Retail
Overcoming the rise of invalid chargebacks
Monica Eaton, CEO of Chargebacks911, looks at the growth of chargebacks and how it affects business today.
F
or many, shopping is a hobby or delightful pastime. For others, it might be another errand to check off the list. While we all need essentials like food, clothing,
and household items, we have plenty of choices as to where, when, and how we shop. With ever-increasing options for how to shop,
pay and receive products or services, it also gives rise to disputes and chargebacks. A dispute is where a customer claims a transaction registered to their account is invalid or was not fulfilled per their perceived agreement with a retailer. For example, a cardholder might see a dubious charge on their card’s monthly billing statement, inquire with their bank, and if the transaction can be identified and the goods or services purchased are confirmed to have been delivered or not defective, the dispute is considered resolved. But if the dispute can’t be resolved, it escalates to a chargeback,
where the transaction is reversed and the consumer is refunded their money from the merchant, oſtentimes instantaneously. Chargebacks are very costly to businesses and issuers, resulting in billions of dollars in lost revenue every year. But the cost of chargebacks is not just financial. Businesses that can’t effectively resolve and reduce disputes and chargeback rates can suffer a lot of damage to their reputation, such as poor reviews and damaged
36 | November/December 2023
trust among consumers, as well as increased processing fees and possible closure of their merchant account with their payment processor. While the chargeback process is a necessary protection mechanism for cardholders, the vast majority of chargebacks are fraudulent or illegitimate—also known as ‘friendly fraud’. In fact, according to internal reporting from Visa, friendly fraud accounts for up to 75% of all chargebacks. Tis means only a small portion of overall chargebacks are filed for legitimate reasons, while the rest can be traced to errors, miscommunication, or deliberate misuse of the chargeback process. In fact, friendly fraud is expected to cost companies more than $100 billion in 2023 alone. It’s clear that chargebacks are a financial and
reputational burden to businesses. According to a Chargebacks911 consumer survey, 72% of shoppers consider filing a chargeback with their bank and contacting the merchant for a refund are equivalent processes. Terefore, it is essential to explore whether chargebacks have become too easy an option for consumers to initiate, as well as how brands can be more vigilant in their efforts to address and respond to chargebacks. Getting it right means we can all help influence positive, fair and balanced change when it comes to transaction disputes and chargebacks.
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