Startling Chargeback Facts That Expose the True Threat Posed by Fraud
Most merchants know that chargebacks are bad news. Few can fully understand how dire the threat really is, though.
Chargebacks—also known as customer disputes—are a federally mandated consumer right. The system was designed as a “safety net” to protect credit card users from fraud and unfair merchant practices. Disputes still fill that role, but there’s more to the story.
The chargeback process was introduced more than 50 years ago. Consumers have since found loopholes that allow abuse of the system. The result has been a sharp increase in the number of friendly fraud attacks committed over the last decade.
Reliable chargeback figures can be difficult to pin down, though. The knowledge merchants do have access to is often obscured by misunderstandings and misinformation. In response, we created this list of chargeback facts to help you gain a better understanding of the causes, costs, and consequences of chargebacks as they apply to your bottom line.
We Lose Billions to Chargebacks Each Year
You know merchants lose a lot of money because of chargebacks. Do you know just how serious the problem is, though?
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Friendly Fraud Is the Main Problem
Chargebacks were meant as a consumer protection mechanism. But, do you realize how often cardholders take advantage of the system nowadays?
The Threat Continues to Grow
Chargeback abuse and other issues with the chargeback process are nothing new. However, the problem is clearly getting worse with each passing year.
Merchants’ Efforts Are Not Very Effective
A lot of merchants are working to address the problem. Unfortunately, in many cases, their efforts are not really paying off as well as they’d hoped.
Can Anything Be Done?
Merchants are usually quick to take action against criminal fraud…but much slower to act in cases of friendly fraud. In fact, many merchants go so far as to dismiss chargebacks as an unavoidable cost of doing business. But criminal fraud and friendly fraud have the same basic consequences for your operations.
Cardholders have learned to conceal friendly fraud by falsely claiming that disputes are based in criminal fraud. For example, they may report that a new TV was damaged upon delivery, when in reality, the item arrived in perfect condition.
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This difference between the given reason for a dispute, and the real reason, makes identifying friendly fraud difficult. Merchants typically have limited data insight. They often deploy the wrong prevention tools or rely exclusively on one solution to handle multiple types of fraud.
The need for a multilayer fraud strategy has been obvious for years. The situation is now critical, though. The good news: adopting the right chargeback management plan has been proven to dramatically lower chargeback issuances and increase revenue.
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Why are reliable chargeback facts so hard to come by?
No one party has all the information. Creating an accurate view would require cooperation among banks, card networks, and merchants. Unfortunately, these parties tend to keep critical data to themselves, out of concern for both security and privacy. At the same time a lack of understanding combined with misinformation can serve to undermine the severity of the situation.
Do the facts shown here apply to all businesses?
Most of them, yes. We’ve tried to provide a wide overview of the situation, presenting facts about chargebacks and fraud in general. All are relevant, in terms of getting the full picture.
Why should I care about chargeback facts?
Fraud is dynamic, and new techniques are being introduced on a regular basis. The more you understand the danger posed by chargebacks in general, the more likely you are to recognize new threats as they develop.