Six Common Reasons for Chargebacks
Why do customers file chargebacks? Here are the top 6 reasons given by consumers:
|1.||30%||Fraudster made a purchase using a customer's stolen credit card information|
|2.||26%||The product never arrived|
|3.||15%||The wrong product was shipped|
|4.||4%||The product didn't meet customer expectations|
|5.||4%||The product didn't match the website description|
|6.||3%||The order was billed twice or other clerical errors|
Fortunately, there are positive, concrete steps that online businesses can take to reduce these common chargeback issues. In fact, industry experts make the case that the typical eCommerce operation can cut chargebacks by as much as 85%!
- Fraudster made a purchase using a customer’s stolen credit card information
Card-not-present (CNP) fraud skyrocketed 40% in 2016. There are multiple reasons for this, including unprecedented data breaches that are “weaponizing” consumer data, the massive increase in mobile commerce (which merchants believe is riskier), and the EMV mandate that makes card-present fraud much more difficult and expensive (driving fraudsters into CNP fraud, where EMV provides no protection).
For these reasons, enterprise-class fraud prevention is no longer an optional “nice-to-have” but an essential “need-to-have.” There are different ways to implement enterprise-class fraud prevention, but no matter which approach you take, these 10 best practices are essential to winning against chargebacks and fraud:
- Multiple, advanced screening technologies.
- Disputing chargebacks (representment).
- Artificial Intelligence (AI) and Machine Learning.
- Expertise in chargeback regulations.
- Dial-in your chargeback rate.
- Real-time fraud and risk data orchestration.
- The network effect of Big Data.
- Automated risk scoring.
- Experienced human intelligence.
- Zero-to-minimal software downtime.
- The product never arrived
- The wrong product was shipped
- The product didn’t meet customer expectations
- The product didn’t match the website description
- The order was billed twice or other clerical errors
Four of these remaining five reasons fall under friendly fraud. The name derives from the term “friendly fire” because friendly fraud harms the cardholder’s supposed “allies,” such as issuers, acquirers and merchants. Friendly fraud increased 41% over the past 2 years and will cost merchants up to $25 billion by 2020. The causes can range from innocent consumer confusion to malicious digital shoplifting, and everything in between.
Perhaps the biggest win that online businesses can achieve is to turn friendly fraud chargebacks into refunds and exchanges. How? For chargebacks attributed to reasons 2-5, merchants can use representments to recoup a significant portion of their losses.
Enterprise-class fraud prevention solutions provide a rich set of transaction data that can provide powerful evidence during representment (for example, demonstrating that the consumer filed a chargeback during the “60-day money back guarantee” time frame instead of requesting a refund or exchange). Further, solutions that offer fully-managed chargeback management services allow online businesses to avoid the significant headcount, time and expense required to be more successful at representments, while still delivering strong ROI.
For a deeper examination of the issues surrounding chargebacks and the 10 best practices for reducing them, download the eBook “There’s No Such Thing As Friendly Fraud.”