News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud

How Can More Than Eight Out of Ten Chargebacks be Friendly Fraud? Here's How.

How Can More Than Eight Out of Ten Chargebacks be Friendly Fraud? Here’s How.

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According to current statistics, 86 percent of all chargebacks are caused by friendly fraud. Sounds staggering, doesn’t it? In fact, it almost sounds unbelievable. So let’s take a closer look at this stat and see how the numbers break down.

What is “The Chargeback Spectrum”?

Before we can really dive in, it’s important to understand the three fundamental chargeback sources:

  1. Merchant Error: Disputes resulting from procedural errors
  2. Criminal Fraud: Disputes resulting from the actions of a criminal actor
  3. Friendly Fraud: Disputes resulting from the actions of the customer

While these designations are helpful, determining the source of a chargeback is not always so clear cut. In many cases, it can be argued, one main dispute source triggers a secondary source—and THAT is what causes the chargeback. It’s rare that any case will be only merchant error or only cyber shoplifting.

There are actually a range of circumstances and combinations that could result in a dispute. We can call this range the “chargeback spectrum.”

At one end of this spectrum, we have deliberate merchant fraud: the merchant takes a customer’s money without providing the promised goods or services. At the other extreme, we have cyber shoplifting: the customer makes a purchase fully intending to file an invalid chargeback.

Merchant fraud chargebacks can obviously be controlled by merchants. Through representment, merchants can fight back against cyber shoplifting. But as mentioned before, most chargebacks aren’t on either end of this spectrum…they fall somewhere in the middle:

Most of the disputes in that middle ground result from simple merchant oversights combined with customers who misinterpret or abuse policy.

Suppose you operate an online shoe store. A customer purchases a pair of shoes from you and requests two-day delivery. For whatever reason, you ship the product several days late. The shoes don’t arrive by the agreed-upon date, and instead of contacting you about the order, the customer files a chargeback.

Now, the customer is essentially getting those shoes for free. That’s not fair…but you can’t totally blame the cardholder because it likely wouldn’t have happened if you had shipped on time.

Exclusive Chargebacks911® research shows that 86 percent of the average merchant’s chargebacks SHOULD BE the product of friendly fraud—because most criminal-fraud and merchant-error chargebacks are preventable. If you eliminate those chargebacks, you can effectively fight back against the ones you can’t prevent.

Stop Chargebacks at the Source

Each of the three chargeback sources requires different tools and strategies to address:

Eliminate Merchant Error

Preventing merchant error sounds easy, but most merchants are simply too close to the problem to identify all the minor oversights that can produce chargebacks.

What is required here is non-biased error/risk/threat analysis such as we provide through our exclusive Chargebacks911 Merchant Compliance Review. This 106-point diagnostic thoroughly examines your business to identify and resolve simple procedural issues and policy missteps that trigger chargebacks.

Eliminate Criminal Fraud

Criminal fraud doesn’t have to be a serious problem. Fraud filters, geolocation, address verification…all these and more are individual components of a much larger fraud mitigation structure.

That may sound overwhelming, but we can help. Chargebacks911 is partnered with many of the top names in criminal fraud risk mitigation, including Kount, Radial, ClearSale, and more. We also work directly with dozens of different merchant acquirers and processors, offering easy integration and fast set up.

Fight Friendly Fraud

Once criminal fraud and merchant error are eliminated, all that remains are friendly fraud chargebacks…which are ALL winnable.

Chargebacks911 offers the world’s first Tactical Chargeback Representment service. We deploy our proprietary technologies and human expertise to take apart each dispute and prepare an airtight representment case. No other service provider understands chargebacks like we do, and no one else has access to our exclusive tools.

If you’re ready to make chargebacks a thing of the past, contact us today.

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