As online shopping has become even more common for consumers, so has the number of chargebacks and amount of credit card fraud. The average retail provider is reporting an increase of 25% in the number of chargebacks in 2021, setting the stage for significant losses exceeding the $30 billion worth of chargebacks reported in 2020.
A survey by Atomik Research for Kount, an Equifax company, echoed that assessment and revealed some additional trends regarding chargeback management concerns and eCommerce fraud protection. For example, 58% of those responding agreed that chargeback rates have increased since 2020.
Why has the number of chargebacks jumped so high? Merchants report the top reason cited is delivery delays. Consumers are also putting through increased chargebacks for package theft and so-called friendly fraud.
Friendly fraud has increased significantly over the past three years and is the biggest concern for many retailers worried about eCommerce fraud protection. Nine out of 10 online sellers say friendly fraud is a significant concern, and they are struggling with chargeback management.
Many merchants are unable to tell the difference between friendly fraud attempts and legitimate claims. Even when merchants do dispute chargebacks, the average net recovery rate is just 12%.
Trends in Chargeback Management
In 2021, the majority of companies assess their chargeback rate at between 0.6% and 1%. A third say their current chargeback rates now exceed 1% of sales, according to the Atomik Research/Kount study. When it comes to chargeback management, the response varies as well. Six in 10 companies are disputing only some of the chargebacks, while 5% do not dispute any of them.
The Challenges of Chargeback Management
Merchant fraud protection leaders say they have four main challenges in chargeback management this year:
- Lack of experience in chargeback prevention
- Lack of chargeback prevention strategies
- Decreasing the company’s chargeback rates
- Not enough resources to dispute chargebacks
With nearly half of all payments now represented by card-not-present (CNP) online payments, eCommerce fraud protection has become an even bigger concern. On top of chargebacks, merchant fraud protection solutions also need to deal with increasing criminal fraud.
The High Costs of Chargebacks and Fraud
Regardless of the reason the chargeback or fraud occurs, it costs you in multiple ways. You lose:
- Revenue from the sale
- Interchange fees paid to card processing
- Cost of goods sold
- Shipping costs
You also have to account for labor costs to pick, pack, and ship items and the time to research and dispute chargebacks. It adds up quickly.
The best way to reduce chargebacks and fight back is to have a more proactive approach to chargeback management and eCommerce fraud protection. In other words, reduce the amount of fraud before you accept orders.
Solutions for Reducing Chargebacks and Fraud
You can address criminal fraud and reduce chargebacks by adding an additional layer to your merchant fraud protection. Command Credit helps protect businesses that are accepting online payments or extending credit to businesses using advanced technology and credit scoring.
FraudNet
FraudNet helps prevent credit card fraud by going deeper than just asking security questions or requiring two-factor authentication. When a purchase attempt is made, FraudNet automatically compares the data provided and a customer’s online profile. The name, address, email, and history are compared to databases of known threat actors or suspected suspicious activity.
While traditional ID solutions use basic identification, FraudNet uses a context-based approach to reduce fraud. For example, FraudNet examines the device used to place an order:
- Do the user and the device share a history?
- Is the device located in a geo-located area that aligns with a customer’s profile?
- Has the device itself been associated with prior fraudulent activity?
- Is the same device being used with different names and addresses?
- Are multiple purchase attempts occurring in a short period?
All of the information is compiled and compared in less than a second. When an order is placed, it happens automatically and is seamless for the customer. FraudNet evaluates each transaction and produces a risk score so merchants can make decisions about the level of risk they are comfortable taking. Orders are approved or rejected based on thresholds set by merchants.
Reducing Chargebacks and Fraud
Over the past three years, more than 791 million records have been exposed due to security breaches. Just about every consumer has had their data compromised. With the increasing amount of credit fraud and chargebacks in 2021, eCommerce fraud protection is more important than ever.
Want to learn how merchant fraud protection solutions will protect your business from becoming a victim of fraud? Contact Command Credit today.