7 Things You Didn’t Know About “The State of Chargebacks”
The State of Chargebacks: 2018 Report is published by Kount and sponsored by Chargebacks911. The report provides an in-depth look at chargeback management practices in the card-not-present (CNP) payments space, including key facts about chargebacks, disputes, and win rates. Here are 7 things you may find surprising about the chargeback practices of online, multi-channel and mobile commerce merchants.
- Nearly 1 in 4 online businesses have a chargeback rate that exceeds 1%. Part of this may is due to the 40% increase in card-not-present (CNP) fraud as the adoption of EMV chip technology in the US continues to drive fraudsters to the online world. Another factor? Certain online businesses that want to avoid high false positives—such as sellers of digital goods—may accept higher rates of CNP fraud as a cost of doing business.
- About half of online businesses aren’t able to achieve their optimum chargeback rate. 68% of organizations say their optimum chargeback rate should be less than 0.5%, but only 46% are actually achieving this rate. And fewer than half of the businesses that target an even lower optimum rate (less than 0.1%) are able to hold chargebacks down to that level.
- 1 in 10 merchants are in Excessive Chargeback Programs. 10% of respondents report that they are in high risk of excessive chargeback programs. Surprisingly, 16% aren’t sure. Sellers of digital goods are twice as likely to be in excessive chargeback programs as merchants who only sell physical goods.
- Disputing chargebacks is the biggest challenge online businesses face. 59% of online businesses list managing chargeback disputes—also known as chargeback representment —as a top three challenge. Coming in a close second (58%) is the problem of identifying friendly fraud. Friendly fraud difficulties that concern merchants the most are how to deal with dishonest customers and a payment chargeback system that is seemingly tilted in favor cardholders. Different size merchants have different priorities when it comes to what they consider a top three challenge. For example, more than 50% of larger merchants with annual revenue exceeding $100 million are concerned about balancing chargeback prevention against false positive reduction compared to 32 percent of smaller merchants with annual online revenues of less than $10 million.
- 82% of organizations dispute chargebacks. An overwhelming majority of online businesses dispute chargebacks. Larger merchants with annual revenues of $250 or more are slightly more likely to dispute chargebacks (86%) while sellers of digital goods are slightly less likely to dispute them (79%).
- 1 in 3 online businesses win less than 30% of representments. Even though most online merchants dispute chargebacks, success remains elusive. For example, 19% of merchants have a win rate of 15% or less. 16% have a win rate of 15-30%. Only about 1 in 5 win more than 60% of their representments.
- 3 out 4 organizations handle chargeback disputes in-house. Even with low success rates and a long list of challenges, a significant majority of online businesses nevertheless choose to handle chargebacks internally. Just 11% use a third party to manage chargebacks, while 10% use a mix of in-house and external resources.