Monica Eaton-Cardone, the co-founder and COO of Chargebacks911, presents the state of chargebacks and chargeback management in relation to card-not-present payments.
There is a word that strikes fear and more often confusion, into the hearts and minds of retailers: ‘chargebacks’. Although a vital mechanism for customers to retrieve money spent on products and goods when they didn’t arrive, were damaged, or weren’t as advertised, the abuse of the chargeback system is costing the industry over USD 100 billion a year.
To make matters worse, consumers are becoming more comfortable with the system as more knowledge is made available on the internet. This has led people to abuse the system, knowing it’s weighted heavily in the customers favour. As a result, we’ve seen a dramatic increase in friendly fraud (when consumers falsely dispute a transaction on their bank statement) over the past couple of years. In fact, this type of fraud increases at a rate of 41% every two years.
For this reason, Chargebacks911, alongside independent payments news outlet, Card Not Present (CNP), have released their new comprehensive report on the state of chargebacks and chargeback management in relation to card-not-present payments. After surveying over 200 online, multichannel and mobile commerce merchants, across a range of verticals, the companies found that majority of merchants are struggling when managing chargebacks, and feel they lose most cases when they dispute them.
How are merchants struggling?
The main issue companies face when managing their payment disputes is understanding the source of a chargeback, with respondents to the study saying that identifying friendly fraud was the biggest challenge for them. To make things worse, the same businesses find that friendly fraud is the number one cause of chargebacks – 56% stated that this type of fraud has increased over the past three years. With the main cause of chargebacks being the hardest to identify, it’s no wonder that the industry is facing these issues.
What’s more, even when friendly fraud is being identified by merchants, many are struggling when it comes to actually disputing chargebacks. These merchants simply didn’t know how to go about starting this process, while others weren’t sure about what documents to share with issuers during the process.
Confusion surrounding the management of chargebacks was further exemplified when Chargebacks911 and CNP were collecting the data for the report, as many merchants massively over-estimate their chargeback win-rate. This is because they were actually referring to their gross win-rate, without taking into consideration how many chargebacks were actually fought, and the fact that 40% of consumers who commit friendly fraud will do so again in the next 60 days – this is known as the second chargeback rate and it should be considered when calculating the net chargeback win-rate. The net chargeback win-rate is, therefore, the true indicator of how successful a business is when disputing chargebacks, yet merchants often don’t know this.
Are new rules being implemented by card schemes effective?
Over the past year, both Visa and Mastercard have begun making changes to help streamline the chargeback dispute process. However, the rule changes may not be as effective as initially planned.
A huge 82% of respondents believed that Visa’s rule changes – Visa Claims Resolution (VCR) – had little or no impact on chargeback management. And over half of merchants do not believe that the regulation has impacted chargebacks at all, claiming that the number of chargebacks hasn’t changed since VCR was implemented.
Mastercard’s rule changes, Mastercard Dispute Resolution (MDRI) also doesn’t seem to be making an impact on the industry, as just 42% of merchants were aware of them. It’s clear that more education is needed when such rules are implemented.
Adopting technology could be the key to effective rule changes
For these rule changes to be effective, it may be necessary for merchants to adopt additional solutions that help manage chargebacks. To coincide with VCR, Visa released a new plug-in, Visa Merchant Purchase Inquiry (VMPI), which allows businesses to respond to cardholder inquiries and complaints before a chargeback is instigated. This service was designed to give retailers more resources to help manage excessive chargebacks and adhere to the rule changes.
Despite this, just 2% of merchants adopted the solution – which could explain why the rule changes weren’t as effective as intended.
Making use of the resources available is essential
This isn’t just the case when it comes to the effectiveness of rule changes. It’s also vital that businesses make use of the resources available to them when managing chargebacks. Chargebacks911 and CNP’s report found that those who made use of third-party chargeback management solutions were able to reduce chargebacks by almost one fifth (19 per cent). These solutions help streamline the chargeback management process, making it easier for merchants.
Yet, as merchants continue to struggle with chargeback management and adhering to rule changes, most aren’t making use of these beneficial solutions. Technology such as this can go a long way when steering the industry in a better direction, while helping those that operate in it recover from the damaging effects of friendly fraud.
To learn more about the current state of chargeback management, visit Chargebacks911 and CNP’s Chargeback Field Report at chargebacks911.com/2019-field-report.
About Monica Eaton-Cardone
Monica Eaton-Cardone is an international entrepreneur who provides sustainable revenue retention and risk reduction solutions to the ecommerce environment. She is the co-founder and COO of Chargebacks911.
About Chargebacks911
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