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July 26, 2021 • Issue 21:07:02

Rising chargebacks

loom over industry

Consumers spent $861.12 billion online in 2020, a whopping
44 percent year-over-year increase, and nearly triple the
growth recorded in 2019, according to Digital Commerce
360. The research firm estimated that online purchases by
U.S. consumers made up 21.3 percent of total retail sales in
2020, up from 15.8 percent in 2019 and 14.3 percent in 2018.

"Every demographic now understands how to do business
online," said Monica Eaton-Cardone, co-founder and COO
of Chargebacks911. Businesses that never considered on-
line sales had to pivot to accommodate customers with on-
line options, like buying online for in-store (or parking lot)
pickup. In fact, some of the biggest jumps in chargebacks
are tied to buy online pick-up at store arrangements. Prior
to COVID, chargeback rates on these transactions hovered
between 1 and 2 percent; now they are north of 20 percent,
according to Eaton-Cardone.
By Patti Murphy Meanwhile, consumers who never shopped online were

erchants, still reeling from the economic fall- forced to shift to online buying, and many were unaccus-
out from the COVID-19 pandemic, now have tomed with how to protect payment card information in
an added problem to contend with: rising this new shopping environment, rendering them vulner-
M chargebacks. The implications for ISOs and able to card account thefts, Eaton-Cardone noted. Others,
merchant level salespeople (MLSs) are real and quantifi- experiencing buyer's remorse, are using the chargeback
able. "It all comes down to the cost of incremental residuals, mechanism to assert unauthorized purchases or defective
and increasing chargebacks are going to be a knock against or undelivered items, resulting in what are euphemistically
that," said industry attorney Adam Atlas. called "friendly fraud."

A 2020 report by the Deloitte Center for Financial Servic-
es put an even starker spin on the problem. "The increase
in chargebacks could create a liquidity challenge among
some cash-strapped acquirers and independent sales offic- Contributed articles inside by:
es (ISOs) or member service providers (MSPs)," the report
warned. David Haber ............................................................................................20

Chargebacks were on the rise before 2020 but have been spi- Jeff Fortney .............................................................................................30
raling out of control since the pandemic forced merchants Roger McNamara ..................................................................................32
and consumers to move most of their buying and selling to
online venues. McKinsey & Co. estimated that consumer TOC on page 3
and business digital penetration vaulted 10 years during
the first three months of pandemic-related shelter in place
requirements.
Continued on page 26