E-Commerce Chargeback Costs Reach $40 Billion Per Year

23-Feb-2018

Chargebacks, chargeback fraud and expenses related to managing them cost e-Commerce merchants $40 billion per year, according to Chargebacks 911. Retailers are fighting back, but their success rates vary widely by vertical. The State of Chargebacks: 2018 Report, sponsored by Kount and Chargebacks911, showed that 82% of organizations doing business within the card-not-present (CNP) payment space dispute chargebacks.

Overall, when companies dispute chargebacks their win rates are discouraging. Almost half (45%) reported that they were able to reverse chargebacks less than 45% of the time, and only 32% were successful more than 45% of the time (24% of respondents did not know their win rate).

Verticals where organizations are most likely to have win rates higher than 60% include:

  • B2B (26%);
  • Health/beauty (26%); and
  • Home/kitchen/pets/toys (24%).
  • The merchants most likely to cite win rates below 15% operate in the food/beverage (25%), automotive and power sports (23%), and apparel/accessories/jewelry (22%) categories.

Large gaps remain between the level of chargebacks merchants would like to achieve and their actual rates:

  • 68% of survey respondents aim to keep their chargeback rate at or below 0.5%, but only 47% are able to do so;
  • 40% aim for rates at or below 0.1%, but only 18% achieve this goal.

High Chargeback Rates Threaten Card Processing Privileges

Nearly one-quarter (23%) of survey respondents reported chargeback rates of 1% or higher. Such levels can increase a merchant’s risk of being put into an excessive chargeback program, and ultimately threaten its ability to process credit cards (10% of respondents are currently in excessive chargeback programs).

“Chargebacks within the CNP channel are a growing concern among online merchants,” said Brad Wiskirchen, CEO of Kount in a statement. “This inaugural report was important for the industry to understand the state of the market today, the current challenges that merchants face, and the fraud technology and tactics that they are deploying to combat chargebacks.”

Additional survey results include:

  • Nearly half (48%) of responding organizations point to CNP fraud as the primary source of their chargebacks, and 28% identify the main source as “friendly” fraud, defined as cardholders disputing a charge by filing a claim with the issuing bank rather than contacting the merchant;
  • 45% of organizations use a third-party provider to prevent fraud, but only 21% use a third-party provider to assist them with chargeback presentment (the process merchants use to dispute chargebacks);
  • 39% of respondents use presentment for more than 60% of their chargebacks, and 42% use presentment for less than 30% of disputed chargebacks; and
  • The majority of organizations (88%) employ multiple tools or services for fraud and chargeback prevention.

Participants in the survey included more than 1,000 global respondents representing online, multi-channel and mobile commerce merchants. More than 70% operate in the U.S., and more than half of respondents sell shippable goods online, either exclusively or in addition to digital goods.

Chargebacks, chargeback fraud and expenses related to managing them cost e-Commerce merchants $40 billion per year, according to Chargebacks 911. Retailers are fighting back, but their success rates vary widely by vertical. The State of Chargebacks: 2018 Report, sponsored by Kount and Chargebacks911, showed that 82% of organizations doing business within the card-not-present (CNP) payment space dispute chargebacks.

Overall, when companies dispute chargebacks their win rates are discouraging. Almost half (45%) reported that they were able to reverse chargebacks less than 45% of the time, and only 32% were successful more than 45% of the time (24% of respondents did not know their win rate).

Verticals where organizations are most likely to have win rates higher than 60% include:

  • B2B (26%);
  • Health/beauty (26%); and
  • Home/kitchen/pets/toys (24%).

The merchants most likely to cite win rates below 15% operate in the food/beverage (25%), automotive and power sports (23%), and apparel/accessories/jewelry (22%) categories.

Large gaps remain between the level of chargebacks merchants would like to achieve and their actual rates:

  • 68% of survey respondents aim to keep their chargeback rate at or below 0.5%, but only 47% are able to do so;
  • 40% aim for rates at or below 0.1%, but only 18% achieve this goal.

High Chargeback Rates Threaten Card Processing Privileges

Nearly one-quarter (23%) of survey respondents reported chargeback rates of 1% or higher. Such levels can increase a merchant’s risk of being put into an excessive chargeback program, and ultimately threaten its ability to process credit cards (10% of respondents are currently in excessive chargeback programs).

“Chargebacks within the CNP channel are a growing concern among online merchants,” said Brad Wiskirchen, CEO of Kount in a statement. “This inaugural report was important for the industry to understand the state of the market today, the current challenges that merchants face, and the fraud technology and tactics that they are deploying to combat chargebacks.”

Additional survey results include:

  • Nearly half (48%) of responding organizations point to CNP fraud as the primary source of their chargebacks, and 28% identify the main source as “friendly” fraud, defined as cardholders disputing a charge by filing a claim with the issuing bank rather than contacting the merchant;
  • 45% of organizations use a third-party provider to prevent fraud, but only 21% use a third-party provider to assist them with chargeback presentment (the process merchants use to dispute chargebacks);
  • 39% of respondents represent more than 60% of their chargebacks; 42% represent less than 30% of disputed chargebacks; and
  • The majority of organizations (88%) employ multiple tools or services for fraud and chargeback prevention.

Participants in the survey included more than 1,000 global respondents representing online, multi-channel and mobile commerce merchants. More than 70% operate in the U.S., and more than half of respondents sell shippable goods online, either exclusively or in addition to digital goods.