Report Finds Consumer-Driven Fraud Dwarfs Criminal Chargeback Activity Stemming from Unauthorized Transactions, Including Identity and Credit Card Theft
Chargeflow, the pioneering chargeback automation platform tailored exclusively for online businesses, today announced its 2024 State of Chargebacks Report. Based on anonymized data obtained from Chargeflow’s merchant database, the 2024 report found that 79.03% of chargeback cases are the result of friendly fraud, driving the need for businesses to adopt automated fraud detection solutions and educational initiatives that inform customers about the intricacies of the chargeback process.
In the ever-evolving world of eCommerce, merchants face a critical challenge impacting their profitability, escalating chargebacks that are stretching merchant resources and pose a serious threat to business health. In its 2024 State of Chargeback report, Chargeflow delves into the complexities of chargebacks, offering transformative insights that empower merchants to navigate and effectively manage these challenges.
Key report findings include the following:
True Fraud VS. Friendly Fraud:
Effectively managing chargebacks requires businesses to understand the difference between True Fraud and Friendly Fraud. True Fraud involves unauthorized transactions made without the cardholder’s consent, typically due to identity or credit card theft. Friendly Fraud occurs when consumers dispute charges without a valid reason, often due to misunderstandings or intentional abuse of the chargeback process. According to Chargeflow data, 79.03%, or approximately 8 out of 10 cases of chargebacks, are the result of friendly fraud.
When it comes to fighting back, success varies between the two. According to the research:
- Friendly Fraud Chargebacks: Merchants successfully dispute and win in 43.82% of cases. While a positive figure, the bottom line is that 56.18% of cases lead to revenue losses, which can be significant.
- True Fraud Chargebacks: Retailers struggle significantly when disputing true fraud chargebacks. According to the research, merchants can only successfully dispute 9.27% of these unauthorized transactions.
“Merchants today face a landscape of online transactions that is as dynamic as it is challenging. This includes the growing struggles to stop chargebacks where the majority of the damage is coming from consumers rather than criminals,” said Ariel Chen, Co-Founder and CEO of Chargeflow. “Through a combination of automated fraud detection and chargeback management capabilities and customer education initiatives, retailers have the opportunity to reduce instances of friendly fraud while identifying patterns of remaining activity so they can rapidly and accurately respond to fraudulent activities and stop leaking revenue profits.”
Win Rate by Transaction Amount
According to the data, higher transaction values correlate with lower win rates, highlighting the need for targeted strategies to manage disputes, especially for transactions above $100. Enhancing fraud prevention measures and refining dispute resolution approaches for higher-value transactions could improve win rates in these segments. When taking a close look, the data shows the following:
- Lower-Value Transactions ($0-$49.99): Transactions up to $49.99 maintain relatively high win rates, with 46.85% for $0 to $29.99 and 45.42% for $30 to $49.99. This suggests less scrutiny and fewer disputes for lower-value transactions.
- Mid-Range Transactions ($50-$299.99): In this bracket, win rates decrease gradually, which indicates increased complexity and higher scrutiny as the transaction value rises. Rates dropped to 44.74% for $50 to $99.99 and 37.75% for $100 to $299.99.
- High-Value Transactions ($300+): The most significant drop is seen in transactions over $300, with a win rate of just 27.64%. The larger sums are likely to involve complex dispute scenarios, reflected in the lower success rates.
Monthly Distribution of Dispute Counts
The research discovered specific seasonal patterns when it comes to customer behavior and transaction volumes:
- Peak Periods: July, August, and December typically show higher dispute counts. These spikes are likely driven by increased transaction volumes during key shopping seasons such as the summer holidays and the winter holidays.
- Low Periods: February and March are characterized by lower disputes, likely reflecting a post-holiday decrease in consumer spending or a period of generally lower transaction activity.
Chargeback Win Rate Across Various Industries
When looking at chargeback win rates across different industries, the sectors with the lowest win rate are Games and Leisure (15.2%), Consumer Electronics (16.59%), and Home and Garden (20.01%). Industries with the highest success rate are Beauty and Fitness (40.19%), Lifestyle (38.67%), Autos and Vehicles (37.6%), and Apparel (35.8%).
When it comes to the reason codes result in chargebacks across various sectors, the research identified the following:
- Apparel: Top chargeback challenges include ‘Not Received’ (37.01%), ‘Not as Described’ (21.82%), and ‘Fraud’ (23.79%).
- Beauty and Fitness: In this sector, ‘Fraud’ accounts for 36.06% of chargebacks, while ‘Not as Described’ chargebacks constitute 13.50%.
- Computers and Toys & Hobbies: These sectors are notably impacted by ‘Not as Described’ chargebacks, with rates of 21.94% and 22.76%, respectively.
- Food & Beverage: The primary chargeback concern in the Food and Beverage industry is ‘Fraud,’ which constitutes 78.91% of chargebacks.
Read More: SalesTechStar Interview with Yifat Baror, Co-founder and Chief Growth Officer at Osa Commerce