The State of Chargebacks: 8 Key Lessons for Retailers

by David DeCorte on Feb 20, 2018 12:25:30 PM e-Commerce

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The future looks bright for the eCommerce market. Global online sales are projected to reach nearly $4.5 trillion a year by 2021. Millions of interconnected shoppers, especially those in fast-growing overseas markets, are hungry for consumer goods. New customers connect with retailers every day through developing channels, opening new opportunities to collect data and market to buyers on a personalized level.

It’s not all good news, though. Rising interest in eCommerce goes hand-in-hand with new challenges, like increased chargeback risk.

What’s the Deal With Chargebacks?

Chargebacks were originally intended as a consumer protection mechanism upon introduction back in the 1970s. They were meant to serve as an “ace in the hole” for consumers, both ensuring public confidence in then-new credit card technology while discouraging merchant fraud. These days, though, chargebacks are more often a tool for consumers to commit friendly fraud.

“There are many potential triggers for friendly fraud,” says Chargebacks911® COO Monica Eaton-Cardone. “The customer could perceive the merchant’s return policies as being too burdensome or complex to bother with. It’s also fairly common for a family member of the cardholder, like a spouse or child, to make a purchase in the cardholder’s name, which ultimately turns into a chargeback.”

These can generally be chalked-up as miscommunications or a lack of understanding on the customer’s end. But buyer’s remorse—another common friendly fraud trigger—is not as easy to write-off.

“Many people complete a transaction as a legitimate customer, but then suffer buyer’s remorse and file a chargeback to undo the sale,” Eaton-Cardone explains. Survey data backs-up that notion, suggesting that roughly 8 in 10 consumers have filed at least one chargeback entirely out of convenience. Others start out with bad intentions; they make a purchase planning to request a chargeback in hopes of getting something for free.

No matter what initially triggers the chargeback, the result is the same for merchants: lost sales revenue and merchandise, plus added fees and long-term threats to the business’s sustainability. All totaled, chargebacks will cost online retailers more than $30 billion by 2020.

Conclusion

The problem is that retailers don’t have any useful insight on the problem. Chargeback reason codes aren’t much help, as friendly fraud—which represents as much as 80% of all chargebacks—relies on hiding behind the reason code. Add new, confusing policies like the General Data Protection Regulation (GDPR) into the mix, and it’s a recipe for disaster.

The new State of Chargebacks 2018 report, produced by Chargebacks911 and their partners at Kount®, is the first-ever deep dive into merchants’ chargeback problems.

Researchers went straight to the merchants to ask detailed questions about their experiences with chargebacks. Experts then compared that data to established chargeback figures, comparing merchants’ impressions of chargebacks with the reality on the ground.

You can download the full study for free below…but first, check out eight of the most important lessons from the study detailed in the following infographic:

Chargebacks911
via chargebacks911


 About the Author

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David DeCorte is an editor and content writer with Chargebacks911, an industry-leading chargeback mitigation service. David writes extensively on subjects including business, eCommerce, payments, and fraud prevention. He is also a guest contributor to several humor and pop culture publications and educational blogs.

David DeCorte's blog
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