial impact. Unlike large corporations, they often lack the resources or time to fight disputes through banks and payment providers.

Real-world impact: ‘It hurts’

Sydney-based small business owner Yasmin Hatzis knows this all too well. She co-runs a skincare company with an annual turnover of around $500,000, but says repeated chargeback scams have taken a significant toll.

“I’ve actually wanted to shut down the business from online because it hurts,” Hatzis says.

“Between my sister-in-law and I, we’re supporting two families – eight kids in total – and then you’ve got people trying to take that away from you.”

Hatzis says many of the disputes come from repeat customers who receive their orders, then lodge a chargeback with their bank.

“We’ve even had conversations with customers asking why they lodged chargebacks,” she says. “They say they haven’t and don’t know what we’re talking about. But then it gets granted straight to them.”

Each incident costs her business, Dubae Skin, roughly $250 in refunded goods and shipping, plus additional platform fees – losses that quickly add up.

The hidden cost of prevention

Beyond the direct financial hit, chargebacks are also creating an operational burden for small businesses.

Hatzis now manually checks orders late into the night, verifying details like IP addresses and delivery confirmations in an effort to protect her business.

“I’m up til midnight making sure every order matches,” she says. “It delays everything, but it’s the only way we can try to prove our case if a chargeback happens.”

This kind of manual intervention highlights a broader issue – many small businesses are being forced to divert time and resources away from growth just to manage risk.

A shift in how fraud works

According to Valente, chargeback abuse reflects a broader shift in cybercrime tactics.

“Fraud is no longer just about hacking systems from the outside,” he says. “It’s increasingly about exploiting processes, policies and human behaviour.”

This includes everything from fake invoice scams to business email compromise, where attackers impersonate suppliers or staff to redirect payments. But chargebacks are particularly challenging because they can appear legitimate – and are often processed quickly in favour of the customer.

“Organised crime isn’t just trying to break into systems anymore,” Valente says. “They’re looking for weaknesses in how businesses operate and where protections are limited.”

What businesses can do

While there’s no silver bullet, there are practical steps small businesses can take to reduce their exposure.

Strong record-keeping is critical. This includes maintaining proof of delivery, customer communications and transaction data that can be used to dispute chargebacks.

Clear policies also help. Businesses should ensure their refund, return and dispute processes are transparent and communicated upfront to customers.

Technology can play a role too. Tools that monitor transaction patterns, flag unusual behaviour or verify customer identity can help detect potential fraud earlier.

But perhaps most importantly, businesses need to recognise that fraud prevention is no longer optional.

“We need to move from a reactive mindset to a proactive one,” Valente says. “That means assuming fraud will be attempted and putting the right controls in place before it happens.”

A growing business risk

With identity crime affecting more than one in five Australians and cybercrime reported every few minutes, the threat landscape is only becoming more complex.

For small business owners, the challenge is balancing customer experience with security – without adding friction that drives legitimate customers away.

As Hatzis’ experience shows, the cost of getting that balance wrong can be significant – not just financially, but emotionally.

“It’s not just about the money,” she says. “It’s the stress, the time and the feeling that you’re constantly trying to protect something you’ve worked so hard to build.”

In an environment where scams are becoming more subtle and systems more exploitable, staying vigilant isn’t just good practice – it’s essential.

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