Chargebacks Are Causing Headwinds for Online Retailers’ Growth

By Melayna Gabiou

When last year’s record-breaking online sales are combined with higher card-not-present (CNP) fraud, a picture begins to form that illustrates an industry under attack and struggling to adapt to today’s new fraudulent reality. Fraud, once considered the cost of doing business by merchants, is now so prevalent that if not contained, it can influence profits, damage customer loyalty and diminish corporate brands.

CNP and online transactions are drastically different than storefront transactions. With the retail world literally at their fingertips, today’s customers expect near instantaneous purchasing experiences. With advanced tools and protocols, online transactions are confirmed for approval within milliseconds. However, while the transaction is instantaneous, a retailer might not realize that it has been a victim of fraud until 60 days to 90 days after the transaction occurs.

To achieve a seamless online buying experience for customers, retailers enter financial obligations to various card networks and, in doing so, must ensure that disputes (aka chargebacks) and fraud are kept to acceptable levels. If these exceed the thresholds dictated by each card network, retailers are placed into a chargeback monitoring program. Once in a chargeback program, an organization is in a vulnerable position that can result in monthly fines and additional fees until the dispute or fraud levels have been reduced.

Exploring the chargebacks industry further, Kount recently unveiled the inaugural State of Chargebacks: 2018 Report, which was published in conjunction with Chargebacks911. The report provides an in-depth look at chargeback management practices in the CNP payments space, including key facts about chargebacks, disputes and win rates. The report, which captures responses from more than 1,000 merchants, found that online retailers face headwinds when it comes to managing fraud and avoiding the dreaded chargeback program.

Specifically, 40 percent of merchants say their optimum chargeback rate is less than 0.1 percent, while only 18 percent of respondents report achieving this chargeback rate. More than 70 percent aim for an optimum chargeback rate at or below 0.5 percent, but only 47 percent of merchants are succeeding at hitting this target.

Of the thousand respondents, 82 percent are actively disputing chargebacks, 10 percent are in excessive chargeback programs, and almost one in four (24 percent) state they have no clue what their actual win rate is when it comes to these disputes.

Of the 82 percent that are disputing chargebacks, only one-fifth of merchants are winning less than 15 percent of their dispute cases, and more than one-third win less than 30 percent of their disputes. This lack of success relates directly to the complexity of disputes, ever-changing regulations for chargebacks, and the dedicated resources available to combat chargebacks. The 10 percent of merchants in excessive chargeback programs speaks to a fundamental breakdown in their fraud detection and prevention solutions.

Of course, the win-win for merchants is to avoid all of this by having an enterprise-class fraud prevention solution that stops fraud and chargebacks before they begin. What’s more, even in cases not involving criminal fraud, enterprise-class fraud prevention can support representation with extensive data that provides compelling evidence that’s key to winning chargeback cases rapidly and convincingly.

Melayna Gabiou is the marketing director at Kount, an enterprise-class fraud prevention solution.