Chargebacks can be a concern for any business that accepts payment via credit cards. While many chargeback claims are legitimate, chargeback scams such as “friendly fraud” also proliferate.
Curious about the impact of chargebacks on businesses? Here are 16 insightful chargeback statistics worth checking out.
1. 30% of Chargebacks Filed Cite “Stolen Credit Card” as the Reason
When a consumer initiates a chargeback, they have to give a reason. The most common one cited is that the purchase in question wasn’t theirs, indicating that their card number was stolen and used without authorization.
2. 26% of Chargebacks State That the Item Never Arrived
The second most common reason for a chargeback is that the item purchased never arrived. This can include issues relating to a product never shipping, packages lost in the mail, or even items being stolen from buyers’ at the point of delivery.
The third most common reason – cited 15% of the time – is that the wrong product was sent by the retailer. Tied for fourth, with 4% each, is that the item didn’t match the product description and that the product failed to meet the consumer’s expectations. Beyond that, 3% of claims are for being billed twice or other forms of clerical errors.
3. Every $1 in Fraud Costs Companies $3.36, up 7.3% Annualy
Between 2019 and 2020, the cost of fraud increased by 7.3% for US retailers and eCommerce sellers. Each $1 of fraud cost the merchant $3.36 in 2020, up from $3.13 in 2019.
4. Friendly Fraud Accounts for Up to 80% of an eCommerce or Online Retailer’s Fraud Losses
When it comes to fraud losses, friendly fraud – specifically chargebacks related to bogus claims – is responsible for 40 to 80% of the losses. That makes this the costliest form of fraud most online sellers deal with more often than not.
5. Account Takeover Fraud Increased by 72% in 2020
The year-over-year increase in account takeover fraud came in at 72% in 2020. While account takeover fraud isn’t always tied to chargebacks, it certainly can be. With an account takeover, an unauthorized person hacks a legitimate customer’s account, gaining access to their personal information and potentially making fraudulent purchases using the customer’s stored card information.
6. 40% of Companies Noticed a Chargeback Increase in 2020
During 2020, 40% of ecommerce sellers and online retailers said that they noticed an increase in the number of chargebacks during the year.
7. Over a 3-Year Period, Visa and Mastercard Saw 5.4 and 9% Increases, Respectively, in Fraud Disputes
Since 2018, both Visa and Mastercard have seen significant increases in fraud-related disputes, predominately in the form of chargebacks. For Visa, the increase was 5.4%, while Mastercard’s hit 9% in a three-year period.
[Source: Alto Global Processing]
8. More Than 77% of Chargebacks Were Friendly Fraud in 2019
In 2019, 77.25% of card disputes were chargebacks that actually qualified as friendly fraud, meaning the dispute was not legitimate. This can include chargebacks that were unnecessary, initiated inappropriately, or were blatant attempts to defraud the company.
[Source: Alto Global Processing]
9. Chargeback Merchant Fees Reach Up to $100 per Transaction
While merchant fees for chargebacks can vary, they may get as high as $100 per transaction. The typical range for the fees is $20 to $100 per transaction, and it is levied even if the customer later cancels the chargeback.
10. Only 18% of Merchants Win a Distinct Majority of Their Chargeback Disputes
While 80% of merchants dispute at least a portion of chargebacks they deem illegitimate, only 18% of them actually have a win rate above 60% for friendly fraud cases.
11. 50% of Consumers with a Successful Chargeback will Do It Again in Less Than 60 Days
Half of the consumers that have a successful chargeback will initiate another one within 60 days. The value of the initial chargeback is irrelevant. Instead, the lack of consequence for filing appears to be the main influencer.
12. The Software Industry Has the Highest Chargeback Ratio, Sitting at 0.66%
When it comes to chargeback ratios, the software industry has the highest rate, coming in at 0.66%. In second was financial services with a rate of 0.65%, following by media and eContent with 0.56%.
13. Worldwide Card Fraud Losses Exceeded $28 Billion in 2019
Globally, payment card fraud created losses totaling $28.65 billion in 2019 alone. Overall, the United States represents over one-third of that loss, effectively making it the world’s most fraud-prone country in the payment card landscape.
[Source: Nilson Report]
14. Credit Card Fraud Is the Most Reported Form of Identity Theft
Overall, credit card-related fraud for the most commonly reported type of identity theft in the United States. Credit card fraud – which is considered a form of identity theft – is often directly tied to chargebacks.
15. Card-Not-Present Fraud Is 81% More Common Than Point-of-Sale Fraud
Overall, card-not-present fraud is 81% more common than point-of-sale fraud. This potentially connects to the most commonly cited chargeback reason, that a card was stolen, as card-not-present fraud can involve unauthorized purchases made by someone other than the cardholder. The defining characteristic is simply that the card was used to make a purchase online, over the phone, or essentially using any mechanism other than going to a store.
16. Most Chargebacks Happen 45 to 60 Days After Purchase
While some retailers may assume that chargebacks usually happen quickly after a purchase, the prime window for chargebacks is actually more than a month after the purchase date. Overall, customers are most likely to file a dispute 45 to 60 days after buying the product or service.
Some of this may be the result of delays between purchases being made and card statements being issued. Additionally, processing and shipping times may play a role, as well as holiday-related shopping, which may cause a gift to sit unopened for weeks.
Ultimately, chargebacks are problematic for companies. While justifiable claims can simply be a part of doing business, fraudulent chargebacks can cost a company thousands – if not tens or even hundreds of thousands – of dollars.
Many of the statistics above show how prevalent and damaging chargebacks can be, particularly those related to fraud. However, separating the fraudulent charges from legit ones is challenging for businesses, which could be why win rates on disputes tend to be low.
Proving that a chargeback was fraudulent isn’t easy, particularly if the right mechanisms aren’t in place to verify that the buyer is the actual cardholder and that the item was provided as promised. As a result, companies often pay the price for fraud.