Introduction

Every merchant who processes card-not-present transactions experiences at least some chargebacks. Sellers, however, seldom see the scope of the problem beyond their own claims. Based on surveys commissioned by Chargebacks911®, the 2024 Chargeback Field Report is a critical view of how chargebacks are impacting merchants as a whole.

Created in a partnership with Edgar, Dunn & Company, this report highlights both prevailing fraud trends and key pain points for retailers in general – and eCommerce merchants in particular. Participants represent businesses of all sizes and across all verticals. Our goal was to provide a baseline which merchants could use to compare their experience against others’.

In compiling the data, however, we discovered that far too many merchants weren’t even fully aware of their own chargeback situation, let alone how others were faring. Worse, the majority are only making limited efforts to combat invalid claims at all.

Our study paints a disturbing picture, but one that could help retailers better understand the danger chargebacks represent. It also provides information to help merchants better manage their disputes.

While by no means comprehensive, our survey was designed to generate accurate information while remaining as diversified, random, and representative as possible. The following section outlines the methods we used for data collection.

METHODS

To produce the 2024 Chargeback Field Report, we surveyed more than 275 merchants representing a wide range of industries. The survey was available to all verified merchants and promoted across a wide array of channels. While this approach helped to diversify the response group, it also presented certain drawbacks.

A survey-based report, for example, necessarily relies on self-reported data. The person completing the survey might have limited access to some of the requested statistics. Participants were asked to provide approximate numbers if specifics were not available. In our experience, merchants commonly underestimate the scale of their chargeback problem and overestimate the effectiveness of their management efforts.

Along the same lines, certain participants will undoubtedly be more forthcoming and proactive toward chargebacks. Those willing to take part in this type of survey were almost certain to be more familiar with their chargeback situation, and thus provide more accurate details than a typical merchant.

Finally, not every participant answered every question. We’ve also rounded many percentages to a whole number for clarity and ease of use.

ADDITIONAL PERSPECTIVE FROM EDGAR, DUNN & COMPANY (EDC)

Most merchants enjoy a “happy transaction” payment flow. This refers to the ideal, seamless path which takes the consumer from a payment initiation to a successful transaction completion. Conversely, on a global basis, the process of managing disputed transactions costs the industry billions of dollars annually. Despite industry efforts to ensure all transactions are happy transactions, the growth of digital payments is equally driving the growth of disputed transactions and chargeback fraud.

This Chargeback Field Report is a widely recognized industry benchmark, providing essential insights and data for payments professionals across the payments value chain. EDC is delighted to support the 2024 Chargeback Field Report because it provides a comprehensive analysis of the health and status of chargeback management in the card-not-present payments space.

Therefore, consistency between stats within this study and previous years should be considered a confirmation of the validity of the data.

When asked What is the annual revenue from card-not-present transactions at your company? 35 percent of the companies taking part in our survey were small businesses that reported yearly CNP revenue of $10M or less. Enterprise organizations (annual revenue of over $100M) made up a slightly smaller bloc (23 percent). All other participants (42 percent) fell somewhere in between, identifying as mid-market companies.

To help put companies’ respective dispute situations into perspective, we asked What is the ticket value of your average transaction? We then compared that number against the responses to What is the ticket value of your average disputed transactions?

Notably, nearly a third of merchants estimated their average dispute value to be higher than their average transaction value. This was most common for merchants with average transactions of under $100.

The discrepancy between ticket and dispute values seems at first to defy logic: statistically, shouldn’t most disputes echo the average value of transactions? But there are multiple circumstances which could result in the differences.

For example, many banks automatically absorb the costs of certain small-ticket disputes due the expense of defending against potential representments. Those lower-cost transactions would still factor into the average ticket value.

Disputes resolved without the merchant’s knowledge, however, would not be reflected in the average cost of disputed transactions, leading to lower overall dispute numbers. It could also be possible that higher-value transactions are more susceptible to disputes, or that a significantly larger number of lower-value disputes were skewing the average.

Even so, these figures may not be as simple as they seem. When segmented by averages instead of straight transaction values, for example, we see that the discrepancies aren’t always as great as the averaged numbers might suggest.

Only a third of merchants claimed that their average chargeback value was significantly different (more than 60 percent higher or lower) than their average transaction amount.

Participants' Vertical & tTransaction volume

To define verticals, we asked Which product categories best describes the primary revenue source of your business? The most responses came from retailers: sellers of home goods, clothing & fashion, and other physical goods accounted for 35 percent of the respondents. The professional services and travel/hospitality spaces were also well-represented.

In response to the question What percent of your card transactions come from businesses (B2B)? less than 10 percent of respondents claimed to operate exclusively in the business-to-business space; the remaining 90 percent did at least some business with consumers.

PAYMENT MODELS

As a way of gauging the impact of alternative payments on chargeback levels, we asked Which of the following payment methods do you accept? While we have covered this topic in past reports, our focus was on the most popular alternative payment options, such as eWallets like Paypal or Google Pay.

As far as established payment types, credit and debit cards remain the top choices. Acceptance of more familiar alternative payment options, such as cryptocurrency or buy now/pay later (BNPL) was up in nearly all categories.

The list of available options continues to expand, however, as does the number of merchants accepting them. To reflect this, we asked about some of the newer methods that are gaining popularity — even though some are not exactly a payment that would be accepted by a retail business at all.

These numbers may not provide an accurate comparison, however. For example, smaller businesses were more likely to accept QR code payments than larger merchants. At the same time, our survey put an emphasis on eCommerce… and smaller organizations tended to be online-only. Since QR codes are primarily an in-person payment method, it’s logical to assume that the total number of merchants accepting QR codes is larger than what these charts would suggest.

Regardless, studies clearly show that consumers are seeking additional alternative payment options. Merchants, however, are looking at the situation from a different perspective. Statistics from the 2024 Cardholder Dispute Index point out the contrast between what consumers are asking for and what merchants are providing.

FRAUD RISK FACTORS

Of course, it’s hard to conclusively determine whether accepting alternative payments actually increases risk. The term “alternative payments” is used here to describe a wide array of technologies and systems, and some are undoubtedly more susceptible to fraud than others. ACH payments, for example, generally offer increased protections to the merchant at the expense of fewer safeguards for the buyer. Based on responses to our survey, though, those benefits aren’t enough to cancel out fraud concerns. For merchants, the appeal of these payment methods isn’t based on any increased security they may provide.

That said, fraud and chargeback risks aren’t limited to payment methods. There are numerous factors that we know raise the chances of triggering chargebacks. We asked merchants Which of the following chargeback risk factors apply to your business?

Over half of the organizations surveyed have one or more of the high-risk elements. Being in a high-risk industry was effectively tied with subscription billing as the top risk factor. These were followed by future services (such as airlines or lodging) and affiliate marketing.

It’s also relevant to note that many of the merchants in our survey reported having more than one high-risk factor, whereas just under 33 percent of respondents said that none of the risk factors we suggested applied to them.

We’ll preface our findings by saying that chargebacks are an important consumer protection mechanism, and they fill a valuable role in the payment process.

The chargeback system was designed to protect customers against criminal fraud and merchant abuse. Having that option ensures that customers are not held liable for unauthorized transactions or charged for items they did not receive.

That said, the process is highly susceptible to misuse. Illegitimate payment disputes may be filed by mistake, or by cardholders deliberately abusing the system. These disputes are known as both “first-party misuse” and as “post- transaction abuse,” or more colloquially, as “friendly fraud.” A serious threat to merchants, friendly fraud accounts for the bulk of reported chargeback volume, as seen in this report’s more detailed findings.

Retailers are not totally at the mercy of illicit chargebacks. The representment process enables them to challenge false claims by presenting documentation on the underlying transaction. If this compelling evidence is enough to resolve the original claim, the merchant may be able to reverse the initial chargeback and recover revenue that would otherwise be lost.

If the cardholder or issuer disagrees with the decision, however, or provides additional evidence or claims, the bank may initiate a second-cycle dispute

On the subject of disputes, it’s important to note that this report highlights a variance in terminology. In 2018, Visa replaced the term “chargeback” with “dispute” in all official capacities. Six years on, acceptance of this change remains inconsistent. Other card networks have not adopted Visa’s labels, making it impossible for merchants to stick with one or the other term.

From all indications, merchants are considering it less of an issue. We posed the question: Some banks have started referring to chargebacks simply as disputes. Within your organization, which term is most commonly used?

The results indicate that more and more are reverting to the use of chargeback exclusively; the number of merchants saying dispute — as well as those using the labels interchangeably — has dropped.

Despite this, the chances for miscommunications remain problematic. The two terms may represent different things, depending on who is using them.

Outside the Visa network, dispute (or “customer dispute”) often refers to a customer arguing that a charge on their statement is invalid or in some way incorrect. A chargeback is the most common way banks request information on that dispute.

Whatever term is used, customers should understand that filing a chargeback is considered a last resort. Other cardholder responses, such as contacting the merchant for a refund, generally work better for all parties involved.

MERCHANTS KNOW THERE IS A PROBLEM