Leveraging survey data from over 275 merchants, the report offers a detailed look at emerging fraud trends, chargeback prevention practices, and the challenges merchants face in mitigating disputes. The report identifies friendly fraud, where customers dispute legitimate transactions, as the leading cause of chargebacks, comprising an estimated 45% of cases. Over half of the merchants surveyed reported an increase in friendly fraud over the past three years.
This trend reflects a shift from criminal fraud to first-party misuse as the primary challenge for merchants, exacerbated by consumers’ misunderstanding of the chargeback process. Notably, 75% of respondents considered filing a chargeback equivalent to requesting a refund, leading to system abuse.
Despite the growing use of fraud prevention tools, significant gaps remain. About one-third of merchants surveyed did not know how their billing descriptors appear on customer statements, which is a common source of disputes. Moreover, while 60% of respondents either use or plan to adopt AI-powered fraud prevention tools, 25% of merchants admitted to not using any prevention solutions.
Chargeback management efforts are also limited in effectiveness. The report highlights discrepancies between merchants’ perceptions of their success rates and actual net recovery rates, which average 20%. Nearly 40% of respondents do not track key metrics like second-cycle disputes, making it difficult to evaluate the return on investment (ROI) of chargeback management strategies.
Chargebacks are increasingly influencing business decisions. One-third of merchants stated that the costs associated with chargebacks have directly impacted pricing for their goods and services. Additionally, merchants accepting alternative payment methods, such as cryptocurrencies or Buy Now, Pay Later options, expressed concerns about increased fraud risks, though these payment models are growing in popularity.
The report underscores the need for more robust fraud prevention measures, improved customer education, and better internal controls to mitigate the chargeback problem. Without these efforts, the report highlights that merchants risk ongoing financial losses and damage to their reputations.
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