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CoverStory

study, those in the travel and hospitality sectors experi- The report, The psychology of chargebacks, attributed nearly
enced the highest average chargeback value at $110, ac- 80 percent of chargeback cases to friendly fraud. What's
cording to Datos. more, the company's research suggested most customers
are unaware they are engaging in such activity. Asked if
The most common types of chargebacks (38 percent) are they initiated a false chargeback (they knew the merchant
legitimate; 25 percent are third-party fraud; 21 percent are was right and they weren't) just 2.9 percent of those sur-
first-party (or friendly) fraud; the remaining 16 percent veyed said yes.
are too low in value to pursue, according to the Datos re-
search. Chargeflow surveyed just over 700 consumers and found
immediacy is the name of the game. Asked how long they
Edgar Dunn & Co., which conducts research for Charge- would typically wait to file a chargeback after encounter-
backs911, considers friendly fraud a bigger problem than ing an issue, 23 percent said they would file immediately.
the Datos research suggests; it found a majority of mer- Another 38 percent said they would wait just one to three
chants had seen overall increases in first-party fraud over days, while 23 percent said they would be happy with re-
the preceding three years. Datos points a finger of blame sponse time between four and seven days.
for increasing chargebacks at the growing adoption by
consumers of digital banking and payments, as well as Bottom line: customer service teams are getting little to
online shopping. no time to identify and de-escalate problems before dis-
putes are filed. Customer-first dispute policies also lead
Better than six in 10 (63 percent) of digital purchases com- to chargeback success rates that do little to dissuade cus-
prise the majority of merchants' transaction volume. (Thir- tomers from acting. Just 12 percent of those surveyed by
ty-seven percent of consumers make purchases online and Chargeflow said they had a chargeback denied.
26 do so using mobile apps.) Financial institutions in the
United States are seeing increases in dispute volumes on But bad customer experiences do drive some chargebacks,
the order of 30-40 percent that are tied to digital channels. Chargeflow reported. For example, when asked about the
likelihood of initiating a chargeback if they encountered
Further complicating matters "suboptimal fraud systems an issue with a purchase, just 11 percent said no. Better
are inadequately stopping fraudulent transactions," and than a quarter (27 percent) were highly likely to go the
that leads to more chargebacks, the Datos report noted. chargeback route, and 25 percent stated they were some-
what likely.
Yet better than 90 percent of consumers trust their banks
to correct fraud issues, according to the 2014 Cardholder Not easy problem to spot, or stop
Dispute Index, compiled by Chargebacks911. Fifty-six per- Merchants, as well as banks and processors, are well
cent of FIs and 59 percent of merchants reported increases aware that chargebacks are a growing problem that comes
in excess of 10 percent over the past year. with growing costs. And ignoring the problem is not an
appropriate response
And with the increase, Datos researchers found that
fraudulent chargebacks are rising – both first-party and "Chargeback abuse – both accidental and malicious – is
third-party fraud. almost impossible for non-professionals to anticipate,
because it can happen days or weeks after the original
The popularity of subscription services and free trial of- transaction. This makes it a far more dangerous threat
fers among consumers and merchants alike contributes to than many merchants realize," said Monica Eaton, CEO at
the problem. The global ecommerce subscription market Chargbacks911.
tops $100 million annually, according to Chargebacks911,
and that number is expected to grow to $2.4 trillion by Responding to an evolving ecosystem
2028.
A rapidly evolving payment ecosystem, increasing com-
Yet most consumers don't consider it their responsibility plexity of players involved and technological advance-
to cancel subscriptions they are disenchanted with: 87.6 ments in payment methods have led to increases in fraud,
percent told the firm's pollsters they want their banks to disputes and enumeration attacks, Visa stated. Enumera-
cancel those subscriptions. tion attacks are rapid, card testing attacks that lead to
about $1.1 billion in fraud losses each year.
It's a matter of perspective
Disputes are also a growing concern. Consumers disputed
In yet another report, Chargeflow, a chargeback platform nearly $11 billion worth of charges with U.S. card issuers
developed specifically for online businesses, blamed cus- last year, up from $7.2 billion in 2019. "Visa has a unique
tomer demands for immediacy and other factors for soar- ability to help ensure the disputes processed are above
ing incidences of unfriendly fraud – a trend that could be board," the company wrote in a blog post.
costing online merchants $117 billion a year.

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