Shocking Chargeback Facts That Will Negatively Impact the Business’s Bottom Line
Merchants each have their own nightmares, but these universal truths plague everyone involved with the payment industry.
The statistics cited in this article are from 2015. If you are interested in more recent studies and statistics, please contact one of our chargeback experts to discuss how we can assist you with your chargeback nightmares!
Chargebacks are Viewed as a
Even the most customer-friendly return policy can’t compete with the ease of filing a chargeback.
According to a study conducted by Global Risk Technologies™, 81% of chargebacks were filed out of convenience. It was easier for the customer to contact the bank for a chargeback than obtain a refund from the merchant.
Consumers Don’t Understand the
While some friendly fraudsters set out with the intention to get something free, others are less aware of their actions and might even accidentally commit fraud.
Ramifications of Friendly Fraud
The same Global Risk Technologies™ study found 49% of friendly fraud chargebacks resulted from a simple misunderstanding—the cardholders didn’t even know they were filing chargebacks.
Consumers didn’t report the charges as unauthorized. They simply asked the bank to cancel a subscription or find out if a merchant sold a particular product. These accidental friendly fraudsters were misinformed, thinking the bank would contact the merchant on their behalf.
Industry Policy Changes Disproportionately
Favor the Consumer
There are several reasons why friendly fraud flourishes. One contributing factor is the overwhelming responsibility for merchants.
As a consumer protection mechanism, industry professionals will ensure the chargeback process always keeps the consumer’s best interests in mind. While many experts recognize the fact that too much accountability is on merchants, industry changes intended to instill balance have actually made the situation worse.
It seems everyone but the merchant is a priority when it comes to fraud detection and prevention.
For example, Visa chargeback regulation updates, scheduled to take effect January 1, 2016, are intended to make merchant management easier for acquirers.
To better assist acquirers in managing their merchants, Visa will update its chargeback monitoring regulations with globally consistent criteria.
Combining three chargeback management programs into one will certainly simplify things for the bank, but how will the changes benefit the merchant?Another example is the shift to new EMV cards, designed to protect consumers from counterfeit transactions made with forged cards. Consumer protection will be vastly improved for in-person purchases. However, once criminals realize their plans are no longer working in the card-present realm of commerce, they will simply turn their attention to card-not-present transactions.
EMV is bringing other concerns for merchants too. Savvy shoppers have learned of the increased risk for card-not-present fraud and have increased their friendly fraud efforts. It’s been well publicized that eCommerce fraud could increase, and consumers are using that knowledge to their advantage by denying the authorization of legitimate online purchases.
Professional Help is not
Forward-thinking merchants usually come to a point where they recognize they can’t handle the issue of chargebacks on their own, so they outsource to a “professional.”
Unfortunately, not all chargeback management solutions are created equal. In fact, some solutions can do more harm than good.
There are various ways in which a chargeback company might lead merchants down a less-than-efficient path:
- Automated tools are used for representment. Manual reviews are not conducted and chargeback disputes are submitted with errors. This lack of professionalism can severely damage the merchant’s reputation with issuing banks.
- Some companies demand the merchant use a specific processor or adhere to other technology requirements. At best, the merchant must engage in complex product integration; at worst, the chargeback company’s industry alliances cost the merchant more.
- Limitations are placed on what can and can’t be disputed. Some chargeback companies don’t have the manpower or knowledge to successfully manage friendly fraud. As a result, they restrict representment for certain products or services.
DIY Chargeback Management
is Very Time Consuming
Chargeback management is a time-consuming task, meaning valuable resources are wasted with each transaction dispute.
The LexisNexis® 2015 True Cost of Fraud study reported manual reviews are needed to analyze 75% of transactions marked as suspicious by fraud filters. Another fraud study found, on average, it takes nine minutes to manually review a single transaction and authenticate or reject the suspicious purchase.
Not only does this process sacrifice a merchant’s valuable time, it is also expensive. Of those transactions that are manually reviewed, 25% of the declines were false positives.
In the end, multi-channel merchants report that it is seven times more difficult to prevent card-not-present fraud than criminal attempts made in person.
Chargebacks are Expensive
Based on reports from LexisNexis® Risk Solutions and the U.S. Census Bureau, BI Intelligence calculated fraud cost for U.S. merchants to be over $30 billion in 2014. On a per-transaction basis, merchants lose $3.08 per dollar of fraud (a $100 chargeback actually costs $308).
Additionally, the average merchant lost 1.32% of revenue to fraud in 2015—a 94% increase from the previous year.
Turning Fact Into Fiction
It’s hard to argue with statistics. Industry findings and evolving consumer behaviors are difficult to deny. However, with a little bit of help, merchants can avoid transaction dispute nightmares and turn these modern threats into a thing of the past.
If these facts about fraud and chargebacks are scaring you, contact Chargebacks911® today. We’ll help you escape the terror that plagues so many and ensure you are part of the thriving minority.