25/04/2024 10:36 AM


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Data shows chargebacks risk increasing as digital payments rise

The global adoption of digital transactions exposed more businesses than ever to the ups and downs of e-commerce. Accepting more payment methods means businesses can better compete and cater to consumers’ needs.

Today, an average of 33% of companies in a 2021 survey accept card-not-present (CNP) payments via contactless payment apps, online transactions, and telephone. Additionally, 19% accept cryptocurrency, and 86% offer subscription-based or recurring billing.

But new payment methods and pickup options dramatically increase a business’s risk of accepting fraudulent orders and dealing with the resulting chargebacks.

The survey, Digital Payments in 2021: Opportunities and Chargeback Risks, takes a deeper dive into 2021 chargeback trends and risks across customer experiences, before and after businesses approve orders.* In it, a sample of 508 US adults that work for companies that process at least 500 online transactions monthly reveal:

  • Why their chargeback rates have increased
  • Their top chargeback sources and challenges
  • How they manage disputes and representments

58% think their company’s chargeback rate has increased

In 2018, Kount’s State of Chargebacks report found that 18% of people surveyed estimated their chargeback rate was between 0.6% and 1%. 13% of respondents estimated their chargeback rate was between 1% and 2%.

The Digital Payments in 2021 survey suggests some companies have experienced big changes. When the survey asked respondents how their company’s chargeback rate has changed since March 2020, over half said it increased. Among all respondents, 47% estimate their company’s current chargeback rate is between 0.6%-1%. And 33% estimate their company’s current chargeback rate exceeds 1%.

Shipping delays are responsible for increased chargeback rates

The 58% of respondents who think their company’s chargeback rates have increased since March 2020 speculate a number of reasons why. 45% of respondents say delivery delays are the top reason for their company’s increased chargeback rate. 43% of respondents say trouble scaling and customer service delays, respectively, are top reasons.

However, when the survey opened the question up to all respondents, answers varied. Consistent with those who speculated that delivery delays are responsible for increased chargeback rates, 20% of all respondents also say delivery delays are their company’s most frequent chargeback source.

18% say friendly fraud is their company’s most frequent source of chargebacks. And 17% say package theft and porch pirates are their company’s most frequent source of chargebacks.

On average, respondents’ top chargeback sources, from most to least frequent, are:

  1. Friendly/accidental fraud
  2. Package theft/porch pirates
  3. Shipping or delivery errors
  4. Stolen cards/fraudulent purchases
  5. Policy or refund abuse
  6. Customers forgetting purchases
  7. Unclear merchant or billing descriptors

32% say a lack of experience with chargeback prevention is a top challenge

The 2018 State of Chargebacks report found that business’s top chargeback challenges included disputing chargebacks, identifying friendly fraud, and reducing chargeback rates. But the digital payments survey wanted to know if that changed for companies in 2021.

32% of respondents say a lack of experience with chargeback prevention is their company’s top chargeback challenge. 22% of respondents say a lack of chargeback prevention strategies is their company’s top chargeback challenge. And 17% of respondents say not enough resources (i.e., time, information, personnel) to dispute chargebacks is their company’s top chargeback challenge.

On average, respondents’ top chargeback challenges, from most to least challenging, are:

  1. Lack of experience in chargeback prevention
  2. Lack of chargeback prevention strategies
  3. Decreasing the company’s chargeback rate
  4. Not enough resources (i.e., time, information, personnel) to dispute chargebacks
  5. Getting out of a chargeback program
  6. Costs associated with chargebacks (i.e., inventory loss, opportunity costs, higher card processing fees)
  7. Identifying friendly fraud
  8. Disputing chargebacks effectively/providing the correct data to dispute
  9. Balancing chargebacks and false declines

These responses are interesting, given that 84% of respondents say there are at least three people working on their company’s fraud prevention teams.

And 82% of respondents say at least three people review orders for fraud as their primary job function.

This suggests that companies might need to spend more resources on educating fraud teams on dispute and chargeback management to better mitigate their challenges.

70% of companies have been in a fraud monitoring program in the last 12 months

Given the surge in demand for online purchasing options, businesses stand to experience greater losses due to chargebacks. 83% of respondents in the digital payments survey say their company’s average online transaction value is between $100 and $1,000.

Considering the direct and hidden costs of chargebacks can amount to at least double a transaction’s value, these companies risk substantial losses per chargeback. Add that to the fact that 63% of respondents say their companies process between 500 and 1,000 online transactions per month, and losses can quickly top the tens of thousands.

Unfortunately, these higher online transaction values expose companies to greater chargeback risks and consequences, especially fraud monitoring programs. 70% of respondents say their companies have been in a fraud or dispute monitoring program within the last 12 months.

And that’s not surprising, given respondents’ current estimated chargeback rates. If they’re not in a program already, the 47% of respondents who say their company’s chargeback rate is between 0.6% and 1% are dangerously close.

Businesses that want to reduce chargebacks can do so by engaging in the re-presentment process. But 60% of respondents dispute only some chargebacks — 5% don’t dispute chargebacks at all. Reasons businesses don’t dispute chargebacks include not having enough time, information, or personnel.

Fraud solutions open opportunities for digital payments

The best way to reduce chargebacks is to reduce fraud pre-authorisation and deflect customer disputes with post-authorisation tools. When businesses use these solutions in tandem, they stand the best chance of reducing chargebacks.

But, according to the survey, 22% of respondents say their companies don’t use a fraud solution. And 15% don’t use post-authorisation chargeback tools.

Considering the widespread adoption of digital payment methods, these companies expose themselves and their customers to fraud. And they miss opportunities to resolve customer disputes before they become chargebacks.

Fraud prevention solutions don’t just mitigate fraud and chargeback challenges. They can also make it easier for businesses to adopt new digital payment methods with confidence. And they can automate decisions to accept more good orders and decline high-risk transactions.

Automation could eliminate manual reviews for businesses that have fraud teams but lack experience in chargeback prevention. Spending less time on manual fraud processes can free up workers to address challenges like scaling, merchant errors, and customer service delays.

Plus, the right solutions can prevent fraud without affecting customer experiences. Not only will they not slow down identity verification or authorization decisions, but they won’t create false positives and false declines.

In fact, among respondents who use a fraud prevention solution, over half (53%) agree that it improves the customer experience by increasing order acceptance. 42% agree that it can streamline customer experiences, and 39% say it can send good customers through the purchasing process faster.


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