The newest factor impacting chargeback losses is…

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The newest factor impacting chargeback losses is…

By Deena M. Amato-McCoy - 09/26/2018
Chargeback losses are on the rise across the retail industry, but an emerging practice is hitting e-commerce retailers especially hard.

E-retailers are finding themselves being victimized by chargeback policy abuse, a form of cyber-shoplifting — even more so than their brick-and-mortar counterparts, according to “The State of Chargebacks: 2018 Report,” a study from dispute mitigation and loss prevention firm, Chargebacks911.

Chargeback policy abuse, or “friendly fraud,” occurs when a consumer makes an online shopping purchase with their own credit card, and then requests a chargeback from the issuing bank after receiving — and keeping — their order. Increasingly gaining momentum, friendly fraud was three times more prevalent in 2017. It also “increased notably in terms of the sophistication of attack methods,” according to the study.

In a separate study from Javelin Strategy & Research, card-not-present (CNP) merchants face 34% more of this friendly fraud than retailers that operate brick-and-mortar locations as well as online. However, Chargebacks911 estimates that levels could be as high as 86%. Worse, retailers lose an additional $1.50 in fees and costs for every $1 in disputed transactions.

According to Javelin Strategy & Research, chargebacks costs the industry $31 billion, and merchants were responsible for $19.4 billion of these losses. Nearly half (45%) of all consumers filed at least one dispute in 2017, and 25% filed two or more.

“Merchants have a habit of focusing on criminal fraud while writing off chargebacks as a cost of doing business to keep customers happy,” said Monica Eaton-Cardone, co-founder and COO of Chargebacks911.

“It’s little wonder that cyber-shoplifters have become more brazen in their attempts to game the system when they discover how easy it is to get away with,” she added. “E-commerce merchants can’t afford to overlook chargebacks any longer, or rising fraud losses will continue to erode revenue and offset any sales bumps.”

Merchants are encouraged to tackle chargebacks with the same determination and loss prevention efforts they use to ward off criminal fraud and data breaches.

“In some cases, consumers may not even realize they’re stealing from merchants; they just assume a chargeback is an easy, non-confrontational way to score a refund,” Eaton-Cardone said. “Until retailers and restaurateurs start fighting back against unjust charge-backs, fraudsters will continue to take advantage of the system.”