Chargebacks911, the dispute technology platform provider, and its financial institutions-focused sister brand, Fi911, has announced the launch of its second annual Chargeback Field Report.
Driven by shifting consumer behaviour towards e-commerce and digital transactions resulting from the COVID-19 pandemic, the report unveils an eruption in friendly fraud and a worrying trend of merchants across every sector struggling to cope with chargebacks spikes.
Nearly 80% of merchants surveyed admitted to experiencing an increase in friendly fraud attacks over the past three years, with 68% stating that the pandemic has caused a growth in their chargeback rates.
Monica Eaton-Cardone, COO and Co-Founder of Chargebacks911, commented: “Merchants in every sector have faced unprecedented pressure over the past year, with shifting regulations, an uncertain economy, and the need to diversify sales strategies and channels. This has had a major impact on chargeback and friendly fraud rates.
“Take a look at the food and beverage sector, for example. This industry had one of the lowest chargeback rates, but now trends among the highest. A rapid shift to e-commerce, combined with changing consumer behaviours, demographics and the overhaul to home delivery options, has fueled fraudsters with increased opportunities to exploit food delivery scams on the dark web, which continue to surge.”
Friendly Fraud is an issue
Now, 94% of merchants view friendly fraud as an issue for their business, but less than 3 in 10 are taking successful action to fight these disputes. As highlighted in the report, this behaviour identifies a knowledge gap that is preventing merchants from confidently combating fraudulently filed chargebacks.
Eaton-Cardone continued: “A third of merchants surveyed are unable to distinguish friendly fraud attempts from genuine claims, others simply don’t look to contest them. If they do contest, at least 31% experienced difficulties when contesting illegitimate claims.
“These statistics are eye-opening for any merchant in this evolving climate. A lack of merchant understanding and support is not only a recurring problem, but a growing theme contributing to the dispute flywheel effect we have today.”
For merchants looking to fight this new wave of illegitimate chargebacks and friendly fraud, the report indicates that looking outward is one of the best options. Approximately 2 out of 10 merchant respondents are outsourcing their chargeback management to a third-party specialist, citing a 23% average decrease in friendly fraud costs when compared to their in-house efforts.
Merchants using chargeback solution providers also reported advantages in accessing valuable data insight. Reduced chargeback rates and overall cost savings remain the top benefits of working with a third-party provider.
As merchants continue to deal with the pressure from an economic climate in a fragile recovery, findings highlight that there is more to be done both to support and educate merchants in the chargeback process and the long-term damage that can be done to a business that doesn’t take friendly fraud seriously.
Statistics reveal that for every friendly fraud case that goes uncontested, 50% of cardholders will commit this crime again, in less than 60 days. This equates to every uncontested friendly fraud chargeback being valued at approximately 1.5 chargebacks. Fortunately, and due to the impacts of COVID- 19, the vast majority of merchants agree this is a problem that cannot be ignored.
Eaton-Cardone concluded: “Unfortunately, the events of 2020 brought with them a complete shift in consumer purchasing behaviour that created a perfect storm of factors for friendly fraudsters to take advantage of…Without question, more needs to be done to raise awareness of the long-term damage of not fighting friendly fraud. The 2021 Chargeback Field Report reveals just how prevalent it has become after being bolstered by the COVID-19 pandemic. Merchants must do more to fight against this new wave of fraudsters.”