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11 Frightening Chargeback Statistics

posted on: Thu Nov 09 2017

With card-not-present (CNP) fraud soaring 40% in 2016, chargebacks are obviously top-of-mind for every online business. Here are 11 chargeback statistics that are sure to send a chill down your spine:

  1. 86% of chargebacks may be cases of friendly fraud.
  2. Friendly fraud increased 41% over the past two years.
  3. CNP fraud losses will reach $7.2 billion by 2020.

Customer dissatisfaction is a big contributor to eCommerce chargebacks. While returns for online purchases are triple the rate of returns for in-store sales (about 1 in 3 online orders get returned), a significant percentage of chargebacks are nonetheless due to customers simply filing “friendly fraud” claims instead of requesting a refund or exchange.

  1. Approximately 8 in 10 customers admit to filing a chargeback instead of working out issues directly with a seller.
  2. 8% of chargebacks are due to the product not matching the website description (4%) or the product not meeting the customer’s expectations (4%).
  3. Another 41% of chargebacks are due to consumers never receiving their order (26%) or receiving the wrong item from the merchant (15%).

A quick caveat: customers committing intentional digital shoplifting typically offer up the same reasons for their malicious conduct as customers who thoughtlessly file “friendly fraud” chargebacks. Of course, these “friendly fraud” customers aren’t following the proper process to request a refund or exchange, but instead are going to their bank first. And even though they’re not intentionally trying to steal from the online seller, the impact is effectively the same as with digital shoplifters.

It’s worth pointing out that consumer confusion—perhaps exacerbated by bank behavior—is also a big factor impacting chargeback rates:

  1. 49% of all chargebacks were filed without a consumer’s full knowledge. For instance, a customer might ask their bank to look into a transaction or cancel a subscription on their behalf, but the bank misinterprets their request as a full-fledged dispute and files a chargeback.

Whether due to innocent errors, malicious intent, digital shoplifting, or outright criminal fraud, chargebacks have frighteningly negative economic and operational impacts on eCommerce operations:

  1. According to the 2016 LexisNexis True Cost of Fraud Study, for every dollar of nominal loss, merchants actually lose $2.40 based on chargebacks, fees and merchandise replacement.
  2. Fraud attempts jumped 33% and successful fraud attacks increased 32% in 2016.
  3. About 4 in 10 consumers who commit friendly fraud will do it again within 60 days.
  4. Friendly fraud will cost merchants as much as $25 billion by 2020.

Fortunately, eCommerce operations who follow the 10 best practices listed below can win the fight against increasing chargebacks and fraud:

  1. Multiple, advanced screening technologies.
  2. Disputing chargebacks (representment).
  3. Artificial Intelligence (AI) and Machine Learning.
  4. Expertise in chargeback regulations.
  5. Dial-in your chargeback rate.
  6. Real-time fraud and risk data orchestration.
  7. The network effect of Big Data.
  8. Automated risk scoring.
  9. Experienced human intelligence.
  10. Zero-to-minimal software downtime.

Using an integrated risk management system makes implementing these 10 best practices much easier. Further, a comprehensive platform approach enhances overall efficacy to dramatically reduce chargebacks while actually lowering mitigation costs. How? By collecting and analyzing hundreds of discrete data points during fraud screening and transaction processing, a comprehensive platform solution not only delivers superior criminal fraud screening, but also generates the robust data evidence needed to win chargeback representments in cases of friendly fraud.

For an in-depth exploration of all the ways that criminal fraud, merchant error, and friendly fraud interact to affect chargebacks, download the eBook “There’s No Such Thing As Friendly Fraud.” You’ll get intelligence and insights on how to best improve financial performance and minimize operational impacts for your online business.

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