The Growing Challenge of Chargebacks
Merchants are dealing with an epidemic of chargebacks. Whether the disputes are friendly or fraud, the sheer volume of chargebacks is stretching resources to the limit and the monetary loss is a significant and a serious threat to business profitability.
According to research by Accertify and Javelin[1], 51% of merchants say chargeback volumes are increasing. At the same time, estimates suggest global chargeback costs grew by nearly a third between 2018 and 2021[2].
Why are chargeback volumes growing? A large part of it is down to changing consumer attitudes. With the pandemic many customers disputed charges because services or merchandise were not received, and merchants’ customer service departments were unable to keep up with refund requests. Customers learned it was often easier and quicker just to dispute the charge. Therefore, evolving customer expectations may be leading to chargebacks being used in new and unintended ways, leaving merchants struggling to keep up.
In this blog, we’ll look at the situation as it stands today. In the following two articles, we’ll take a deeper dive into chargeback types and the methods merchants use to hold back the tide and outline how Accertify’s chargeback management solution can help you stop fraud in its tracks.
Chargeback management solutions are essential – whether keeping the processes in-house or outsourcing, merchant chargeback teams can’t do it alone. Chargeback management solutions reduce the risk of human error and provide precise insights and information for proactive decision-making.
The pandemic effect
We know eCommerce has been rising for years, but the COVID pandemic supercharged the trend. Online sales rocketed by 17% between 2020 and 2021, and forecasts suggest they will continue to grow by double-digit figures until at least the end of 2024[3].
So, the signs are that the COVID effect will be permanent in some respects. Many of us have now embraced changed shopping experiences, curb-side pickup, online grocery shopping, hybrid working model, and more.
For merchants, this has meant a leap in card not present (CNP) sales, doorstep deliveries, and cross-border transactions. Online-only platforms continue to grow as some merchants commit to a digital-first future and drop out of brick-and-mortar retail altogether.
In this environment, convenience has become even more of a differentiator for merchants than it was before. Consumers have embraced next-day delivery, buy-now-pay-later, and buy-online-pickup-in-store (BOPIS) processes, among other innovations. In fact, a UK study suggests a near three quarters increase in the number of purchases that are ordered online but picked up in person[4].
The rise of friendly fraud
The result of all this is certainly greater convenience for the consumer. But it has also prompted a marked increase in chargebacks for merchants. Digital innovation ensures online shopping is easy and convenient, which inevitably increases the number of purchases that consumers come to regret or reject.
This could be for several reasons. An item doesn’t fit. It doesn’t work. It doesn’t look the same in real life as it did on a smartphone app. Consumers might also get buyer’s remorse. They purchase a product or service and then feel guilty about spending the money.
It’s also true that items get lost in transit or are delivered to the wrong location. Sometimes, consumers purchase an item or service but don’t recognise the name on the statement in their banking app. Without malice, they deny the purchase and ask for a refund.
All these circumstances can result in a chargeback, but they really shouldn’t. In most of them, consumers should work directly with the merchant. But they don’t always have the time or faith in refund processes, or struggle to find a customer service contact number…or simply find it all a bit of a pain. In many ways, disputing a transaction can be the path of least resistance, which is to contact their bank and dispute the transaction.
Chargeback or customer service complaint?
A customer disputing a valid transaction is called 1st party misuse (aka friendly fraud). The customer may not set out to defraud the merchant. It could be that a chargeback is the quickest way to resolve a customer service issue. Whatever the dispute reasons, a chargeback management solution can help to avoid these challenges.
Of course, 3rd party fraud will result in chargebacks as well. For example, stolen credit cards used to make a purchase. The legitimate cardholder will see a transaction on their statement that they know they did not make and dispute the charge with their bank or card issuer.
But for the merchant, the result is much the same. A chargeback is issued that takes time and resources to process. Merchants can challenge chargebacks, but this adds extra costs and additional work for an uncertain outcome.
From the merchant’s vantage point, the chargeback system can seem like a lose-lose situation. For that reason, many of them simply take the hit. According to research[5], nearly 40% of merchants don’t bother to fight merchandise or service not rendered chargeback claims.
Many merchants insist – with some justification – that the chargeback system needs improvement. Certainly, it was introduced long before the internet, when cards were almost always present at the point of sale and asking for a refund was a far more involved process than tapping a button on a banking app[6].
But we are where we are. Chargeback volumes are surging as legitimate consumers and criminals use (and misuse) the system as the quickest path to a refund. The success of eCommerce is largely down to its convenience, and that includes convenient ways for consumers to ask for a refund.
Merchants can’t hold back the chargeback tide, but they can find more efficient ways to identify and challenge the ones worth fighting. In the next blog in this series, we’ll dive into chargebacks in more depth, highlighting the wide spectrum of friendly and unfriendly fraud and discussing ways to reduce its impact.
Accertify can help with a chargeback management processes to help prevent loss.
Reduce chargebacks. Increase your win rate. Our chargeback management solution helps you quickly identify missed fraud, improving your fraud prevention strategy all the while drive efficiency into responding to your winnable disputes. This ensures maximum win rates and reduced costs so you get paid for the services you provide.
1 Source: Accertify, Merchants Chargebacks Fraud Survey 2021
2 Source: Payments Cards and Mobile, New Studies Reveal Chargeback Issue, 2022
3 Source: Infomineo, Global E-Commerce and the Impact of Covid 19, 2021
4 Source: Accertify, Chargeback Management, 2021
5 Source: Accertify, Merchants Chargebacks Fraud Survey 2021
6 Source: Investopedia, Fair Billing Act, HowIt Protects Consumers, 2022