Chargeback Excuses

January 10, 2019 | 7 min read

Top 4 Reasons Merchants DON’T Fight Chargebacks

Chargebacks are an issue for just about everyone in the eCommerce space. Most online businesses will at least see the occasional chargeback, while some merchants are hit so frequently, they're in immediate danger of losing their card-processing privileges. Most eCommerce merchants fall somewhere in between those extremes.

Fight Chargebacks

If current industry trends hold, the direct cost of chargebacks could easily top $35 billion in 2019. But if that's the case…why do so few businesses take chargebacks seriously?

When we look at 2018 earnings calls, no large companies even mention chargebacks as a concern. Similarly, small- to medium-sized businesses often allow obviously illegitimate chargebacks to go unchallenged. But why? Why don’t they step up and fight? Or even better, take action to prevent chargebacks from happening in the first place?

Here are four common reasons merchants don’t see chargebacks as a problem…and why that’s a big problem on its own.

1. Chargebacks are considered a Cost of Doing Business

Some businesses don’t do anything about chargebacks because they don't feel like they can. After all, if a buyer claims to be a victim of fraud, calling that individual a liar seems like a bad idea. Based on that, plenty of merchants view chargebacks as they would a tax or a churn rate, writing off disputes and filing it under cost of goods sold (COGS).

If you're one of those who feels fighting chargebacks is a wasted effort, it's understandable. After all, the average rate of loss due to chargebacks is about about 0.75% of total sales volume for an online retailer. While that’s not nothing, it IS a comparatively minor slice of the overall pie. Ultimately, however, that line of thinking is wrong on two counts.

First, that "0.75% of total sales volume" label is highly misleading. The costs directly attributable to chargebacks only cover the loss of sales revenue--and that's really just scratching the surface. Those numbers don’t account for lost merchandise, processing and interchange fees, added chargeback fees, more false positives and declined transactions, and threats to long-term sustainability. These and other ancillary expenses will cost the global marketplace up to $150 billion in 2019.

Second…the premise is simply wrong. You can do something about chargebacks. Click below to speak with one of our experts about true, long-term chargeback mitigation and reduction.

No more chargebacks. Sounds nice, doesn’t it? Click here and make it a reality.


2. Trickle-Down Effects are Hard to Track

Chargebacks can seem like an insignificant point of loss when you’re looking at the booming eCommerce market overall. But, as we mentioned above, the truth is a lot more complicated…and expensive.

We’re seeing chargeback and fraud incidents exceed the point of parallel growth compared to online sales. That’s very concerning: if increased losses continue to outpace increased sales, then your margins will keep shrinking year after year. For example, one case study we conducted centered on a merchant showcasing online sales growth of 7.5%. However, they also saw YoY chargeback and fraud increases of 23.3%.

Even if you want to do something about rising chargebacks, though, finding the answer isn’t easy. True chargeback sources are incredibly hard to track. For example, friendly fraud accounts for 60-80% of all chargebacks. Friendly fraud is frustratingly difficult to identify, though, because this crime is committed by loyal customers, many of whom don’t even realize they’re doing anything wrong.

If you can’t track chargebacks, how are you supposed to stop them?

We at Chargebacks911® deploy our patented Intelligent Source Detection® technology to identify chargebacks by their source. No guesswork. No unreliable reason codes.

3. Fraud Patterns Keep Changing

Chargebacks and fraud are tough to resolve under the best conditions, and unfortunately, we really don’t have the best of conditions.

Detecting fraud is like trying to hit a moving target. Fraudsters are smart, and they’re constantly upping their game with new tactics and tools--all to stay ahead of merchants like you. Friendly fraud may be responsible for most chargebacks, but other types of fraud are on the rise, too. Many of them surface as a byproduct of consumer behavioral changes:

  • Refund Fraud
  • Return Fraud
  • Employee-Assisted Fraud
  • Store Credit Fraud
  • Loyalty Point Fraud

…just to name a few.

What can you do about it, though? A fraud filter seems like an obvious solution, but while the technology behind these and other antifraud tools is advancing, it’s still far from perfect. The existing industry environments change rapidly, and fraud techniques change with it; in many cases, this reduces targeting to a matter of guesswork. The result: false positives flag legitimate transactions (costing you sales), while fraudsters slip by undetected (leading to chargebacks).

And the problem is worse than you might suspect: only 20% of transactions flagged by fraud filters are true fraud. Of the $118 billion in sales declined every year, just 8% are genuine fraud. It’s not a pretty picture, but to the average merchant, declining a sale may seem safer than risking a chargeback.

Of course, you don’t have to choose the lesser of two evils. Chargebacks911® partners with many of the industry’s top service providers to mitigate merchants’ criminal fraud risk. Click here to speak with one of our experts about our network of industry-leading partners.

4. Not All Fraud is Created Equal

The average merchant only wins 21% of the chargebacks they dispute. So, even when you engage in representment, you’re still fighting an uphill battle. That fact leads many merchants to write-off the entire process, deciding it’s not worth it to try and stop chargebacks.

When we talk about “online fraud,” however, we tend to treat it as a monolithic issue. It would be more accurate to think of it as a web of many different, yet interconnected issues.

Some incidents tend to be frequent but isolated, like return fraud. Other threats can instigate successive attacks: when customers successfully commit friendly fraud for the first time, there’s a 50% they’ll do it again within 90 days.

It's crucial that merchants deploy the right strategy for the right problem at the right time. Just as you identify chargebacks based on the source, you need to deploy a source-informed response. For example, you can’t fight friendly fraud with fraud scoring, because friendly fraud happens after the transaction. Nor can you stop clean fraud with chargeback representment.

Sound overwhelming? No problem: Chargebacks911’s got your back here, too.

At Chargebacks911, our superior identification capabilities allow us to trace all disputes back to one of three key sources: criminal fraud, friendly fraud, or merchant error. We can then deploy the right strategy for each risk source, producing the industry’s most comprehensive chargeback mitigation solution--all backed by 100% ROI guarantee.

STOP accepting chargebacks. STOP ignoring chargebacks. START recovering your revenue and protecting your business.

Ready to see what Chargebacks911 can do for you? Click below and set up your demo today.

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