Sift chargeback disputes
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Sift Reveals the True Cost of Chargeback Disputes and ‘Friendly Fraud’

Sift’s Digital Trust and Safety Index for Q4 2022 reveals chargeback disputes are up as economic conditions tighten globally.

The Sift Index reveals that chargeback disputes have risen over 35 per cent since the first quarter. It attributes this rise to consumers increasingly seeking to claw back money from businesses during financial turmoil.

The Index is based on data from Sift’s 34,000 sites and apps network and its additional survey of 1,000 consumers.

Findings highlight how chargebacks and ‘friendly’ fraud have increased as budgets are constrained amid rising inflation, geopolitical turmoil and a global economic slump.

Also known as first-party fraud, friendly fraud occurs when a consumer makes a purchase with their credit card, chooses to dispute the purchase with their financial institution, and requests a chargeback, despite receiving the purchased goods or services.

Fraud claims and costs rise while the economy dips

According to the report, two-thirds of consumers have filed disputes. Of that subset, 23 per cent admitted to participating in friendly fraud.

In addition to the rising rate of consumer fraud disputes, the average disputed dollar amount is also higher than last year increasing 16 per cent to $192.53.

This increase indicates a more widespread negative impact on businesses’ bottom lines during the remainder of the 2022 holiday shopping season and beyond.

As the dollar amounts of disputes and rates of chargebacks rise, businesses are left picking up the costs. Not all industries, however, are fighting the same battle.

Verticals such as digital goods and services, retail, and fintech face the highest average number of disputes. The top three most disputed items are clothing at 21 per cent, subscription goods at 19 per cent and electronics at 18 per cent.

Sift chargeback dispute
Brittany Allen, trust and safety architect, Sift

“As the economy cools down from historic highs, consumers are looking to save money however they can, luring many to resort to first-party fraud,” said Sift trust and safety architect Brittany Allen.

“These chargebacks quickly tally up against merchants who are already under stress from the sagging economy,” continues Allen.

She advises merchants to mitigate chargebacks by employing a digital trust and safety strategy. Such an approach will protect against fraud and abuse, streamline the dispute process and eliminate friction for legitimate customers

The hidden costs of chargebacks

When chargebacks occur, the Index emphasises that it’s not just a merchant’s budget on the line, but also their reputation.

According to the consumer survey, of those who have filed a dispute with a merchant, 83 per cent would be less inclined to repeat a transaction with the same merchant in the future.

Moreover, half would never shop with a brand again if the merchant failed to resolve their dispute within 30 days.

These two figures underscore why it’s essential to take chargebacks and brand abandonment seriously.

While card networks offer some protections, like Visa’s imminent compelling evidence (CE) 3.0 update, the Index makes clear how they’re only part of the solution.

Merchants must protect themselves for the post-holiday chargeback season now.

With a digital trust and safety approach, businesses can scale fraud prevention strategies at every touchpoint. Ultimately, this will reduce abuse, streamline chargeback management and maximise growth.

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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