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Chargebacks can have a considerable impact on a merchant’s business. Not only can it affect the business’s reputation, but it can also cost the merchant chargeback fees and even threaten their ability to accept credit card payments.
Chargeback does not simply mean losing the item or refunding the money; the frustrating truth is that the true cost of a chargeback is remarkably higher than that.
What is a chargeback fee?
It is estimated that every dollar lost to chargeback fraud costs merchants approximately $2.40.
For starters, banks impose a chargeback fee when a customer files a chargeback to solve disputes associated with the merchant’s account. Each bank has a chargeback fee that can vary from $20 to $100.
Apart from the bank chargeback fees, the merchant also has to deal with:
- A transaction fee that is about 4% of the transaction value.
- Operational costs that include packing, shipping, delivery costs, etc. These normally range from 15% to 20% of the merchant’s revenue.
- Marketing and acquisition costs that made the business stand out through advertisements, and other lead generation activity. 30% to 40% of revenue goes to waste if the sales result in chargebacks.
- The value of the lost merchandise.
Hence, the true cost of a chargeback is way more than expected. This does not even include the impact on a business after customers leave negative reviews, etc.
Why are chargebacks on the rise?
Chargebacks have existed for close to 50 years, but they have experienced rapid growth in recent years for several reasons.
More sophisticated friendly fraud
Friendly fraud chargeback has always been there. Over 80% of all chargebacks are friendly fraud. In addition, friendly fraud seems to be increasing at a rate of 41% every two years. Since technologies have advanced, and the new generations are much more innovative, customers find more unique ways to easily defraud merchants.
They may purchase items from a merchant from various accounts each time using different cards such as Visa, Mastercard, or American Express, so they do not get detected. It’s always difficult for the merchant to identify friendly fraud chargebacks for the first time!
Online banking system
Although it makes business convenient for the merchant, online banking has also resulted in more chargebacks. Most customers now have mobile banking apps which are super easy to access and can be used to file chargebacks with the touch of a button.
This means, all customers have to do is press a button to make a false claim and they can commit chargeback fraud.
If the merchant does not have strong evidence disproving the claim, then the banks favor their customers as they want customer satisfaction more than anything else.
Pandemic
Lockdowns across large swathes of the world have affected many people’s jobs. Some merchants lost large parts of their teams during the pandemic, leading their customer service to decline. They have trouble satisfying customers as a result, leading them to face more chargebacks. 68% of the merchants have noticed an increase in their chargeback rates due to the pandemic.
Pandemic has not only affected customer service teams, but it has also slowed down deliveries due to lockdowns. Customers fail to understand these facts and file more chargebacks against merchants.
Final thoughts
Now more than ever is a good time to fight chargebacks by enhancing business methods to build evidence against friendly fraud. If you still find yourself caught up in payment disputes, turn to Acrocharge’s chargeback mitigation solution to take control of chargeback defense for you.
