The Chargeback Problem: Small Businesses Say Fraud Protection Has Become a Tool for Theft

Chargeback, a practice introduced in the 1970s to protect customers from online fraud, is being reported by small business owners as increasingly misused.

The process allows customers to dispute transactions with their bank, which then immediately withdraws funds from the merchant. Business owners claim the system is exploited as a form of theft.

Real Stories from the Front Line

Case 1: An Artist's Lost Income

Bronte Goodieson, a Sydney-based artist, sold three paintings via Shopify in July 2024. A customer disputed the charge, claiming the artwork was damaged. Shopify immediately withdrew $460 from Goodieson's account.

The customer later admitted the product was fine—the dispute stemmed from a miscommunication about delivery timing. Goodieson stated that Shopify claimed to have evidence of damage, but the customer disagreed. Ultimately, Goodieson received payment only after the customer personally transferred the funds back.

Case 2: A Tanning Salon Under Siege

Rachael, a Gold Coast tanning salon owner who opened 18 months ago, reported nearly a dozen fraudulent chargeback claims. None of her disputes were successful. She requested anonymity due to fear of further incidents.

The Numbers Behind the Problem

• 72% of Australian customers who claimed card fraud in 2023–24 were fully reimbursed, totaling $477 million (Australian Bureau of Statistics).
• The average chargeback amount for Australian merchants is $91 (Mastercard).
• Disputing a chargeback costs merchants approximately $25 per case, making it uneconomical for small transactions (Payment expert Brad Kelly).

"Small businesses face high costs for disputing chargebacks relative to transaction values."
— Brad Kelly, Independent Payments Forum

What Experts Are Saying

Brad Kelly noted that banks may refund disputes simply to avoid costs from the Australian Financial Complaints Authority, prioritizing economic feasibility over fairness.

Simon Birmingham (Australian Banking Association) called for a review of chargeback rules set by Visa and Mastercard, acknowledging that banks are aware of small business concerns.

Colin Baines (Global Payments) described friendly fraud as a growing challenge linked to the rise of digital payments, and stated that disputes should be a last resort.

Anne Aly (Minister for Small Business) recognized that small businesses are affected and expects payment providers to ensure fair processes.

A Shopify spokesperson stated that chargebacks are initiated by issuing banks according to industry rules, and that Shopify provides tools to help merchants prevent and fight chargebacks.

A Visa spokesperson stated that Visa sets the global framework but individual dispute outcomes are decided by card-issuing banks.

Background: A System Outdated for the Digital Age

The chargeback system was originally designed for rare fraud cases. Industry experts note that regulations have not been updated despite the explosion of online transactions.

Looking ahead, global chargebacks are projected to reach 324 million in 2028, up from 261 million in 2025—a clear sign that the problem is only accelerating.