As we enter the critical holiday shopping season, businesses are facing new and emerging challenges with first-party fraud. Sift’s Q4 2025 Digital Trust Index shows that chargeback rates climbed steadily throughout 2025, reaching 0.26% in Q3, a 53% increase from Q1 2025. Retail e-commerce chargeback rates have exploded by 233% since Q1 2025, the highest increase of any merchant category.
Fueling this growth is the prevalence of “refund hack” tutorials on social media. 22% of consumers surveyed by Sift acknowledge encountering these tutorials on social platforms, with TikTok (34%) and Facebook (29%) serving as the most common channels. Perhaps more concerning: 10% of consumers surveyed by Sift admit to trying these tactics themselves, such as returning worn clothing or filing chargebacks for purchases they actually received and were satisfied with.
The Perfect Storm: Why Now?
Several converging forces are driving this chargeback crisis. First, the expansion of card-not-present (CNP) transactions—now accounting for 63% of merchant transactions—has created more opportunities for disputes. As digital commerce continues its relentless growth, the sheer volume of transactions provides a larger surface area for both legitimate and fraudulent chargebacks.
Second, economic pressure is pushing consumers toward questionable shortcuts. One in five surveyed consumers said they’d be more likely to use refund hacks during times of financial hardship. When paired with the democratization of fraud tactics through social media, this creates what we call “the refund hack economy”—an ecosystem where fraud knowledge is freely shared and normalized.
Fashion Takes the Biggest Hit
The fashion and retail sectors were particularly vulnerable in 2025. Clothing, accessories, and cosmetics rank as the most disputed category for chargebacks at 20%, followed closely by digital subscriptions (18%) and home goods (16%). Among those who admit to first-party fraud, 19% targeted clothing categories specifically.
The reasons consumers rationalize these fraudulent disputes reveal much about the problem’s complexity. Eighteen percent justified false claims because their order didn’t arrive on time, while 17% felt the merchant “behaved unethically” and a chargeback was justified. Twelve percent wanted their money back and knew their credit card company would cover the cost.
“As disputes and chargebacks continue to rise, and first-party fraud becomes an increasingly significant part of overall dispute volume, businesses face growing operational and financial pressures,” says Alexander Hall, Trust and Safety Architect at Sift. “Leveraging proactive fraud prevention and streamlined dispute management helps companies reduce losses, protect revenue, and maintain long-term customer trust.”
The Ripple Effects
The impact extends far beyond the immediate financial loss. With U.S. merchants losing an estimated $4.61 for every $1 in chargebacks, the operational burden is substantial. But the reputational damage may be even more severe: 62% of consumers say they would be less likely or would stop entirely shopping with a brand after experiencing fraud, with 21% saying they’d stop completely.
This creates a vicious cycle. Twenty-four percent of consumers who filed a dispute due to fraud subsequently became victims of additional online fraud, suggesting that compromised payment methods weren’t shut down quickly enough, leading to payment fraud (52%), scams (51%), and account takeover (29%).
What Merchants Can Do
As first-party fraud becomes more common, merchants need a multi-layered response encompassing real-time transaction analysis to identify potential fraud before authorization, automated dispute management to prioritize winnable cases, clear customer communication to reduce confusion-driven disputes, and proactive refund strategies for borderline cases in which the cost of fighting exceeds the transaction value.
For merchants, the holiday season ahead demands vigilance and a renewed focus on the customer experience that prevents legitimate disputes before they start.
Read the full Q4 2025 Digital Trust Index report for more insights on disputes and chargebacks.
