News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud

The Shocking True Cost of Chargebacks

The Shocking True Cost of Chargebacks

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How much would you guess businesses lost to chargebacks in 2017? $10 billion? Maybe even $20 billion? Generous guesses—but not generous enough. Or, maybe you keep up with statistics and you read that the total cost of chargebacks came to $31 billion in a single year. Sorry, you’re still not even close.

Uncovering the True Cost of Chargebacks

To find out what chargebacks are really costing merchants, we cannot simply look at merchants or the cost of merchandise lost. Chargebacks have a dramatic “bottom-line” impact that cuts across the entire payments ecosystem. They sap sales revenue and merchandise, they saddle businesses with a host of additional fees and administrative costs and they threaten critical relationships between merchants and institutions.

The true cost of chargebacks is not easily measured, but new data published by Javelin Strategy & Research reveals the total direct chargeback costs incurred by both merchants and banks in 2017:

chargebacks911 infographic

All told, these direct losses came to roughly $31 billion last year. Which is bad enough, but still only one part of the picture. The financial impact of chargebacks goes much deeper than just what we see directly connected to the transaction dispute.

Chargebacks produce broader institutional trends over time that impact merchants, banks, and ultimately the consumer base:

False Declines

To prevent chargebacks, merchants often adopt strict and inflexible standards for front-end fraud tools. As a result, e-commerce merchants decline millions of legitimate transactions each year.

Return Fraud

A return is almost always better than a chargeback. As a result, many merchants accept returns against their own business policies and allow return fraud to go unchallenged—a double hit to the revenue stream.

Threats to Merchant Sustainability

An elevated chargeback rate threatens merchants with losing their MIDs, or at least being forced to work with high-risk processors and paying much higher fees.

Increased Banking Costs

A lost MID means less revenue for acquiring banks. Both issuers and acquirers are also likely to see more of their resources lost to administrative duties like adjudicating cases, reviewing evidence, and exchanging data with acquirers and card associations.

Higher Consumer Prices

The costs of chargebacks at the bank/merchant levels will ultimately filter back down to the consumer in the form of increased prices and banking fees.

Adding Up the Damages

The overt cost of chargebacks is certainly bad enough—$31 billion. To put that in perspective, that’s higher than the GNP of nearly two-thirds of the countries on earth. But once we factor in the broader impact on issuers, acquirers and consumers, the true cost of chargebacks is much, much higher.

How much higher? How about nearly $150 BILLION? Every. Single. Year.

Chargebacks may be an important consumer protection mechanism, but abuse of the system has created a problem too big to ignore. New processes and technologies like Visa Claims Resolution might reduce some of the burden, but chargeback losses will grow faster than any industry player can respond.

Reactive solutions can only address chargebacks after the fact. To be effective, a more dynamic strategy is required, one that targets chargebacks both before and after the transaction, fighting disputes while fostering long-term chargeback reduction. Only this type of comprehensive, end-to-end approach can offer the highest win rates and long-term dispute reduction.

Chargebacks911® offers the industry’s best track record for both fighting chargebacks and preventing disputes. No one on the market can promise our results, which is why they’re backed by a 100 percent performance-based ROI guarantee. Contact us today to find out what ROI you can expect to receive.

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