We help you reduce chargebacks and improve your customer experience.
What’s a chargeback, and why should you care?
To many consumers, a chargeback is just another way to request a refund. For merchants and card issuers, it’s more complex. Chargebacks happen when a customer disputes a debit or credit card transaction and the issuer charges the amount back to the merchant.
Sounds simple. But as the number of disputes soar with the explosion of ecommerce, chargebacks can have a real effect on your bottom line – the cost of chargebacks is expected to reach more than $1 billion in 2023.
For businesses, the chargeback process can be costly and time-consuming. Unless an issuer can quickly determine the customer’s dispute is invalid, they will initiate a chargeback. This is good for the customer experience, but not so great for your profits.
Chargebacks can be costly.
A customer dispute sets off a complex series of events called the chargeback process. This involves the customer’s card issuer, the card network and the merchant’s acquiring bank working together to determine whether the dispute is warranted and whether to refund the customer’s payment.
Here’s a look at a typical flow.
A customer reviews their statement and sees an unrecognized charge.
Assuming fraud, the customer calls their bank to dispute the purchase.
After investigating, the bank pulls the funds from the merchant and refunds the customer.
Days or weeks later, the merchant receives notification that the transaction has been disputed
Merchants then have the option to accept the chargeback or fight it (called representment).
Regardless of whether a merchant wins or loses, the sale is lost, along with the time and fees associated with the chargeback process.
What's driving chargebacks?
True fraud – or third-party fraud – entails a third person using a consumer’s identity, often through stolen card credentials.
Catch fraud early
Catching fraud early is possible with collaborative solutions that provide quick and accurate alerts to suspected fraud that allow merchants to take action before a chargeback is initiated.
Cardholders initiate transaction disputes to card issuers for legitimate purchases, often due to dissatisfaction with the merchant or a problem with the purchase.
Share information faster
Collaborative alert tools can help merchants and issuers quickly share transaction dispute information, allowing merchants to speed up the process of providing evidence of a legitimate purchase.
When cardholders don’t recognize transactions on their statements, their first stop is often their card issuer. This is also referred to as friendly fraud.
Provide clear details
Clear purchase information like digital receipts and merchant names and logos can help consumers recognize transactions on their statements.
How you can prevent chargebacks
Chargebacks are a helpful tool to instill customer trust in the payments process – but there are ways you can reduce the unnecessary ones and their impact on your business. Ultimately, it’s in both merchants’ and issuers’ best interest to do all they can to prevent disputes and chargebacks. Read more below to find out how we can help your business prevent more chargebacks.
71% of ecommerce disputes are due to service errors, such as undelivered or damaged goods. Even though the card issuer refunds the customer’s payment, merchants often get stuck paying for the bulk of the chargeback process.
The recent boom in digital payments has ushered in a sharp rise in the number of disputes and chargebacks. Reducing the volume of disputes avoids the costly and time-consuming chargeback process while elevating the cardholder experience.
If you work in fraud, payments or fintech as a platform or service provider – our network can connect you to a wide range of valuable purchase details and fraud data through one of the largest merchant, issuer and fintech networks, enabling you to scale your business more effectively.
Case study: Reducing retail fraud with real-time alerts
For one leading retailer, the volume of chargebacks each month due to fraudulent transactions was in the thousands. Near real-time fraud alerts that helped the company identify fraud early and avoid chargebacks saved them millions of dollars in the first year alone.
How Ethoca Can Help
Powered by the ever-growing Ethoca Network, our solutions provide rich intelligence throughout the purchase journey to close costly communication gaps in the payments ecosystem. For the first time, fraud, customer dispute and purchase insights are available and actionable in real time. That means fewer chargebacks, less purchase confusion and better customer experiences.
Ethoca Consumer Clarity™
Fraud Insights for Merchants
Need more information?
We’ve answered some of the most common questions about chargebacks.
How can I prevent chargebacks?
While the most common causes of consumer credit and debit card transaction disputes vary, the reason they result in chargebacks comes down to the same root problem – information. Many card issuers, banks and merchants simply don’t have the data they need when they need it. Ethoca has changed all that. Imagine having access to near real-time information that helps you spot fraud, resolve a delivery issue, or clear up a question about a transaction before a dispute becomes a chargeback.
What’s the cost of chargebacks?
Chargebacks are estimated to reach $1 billion in 2023, with merchants bearing most of the cost. Mastercard estimates that merchants incur $15 to $70 in operational costs for every card dispute. Here’s a look at the impact chargebacks have on merchants.
- Lost revenue. Merchants are generally obligated to refund the customer’s purchase when a chargeback is granted.
- Chargeback fees. Even if the merchant files a dispute and the issuer reverses a chargeback, the merchant is still obligated to pay chargeback fees. In some cases, fees can be greater than the value of the transaction being refunded—meaning it’s a double-whammy to their bottom line.
- Unrecovered goods. Sometimes, the merchant is unable to reclaim the good or service for which the consumer was refunded. This can happen in cases of fraud, digital goods or if the customer doesn’t or isn’t able to return it.
Can issuers limit the number of chargebacks?
Merchants who receive too many chargebacks may be at risk of being put on a monitoring program until they lower their chargeback volume. Merchants should check with their acquirers to learn what the chargeback monitoring program rules are and take steps to identify and address the primary drivers of chargebacks, which may include fraud, service issues or transaction confusion. Ultimately, it’s best for merchants and issuers to prevent as many chargebacks as possible, both to minimize risk of being put on a monitoring program and provide the best possible customer experience.
Are most chargebacks due to fraud?
While fraud is not the only driver of chargebacks, it’s exceedingly costly for merchants. When considering all costs, including merchandise replacement and fees, fraud now costs companies $3.36 for every dollar lost. Outside of fraud, another common reason for disputes that result in chargebacks is service errors, such as undelivered or damaged goods. When a consumer contacts the card issuer and initiates a chargeback, it’s often too late for the merchant to resolve the issue.
What’s a CNP fraud chargeback?
With more shopping happening online, merchants need to be prepared for a surge in fraudulent transactions. In fact, card-not-present (CNP) fraud has been estimated at $5.9 billion in the U.S. alone—and this is only expected to increase. More CNP fraud means that cardholders will be disputing more charges on their accounts. This could become problematic for merchants because they pay a chargeback fee every time a chargeback is initiated. Too many chargebacks can lead to higher processing fees or even the loss of card processing rights.
What’s a first-party fraud chargeback?
While true fraud gets much of the attention, there’s another far more costly problem confronting merchants and issuers today – first-party fraud. Sometimes called friendly fraud, it’s when a cardholder identifies a purchase on their card statement as fraudulent and disputes it – even though it was a legitimate purchase.
This can happen when the cardholder doesn’t recognize a transaction because another authorized user made the purchase, because the statement details are unclear, or simply because they want their money back. This type of fraud is so common it’s estimated to account for 70% of all credit card fraud and cost merchants $50 billion a year.
First-party fraud is notoriously hard to combat due to the proliferation of connected devices, making it more likely that consumers make unintended and unrecognized purchases. In addition, the chargeback process has made it easier for consumers to bypass the merchant altogether.