Seller Survey Reveals Latest Trends and Impacts of Friendly Scam

• Nearly half of respondents estimated that friendly fraud was responsible for 50% or more of their chargebacks.

• Sellers reported that almost a quarter of their returns were fraudulent.

• One-third of participants said that the costs associated with chargebacks have a direct impact on the final price of the goods or services provided.

• Two-thirds of respondents said they either already use AI-based fraud prevention tools or plan to do so in the future.

TAMPA, FL, October 1, 2024–(BUSINESS WIRE)–As e-commerce sales continue to reach record levels, merchants around the world are seeing a related increase in illegal cardholder disputes related to card not present (CNP) transactions. This unfortunate trend has a direct impact on the prices of goods and services for consumers and has led retailers to adopt more stringent policies and AI-based tools to protect their revenues. In an effort to show the true impact of friendly fraud on retailers, Chargebacks911 – the first company specializing in providing chargeback remediation services – has released the 2024 Chargeback Report, giving merchants and financial institutions an understanding of the current state of chargebacks and remediation measures being taken by businesses to help stem the tide of chargeback abuse.

Nearly 300 retailers, ranging from small businesses to enterprise merchants, participated in this year’s field report, produced in partnership with Edgar, Dunn & Company. One of the most alarming statistics revealed by the study was the sharp increase in chargeback abuse; nearly three-quarters of respondents surveyed saw an average increase in friendly fraud of 18% over the past three years.

While the chargeback process is a necessary mechanism to protect consumers, misuse and abuse of the system has caused insurmountable reputational and financial damage to merchants. With 53% of cardholders disputing a transaction with their bank without contacting the merchant, merchants lose the opportunity to resolve disputes directly with the consumer.

“In the United States, the right to challenge a transaction is protected by federal law. Unfortunately, our survey results suggest that the majority of customer disputes are, in fact, wrongful,” said Monica Eaton, CEO of Chargebacks911. “In fact, major card networks estimate that as much as 70% of all credit card fraud can be attributed to the misuse of chargebacks, or “friendly fraud,” and this problem has increased by almost 20% over the past three years, according to surveyed merchants.” “.

According to Statista, from April to June 2024, U.S. e-commerce retail sales reached over $291 billion, the highest quarterly revenue on record. While this gives sellers cause for celebration, a major concern among retailers is post-transaction threats such as friendly fraud and refund abuse, which are increasing as online sales increase.

The story continues

Mastercard reports that it’s now easier than ever for a bank to issue chargebacks and that money lost to chargebacks will cost merchants an estimated $117.47 billion in 2023. More troubling is that merchant errors remain the leading cause of customer disputes. For example, confusing or unrecognizable billing descriptors were the leading cause of chargebacks among cardholders included in Chargebacks911’s 2024 Cardholder Dispute Index study. However, a third of merchants said they did not know exactly how their billing descriptor appeared on customer billing statements.

While suspicion of fraud is certainly a valid reason to initiate a dispute with a card issuer, according to the field report, cardholders’ main motivation for seeking a solution from a bank rather than a merchant was a matter of convenience, with almost half of respondents saying that speed of problem resolution was a major factor triggering a chargeback request. Retailers now have to compete with cardholder banks on which one can be more accommodating.

The experts at Chargebacks911 say merchants’ best response to this trend is prevention and response through systems such as chargeback notification programs and the representation process.

Among the most useful tools used to combat post-transaction fraud and abuse, merchants rely heavily on machine learning and artificial intelligence to aggregate, analyze and take action on transaction data. In fact, 62% of retailers surveyed said they already use or plan to use AI-powered technology to identify and eliminate cases of friendly fraud.

“Chargeback data can serve as a powerful KPI, helping you both make better decisions and fine-tune your strategy,” Eaton said. “It’s worth noting that, according to our survey, sellers who used third-party solutions or software were twice as likely to know their tracking numbers.”

Moreover, card networks themselves are more aware of the impact that friendly fraud has on merchants and have introduced new dispute resolution policies to help create a more balanced chargeback framework. Updated sets of rules, such as Visa Compelling Evidence 3.0 and Mastercard’s First-Party Trust Program, help companies protect fair transactions and prevent wrongful disputes by enabling retailers to transmit more transaction information, including purchase history and IP addresses.

According to Chargebacks911, merchants of all sizes are encouraged to dispute any chargebacks they receive that show signs of friendly fraud or first-party abuse. Most retailers surveyed say they have an internal team dedicated to managing chargebacks, but when comparing the numbers reported by merchants, the report found that companies using representation software and services through a platform provider saw net recovery rates more than 55 percent higher. than sellers who managed this process internally.

To view the full 2024 Chargeback Field Report, visit www.chargebacks911.com/chargeback-field-report.

For more information on how to best combat fraudulent or illegal chargebacks or to see available solutions, visit https://chargebacks911.com or email [email protected].

About Chargebacks911

Chargebacks911® increases online merchant profitability by reducing payment disputes and recovering revenue lost to chargeback fraud. Through a proprietary suite of software and services, the company delivers transparent, comprehensive chargeback management solutions, backed by the industry’s only performance-based ROI guarantee.

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Claire Holden
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