As eCommerce sales continue to boom, vendors are seeing a rise in illegitimate disputes by cardholders through card-not-present (CNP) transactions. This trend correlates to the price of goods and services for consumers, and has led merchants to adopt stricter policies. To help shed light on fraud’s impact on retailers, Chargebacks911 has released its 2024 Chargeback Field Report, which gives merchants and financial institutions an understanding into the current state of chargebacks and the measures being taken by businesses to help stem the tide of chargeback abuse.
This year’s Field Report, which is presented in partnership with Edgar, Dunn & Company, surveyed nearly 300 retailers across all sizes. One of the most notable statistics revealed in the study was the spike in increased chargeback abuse, with nearly three quarters of surveyed respondents reporting an 18% average increase in friendly fraud over the last three years.
“In the U.S., the right to dispute transactions is protected by federal law. Unfortunately, our survey results suggest that the majority of customer disputes are actually illegitimate,” said Monica Eaton, CEO of Chargebacks911. “In fact, major card networks estimate that as much as 70% of all credit card fraud can be traced to chargeback misuse, or ‘friendly fraud,’ an issue that surveyed merchants say has increased nearly 20% over the last three years.”
With chargebacks now easier than ever to file with an issuing bank, Mastercard reports that money lost to chargebacks cost merchants an estimated $117.47 billion in 2023. What’s more concerning is that merchant errors remain a leading cause of customer disputes. For example, confusing or unrecognizable billing descriptors was the leading cause of chargebacks among cardholders surveyed in Chargebacks911’s 2024 Cardholder Dispute Index. A third of merchants, however, said they did not know exactly how their billing descriptor appears on customer billing statements.
While suspected fraud is a valid reason to file a dispute with their issuer, the main motivation for cardholders to seek resolution with their bank rather than the merchant was a matter of convenience, according to the Field Report, with nearly half of respondents claiming that the speed of resolution was the primary factor for filing a chargeback. Retailers must now compete with cardholders’ banks as to which can be more accommodating.
Of the most useful tools being utilized to address post-transaction fraud and misuse, merchants are leaning heavily on machine-learning and AI to aggregate, analyze and act on transaction data. In fact, 62% of surveyed retailers said they are already using or plan to use AI-based technology to identify and address instances of friendly fraud.
Merchants of all sizes are encouraged to challenge any chargeback they receive that shows signs of friendly fraud or first-party misuse, according to Chargebacks911. The majority of surveyed retailers say they have an internal team dedicated to managing chargebacks, but when comparing the numbers reported by merchants, the report found that companies who leverage representment software and services through a platform provider saw a net recovery rate more than 55 percent higher than merchants that managed the process internally.
Click here to view the 2024 Chargeback Field Report in its entirety.
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