Justt: Merchants face growing revenue loss from chargebacks

Chargebacks are taking a multimillion-dollar bite out of many businesses' revenues, according to the Justt 2023 Chargeback Pulse report, which reveals that a quarter of merchants lose USD 5 million a year or more to chargebacks — even as shifts in consumer behaviour are driving up the frequency of payment disputes.

The survey's 520 respondents come from merchants with at least USD 50 million revenue in the United States and Canada, with more than half of them representing large organisations with more than USD 500 million revenue.

Officials from Justt said that merchants have long viewed chargebacks as the cost of doing business — but the new Chargeback Pulse report shows that these costs are spiraling out of control and eating away at their bottom line. The rise of Buy Now, Pay Later services and new rules governing disputes are only adding to the challenges businesses face as they seek to clamp down on improper chargebacks.

Data included in the report shows that:

• 40% of respondents say that at least 1% of their companies' revenue is lost to chargebacks, which means USD 5 million for an organisation with USD 500 million a year in sales and a whopping USD 10 million for a business with over USD 1 billion in sales;

• 53% of merchants see chargebacks volume growing compared to last year, with only 15% reporting a decrease;

• 42% of merchants now have BNPL offerings, which are particularly vulnerable to chargebacks, and another 14% plan to add BNPL over the next 12 months;

• 35% of merchants exceed a chargeback to transaction ratio of 0.9% - the threshold at which Visa places them under greater scrutiny and subject to potential fines.

A problem hard to tackle by the travel and hospitality industry

The study also uncovered how chargebacks are particularly affecting the travel and hospitality (T&H) sector as well as airline businesses, as more than half of surveyed respondents in these industry cohorts represent organisations with more than USD 500 million revenue.

A big 70% of T&H merchants lose over 1% of their revenue to chargebacks, compared to the 40% average for all businesses. For T&H as well as airline business, winning chargeback dispute cases is very challenging compared to other industry sectors. Almost a third of airlines (27%) do not currently have but plan to offer BNPL solutions in the next 12 months, which may result in a potential surge in chargeback volumes.

Lack of insight and resources for a solution

Despite the escalating business risks posed by chargebacks, 42% of overall survey respondents currently lack the resources they need to tackle this problem. Worse still, 55% find it extremely challenging to distinguish ‘friendly fraud’, i.e. first-party misuse, from legitimate chargebacks, which means that companies could have won more chargeback cases if they had better insights into the root causes behind chargebacks. This is something that requires greater inter-departmental collaboration and technology investment.

Lastly, the study also reveals the extent to which chargeback professionals struggle in keeping pace with changes to the chargeback ecosystem. In fact, just 33% saying they fully understand Visa's new rules around ‘compelling evidence’ in chargeback cases — and 17% of respondents said they hadn't heard of Visa's new rules at all.