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Chargebacks 101

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Fraud Frights

Chargeback halloween

13 Spine-Chilling eCommerce Facts to Keep You Up at Night This Halloween

The days are getting shorter, the leaves are changing color, and there’s a distinct crispness in the air. That means Halloween is right around the corner!

How do you plan to get your frights in this festive season? Maybe watch some scary movies, or take a trip through the neighborhood haunted house? Of course, there’s always the classic option of gathering around the fire late at night to tell spooky stories.

If that’s more your speed, then we’ve got a story for you. Gather round, because it’s time to learn what happens when past transactions come back to haunt you.

Night of the Living Disputes

Picture this: you have a transaction that you thought was paid, settled, and finished. But, in zombie-like fashion, it rises up to wreak terror on your bottom line. Suddenly, money that was secure and safe in your bank account vanishes, and you get hit with additional, punishing fees.

This is what happens when chargebacks—also known as customer disputes—get filed against you.

Having trouble setting the scene in your mind? Try sinking your fangs into these thirteen frightening facts, and see if you feel different about it:

Chargeback costs far outweigh the cost of the initial transaction.

Chargeback costs far outweigh the cost of the initial transaction.

You lose sales revenue with each chargeback. Plus, a chargeback means the customer has no incentive to return the merchandise. You lose the cost of the item, as well as the potential future revenue from reselling it. Add the chargeback processing fees and other negative business consequences.

Chargebacks are growing out of control.

Chargebacks are growing out of control.

Clearly, consumers aren’t spooked by the idea of filing a dispute. Mastercard studies show that the global chargeback volume is expected to hit 615 million in 2021. To put that into perspective, conservative estimates show global chargeback costs could hit $117.47 billion or more by 2023.

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Six in ten chargebacks are probably friendly fraud.

Six in ten chargebacks are probably friendly fraud.

Our data suggests that roughly 60% of all chargebacks will be likely cases of friendly fraud by 2023. “Friendly fraud” doesn’t sound all that scary, but it’s not something you can ignore. It occurs when a customer tries to force a refund for a legitimate transaction. Instead of calling you, they dispute the charge with the bank, and you take the blame.

Half of friendly fraud chargebacks are filed by accident.

Half of friendly fraud chargebacks are filed by accident.

A cardholder can unintentionally file a chargeback simply by calling the bank to inquire about a transaction. 49% of friendly fraud chargebacks start as simple misunderstandings, where the cardholder was not even aware they were initiating the chargeback process.

Chargeback are often faster and easier than applying for a refund.

Chargeback are often faster and easier than applying for a refund.

You may feel that having a “hassle-free” refund policy will encourage returns. It might…but that’s not a bad thing. Our internal data shows that four in five chargebacks were filed out of convenience. If it’s easier and faster for your customer to file a dispute than obtain a refund, that’s what they’ll do.

Your chances of being a victim of friendly fraud just doubled.

Your chances of being a victim of friendly fraud just doubled.

Incidents of friendly fraud more than doubled between January and June of 2020. Part of this can be credited to the global pandemic, of course, which drove customers to shop online. The more popular eCommerce becomes, though, the more friendly fraud will flourish in the long run.

Successful disputes will come back to haunt you.

Successful disputes will come back to haunt you.

Consumers who file a chargeback successfully are 9 times more likely to do it again. Roughly 40% of those who commit friendly fraud will make another attempt within 60 days. They accomplish this by concealing friendly fraud behind a false claim. For instance, a buyer might report that a new TV was damaged upon delivery, when in reality, it arrived in perfect condition.

Chargebacks cost merchants over 3 ½ times more than you think.

Chargebacks cost merchants over 3 ½ times more than you think.

For every $100 in direct fraud costs, merchants lose an average of $360. This includes direct costs but also chargeback fees and administration, overhead costs, more expensive processing, and threats to business sustainability. This figure has shown year-over-year increases for the past decade.

Fraud Frights

50 Insider Tips for Preventing More Chargebacks

In this exclusive guide, we outline the 50 most effective tools and strategies to reduce the overall number of chargebacks you receive.

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Some “solutions” do more harm than good.

Some “solutions” do more harm than good.

Outsourcing to a “professional” can be a great idea, but in some cases it can do more harm than good. Many providers rely solely on automated tools for representment, meaning cases may be submitted with errors. If they don’t have the manpower or knowledge to successfully manage friendly fraud, other services may limit which claims they challenge.

Some prevention efforts cost more than they save.

Some prevention efforts cost more than they save.

In an effort to prevent fraud, merchants often tighten the noose on fraud filters. Unfortunately, false declines—orders rejected for possibly being fraud—cost US merchants nearly $34 in lost sales for every $1 in fraud they actually prevent.

Friendly fraudsters don’t play by the rules.

Friendly fraudsters don’t play by the rules.

Chargeback were designed to be a last result. They were to be used only if the cardholder and merchant could not reach an agreeable resolution. That’s why network rules require the cardholder to contact you and try to resolve the issue before calling the bank. The ugly truth, however, is that only 14 out of 100 consumers actually follow this rule.

DIY chargeback management can be a waste of time.

DIY chargeback management can be a waste of time.

Chargeback management is a complicated, time-consuming task, meaning valuable resources are wasted with each transaction dispute. Research shows that 75% of transactions flagged by fraud filters require a manual review, with an average of nine minutes spent analyzing each transaction.

If you contest chargebacks on your own, you’ll probably lose.

If you contest chargebacks on your own, you’ll probably lose.

According to the 2021 Chargeback Field Report, merchants respond to nearly half of chargebacks. The average net recovery rate, however, stood at just 12%. The bottom line: it takes a lot of resources to fight chargebacks, but statistically speaking, your ROI will be frighteningly small.

Who Ya Gonna Call?

It’s scary how many merchants dismiss chargebacks as an unavoidable cost of doing business. But the facts don’t lie: merchants ignore chargebacks at their own peril.

chargeback safety
 

Still, keeping chargebacks at bay doesn’t require wooden stakes or silver bullets. Adopting the right management plan has been proven to dramatically lower disputes and increase revenue. With a little bit of help, merchants can avoid chargeback nightmares and turn these threats into a thing of the past.

Ready to escape the terror and get back to the business of running your company? Chargebacks911® has the answers you need. Give us a call today to learn more.


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