Most merchants have some degree of experience with chargebacks. If not…it’s probably just a matter of time.
Transaction disputes are increasingly common. In fact, chargebacks will cost online merchants more than $30 billion a year by 2020. The problem is that most merchants have no real insight into why customers file chargebacks, or how to address chargebacks triggers, because solid information is very difficult to come-by.
Why Chargeback Data Matters
Chargebacks were created to protect consumers against fraud; if a cardholder were victimized, that individual would have some way to recover their money. These days, though, many customers file chargebacks out of convenience instead. This is a practice known as “friendly fraud.”
Some buyers see friendly fraud as an easy alternative compared to working with merchants to resolve issues, or to get a refund after a return is no longer available. A small minority of buyers go a step further and simply file chargebacks to avoid paying for goods. In any case, the result is the same.
The confusion regarding chargeback sources has consequences for everyone involved. Merchants lose valid sales and merchandise and are forced to pay added fees to cover administrative costs. Over time, a higher chargeback-to-transaction ratio can even threaten the merchant’s long-term sustainability. In turn, businesses and financial institutions deploy inaccurate data to address fraud, opening the door for actual criminal fraud that can impact consumers.
As if that weren’t enough, the complex industry policy governing chargebacks makes the process even harder. The rules built-up over several decades—many of which predate eCommerce altogether—are not responsive to the realities of the market.
The State of Chargebacks 2018
The first-ever State of Chargebacks report was compiled to address the need for solid chargeback data. The study surveyed dozens of eCommerce merchants operating in a wide range of product verticals about their chargeback pain points. The result offers a clear picture of the extent of merchants’ issues, what triggers chargebacks, and whether merchants are winning disputes against unjustified chargebacks.
The full study is available for download below, but we also pulled key stats as a quick overview to create the following infographic.
Of course, discovering merchants’ perceived problems are just the first step in the process. Combining first-hand experiences with empirical data allows us to drill deeper and reveal the actual source of chargebacks. For example, the study shows that roughly 55% of merchants identify criminal fraud as their greatest chargeback threat; however, existing data suggests friendly fraud may be responsible for 60-80% of all cases.
The discrepancy between what merchants believe and what the data shows indicates that we still have a long way to go to improve education on this subject. The first step, though, is getting that essential information in front of merchants to help promote a wider understanding of the problem…and its potential solutions.
Author Bio: This is a guest post by David DeCorte, an editor and content writer with Chargebacks911, an industry-leading chargeback mitigation service. David writes extensively on subjects including business, eCommerce, payments, and fraud prevention. He is also a guest contributor to several cultural publications and educational blogs.