Push to regulate chargeback as 'fraud' cripples small online businesses – Australian Broadcasting Corporation

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Topic:Small Businesses
Bronte Goodieson says she has lost hundreds of dollars through fraudulent chargebacks. (ABC News: Daniel Irvine)
Small business owners say they are falling victim to a modern type of theft: fraudulent chargebacks.
It happens when a customer lodges a claim with their bank, saying an item they paid for by card was damaged or did not arrive. It can be difficult for business owners to dispute the claim if they disagree.
An online petition with more than 1,600 signatures is calling on the government for better protection against fraudulent chargebacks.
Bronte Goodieson did not know what a chargeback was until hundreds of dollars were taken out of her account.
The local artist from Sydney had sent off three paintings to an online customer in July last year when she got an email from e-commerce platform Shopify a few days later, flagging a problem with a recent order.
"It was a Sunday afternoon. I was just on a walk and I was checking my emails and it was like $460 is going back to this customer," she told ABC News.
"So I checked it … and [the customers] haven't emailed me … they didn't contact me to show me what was wrong with the product."
Retailers are grappling with an online version of shoplifting and are calling for better protections.
She is one of the many small businesses impacted by chargeback, a practice that was introduced in the 70s, around the same time as card payments, to protect customers from online fraud.
It is where a customer disputes a charge with their own bank following a debit or credit card transaction, claiming a transaction is fraudulent, the item was not received or is defective. The bank then withdraws the money immediately and gives the business owner an option to dispute it if they wish, but it comes at a cost.
An increasing number of business owners say the practice is being misused as a modern type of theft, across a range of industries.
ABC News has spoken to small business owners affected across the transport, beauty, retail and accommodation sectors.
In an email, Shopify notified Ms Goodieson that one of her customers had reported a defective or damaged product, and that evidence had been collected and would be sent to the customer's bank.
Ms Goodieson would also be charged a fee.
But when she contacted the customer about the chargeback, it was a different story.
Bronte Goodieson says her dispute was denied, despite providing evidence the product arrived. (ABC News: Daniel Irvine)
Bronte Goodieson says Shopify emailed her saying they had evidence the product was defective. (ABC News: Adelaide Miller)
Though it turned out to be a case of miscommunication, it made Ms Goodieson question Shopify's claims about having evidence.
"I was guilty of something that was damaged that wasn't even damaged … I wish they could hear people out before you are automatically fighting to get your money back," she said.
"As much as business is about money and finance, it's also really heartbreaking … if I don't go to work and get paid, if I don't sell something, that is rent for the week gone.
"I looked up TikTok just to see if anyone else has been through this … [and] I'd seen it happened to other people and was like, 'Oh my God! This is so scary.'"
In a statement to the ABC, a spokesperson for Shopify said: "When a customer disputes a payment, the issuing bank initiates the chargeback process through the card network. That's an industry-wide rule.
While Ms Goodieson was able to eventually get her money back because the customer transferred it back to her account, other business owners have not been so lucky.
With online payments making up almost 50 per cent of Australian retail sales, industry experts are concerned fraudulent chargebacks are crippling businesses already struggling with higher costs from the war in the Middle East and soon-to-be debit and credit surcharge bans.
Rachael says she has been hit with about eight fraudulent chargeback requests since she opened her business. (ABC News: Glenn Mullane)
Rachael opened her tanning salon about 18 months ago on the Gold Coast and says she has already experienced nearly a dozen fraudulent chargebacks.
Despite disputing each claim, none have been successful.
"Then four weeks later, that feeling is gone when you get another email saying that it's being disputed."
Prior to opening the salon, Rachael, who has asked we only use her first name out of fear more customers may try the practice, spent many years working underground in the mines.
She says opening the salon was a chance for her to spend more time with her kids.
"It hasn't been easy … flying in, flying out away from your family, especially the last few years of trying to get to a point to be even able to open the doors," she said.
Every time a chargeback dispute is lodged, the small business is charged a fee on top of having to refund the customer.
According to Mastercard, the average chargeback amount for merchants in Australia is $91, which payments expert Brad Kelly says often is not worth disputing.
Brad Kelly says small businesses need better protection from fraudulent chargebacks. (ABC News: John Gunn)
Mr Kelly co-founded the Independent Payments Forum, which represents about 120,000 small businesses and their payment systems.
"If you are a merchant and you get a dispute, then to defend that will cost you $25 straight off the bat," he said.
He said it was mainly small businesses, which had less power, that were affected.
"Big business merchants have got much more leverage, they have deeper relationships with banks and gateways and all these other moving parts in the system," Mr Kelly said.
Some customers are buying goods online and then saying they never arrive. (Flickr: Vanessa Pike-Russell)
The other issue, according to Mr Kelly, is that banks do not want to upset their cardholders and risk a fine from the financial regulator.
"If you go to AFCA [Australian Financial Complaints Authority], they will charge the bank for your complaint if it goes that far. So the bank would make a decision and say, 'OK, if we just refund this dispute and the cost to us to go to AFCA is $500 or $1,000.' That's a purely economic decision" Mr Kelly said.
According to the Australian Bureau of Statistics, chargeback decisions normally favour the customer, with 72 per cent who claim card fraud fully reimbursed by their card issuer in 2023–24, totalling $477 million.
However, the regulations come from a time when chargebacks were rare.
"We have a system which is running on legacy and that legacy dates back to the 80s and those rules have been around 40-odd years, that hasn't been updated," Mr Kelly said.
"The original reason for these dispute processes and the resolution has since passed.
Colin Baines, Global Payments country manager for Australia and New Zealand, agrees.
"Friendly fraud is a growing challenge for Australian businesses, as the rapid rise of digital payments and e-commerce increases both the volume and complexity of transactions," he said.
"It used to be a relatively rare issue, but one we're now seeing more frequently.
Worldwide, chargebacks are predicted to reach 324 million transactions in 2028, up from 261 million in 2025.
The Australian Banking Association's chief executive, Simon Birmingham, said it was time for a review into regulations.
Simon Birmingham says banks are aware of fraudulent chargebacks and the impact on small businesses. (Supplied: ABA)
"The rules around chargebacks are set and administered by card schemes such as Visa and Mastercard, with banks required to assess claims based on these rules," Mr Birmingham said in a statement.
"Banks are aware of the growing concerns of small businesses in relation to fraudulent chargebacks.
"We would support a comprehensive review of existing scheme settings to better promote honest conduct and protect the interests of both buyers and sellers."
While the card networks typically provide the infrastructure and rules around chargebacks, issuing banks assess and decide the outcome of individual cases.
In a statement to the ABC, a spokesperson for Visa said they set the global framework and rules for chargebacks, but individual disputes were assessed and decided by card-issuing banks.
"For small businesses, the dispute process is typically managed through their bank or payment service provider, and outcomes can depend on how a business is set up with them," the spokesperson said.
Small business owners say it is confusing to know where to turn, with one business owner taking matters into her own hands.
She's started an online petition, which has more than 1,600 signatures, calling on the government for better protection against this type of theft.
Payment expert Brad Kelly agrees.
"They're out of pocket, not only for the funds, not only for the goods that they've sold, but also the fees that they've been charged … that's crippling for small businesses," Mr Kelly said.
In a statement to the ABC, Minister for Small Business Anne Aly said the government recognised many hardworking small businesses were being left out of pocket when claims were misused.
"We expect payment providers to properly assess claims and ensure fair processes are followed before chargebacks are initiated," Dr Aly said.
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