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ed. Disputes can also involve payments by debit cards, pri-
McKinsey & Co. estimat- vate-label credit cards, mobile P2P payments, and emerg-
ed that consumer and business ing payments like real-time payments. In the credit card
digital penetration vaulted 10 years world, chargebacks are up 25 percent over pre-pandemic
levels, according to Eaton-Cardone.
during the first three months of
pandemic-related shelter in place Chargeback Gurus has seen year-over-year growth in
requirements. chargeback-related merchant revenue losses ranging from
15 percent to 30 percent, said Colin Eddy, the company's
partner alliance guru. The number of chargebacks isn't all
that's rising, either. The average chargeback amount rose
The social distancing policies of delivery services have from $155 to $163 between 2019 and 2020, and has shot up
played a role, too, said Alex Roy of Gateway Funnel Pros, to $173 so far this year, according to Sakasegawa. "It's a
a gateway and chargeback solution provider serving small rising tide," he said. "As more traffic moves to ecommerce,
firms using the ClickFunnels website-building platform. we're seeing more chargebacks."
"It is still common for deliveries to be dropped at a door-
step without a signature—even if the company shipping A survey of merchants conducted by Censuswide for
the product specifically requests a signature," he said, Chargebacks911 revealed that a majority had experienced
adding that this makes it possible for buyers to claim the increased friendly fraud between 2018 and 2021. Not sur-
product was never delivered and "manipulate" the charge- prisingly, larger businesses saw the largest increases. Nine
back system and commit friendly fraud. in 10 of those surveyed said friendly fraud is a concern for
their business.
Then there were the more overt forms of fraud. "There's
a continuing proliferation and availability of [ill-gotten] Of the 400 U.S. and UK businesses surveyed, a majority
usernames and passwords," said Jeff Sakasegawa, trust also saw increases in criminal fraud, with an average re-
and safety officer at Sift. He pointed to the recently re- ported increase of 21 percent. And although merchants
vealed RockYou2021 breach that resulted in 8.4 billion responded to 43 percent of chargebacks, the average net
customer records being compromised. (RockYou is an in- recovery rate was just 12 percent, according to a report de-
teractive media and entertainment company that has been tailing survey results. "Things are probably going to get
breached more than once.) "As this information makes its worse as we continue to experience structural changes
way onto the dark web fraudsters are using it to access and shifting consumer behavior," Eaton-Cardone said.
[payment card] accounts and making illegal payments," he
said. Far reaching repercussions
The potential repercussions of chargebacks reach far and
Some fraud is rooted in financial insecurity. "There is a wide. There are significant financial consequences for
huge cohort of people, particularly in service industries, merchants. These include lost revenues on items sold; the
who are unemployed, and their debts didn't stop rising," costs of stocking, storing packing and shipping orders (for
Atlas said. All these factors and circumstances have cre- ecommerce sale); the processing fees paid when an item
ated a "perfect storm" for friendly fraud and other types of is sold; and the time and expense of challenging charge-
chargebacks, Eaton-Cardone noted. backs. In addition, chargeback fees, ranging from $50 to

By the numbers $150 per chargeback, are assessed by acquiring banks.
Merchants that rack up excessive chargebacks are subject
Growth in transaction volumes inevitably leads to higher to fines; these range between $10,000 and $250,000, Eaton-
volumes of chargebacks. Disputed transactions typically Cardone stated. "Merchants are much more vulnerable to
represent five basis points of transaction volume, accord- having their lives turned upside down," Eddy added.
ing to Mercator Advisory Group. (That's five chargebacks
for every 10,000 transactions.) Merchants also risk being flagged as high risk and placed
on the MATCH list, which makes it difficult to apply for
In a 2020 report, Mercator estimated that 25 million credit new merchant accounts. And they risk having funds held
card payments were disputed in 2019, and predicted the in reserve by acquirers as a hedge against future charge-
number will grow to 33.4 million by 2022. "As consum- backs—or having their merchant accounts shut down.
ers switch from cash to cards for payments, the number "Processors are not taking as much of a lenient approach
of small transactions [disputed] increases. These small to chargebacks," Eddy said. "In the past year we've seen
transactions can cost as much as large ones to resolve," the banks and processors get much more risk averse. They
report noted. "Simultaneously, improvements in online have no tolerance for even the slightest inclination toward
and mobile banking are making it easier for cardholders to chargebacks."
dispute transactions, accelerating the increased volume."
This means ISOs and MLSs will potentially find it more
While credit card chargebacks are the most common types difficult to board new merchant accounts. "It's a natural
of disputes, the problem doesn't stop there, Mercator not- push and pull," Sakasegawa said. "As chargebacks rise,

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