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Insights and Expertise

A growing threat: malicious consumers and organized fraudsters exploiting
weaknesses in the system.
The persistent rise One of the most troubling aspects of this surge is the lack

of a clear profile among fraudsters. Evidence suggests sys-
of chargebacks temic operations, often tied to organized crime networks
utilizing fraud-as-a-service “ (FaaS) platforms. These

demographics, and merchandise categories.
By Monica Eaton groups exploit loopholes across all card types, customer
Chargebacks911 Furthermore, predicting spikes in chargebacks can prove

he chargeback crisis for merchants has reached difficult, but certain periods, such as the Golden Quarter
alarming levels. In the United States alone, (the fourth quarter of each year, which includes the year-
cardholders on average disputed about six end holiday shopping period) see consistent surges. For
T transactions throughout 2023, according to data example, Adobe Analytics reported that Cyber Monday
found in Chargebacks911’s annual Cardholder Dispute 2024 hit a record $13.3 billion in sales, surpassing Black
Index. This means an astounding $65.21 billion worth of Friday. Most holiday shopping occurred online, where
transactions were overturned through chargebacks. chargebacks are more prevalent.

When you factor in Visa’s report that up to 75 percent of all The correlation between increased online shopping and
chargebacks are a form of chargeback abuse or misuse— disputed transactions highlights the critical need for pro-
commonly known as “friendly fraud”—and that each dol- active fraud prevention, chargeback mitigation and dis-
lar lost to friendly fraud costs merchants more than three pute management during these periods.
times the transaction value in fees, fines and lost merchan- Protecting your business from organized fraud
dise, according to LexisNexis, this means that U.S. mer-
chants lost more than $183 billion last year to illegitimate The importance of a proactive approach to friendly fraud
chargebacks. prevention cannot be overstated. To effectively mitigate
friendly fraud, merchants should implement robust au-
Adding to the complexity, the Merchant Risk Coun- thentication measures, such as two-factor authentication
cil issued a critical alert regarding a surge in organized (2FA) and tokenization, to verify legitimate transactions.
chargeback abuse, meaning that methods to game the
chargeback system are becoming widespread and more
malicious. With retailers only winning 18 percent of their Chargeback statistics at a glance
chargeback representation cases and cardholders facing
essentially zero consequences, the problem is approach- Escalating chargeback volume: Global chargeback vol-
ing uncontrollable levels. ume has surged from approximately $72 billion in 2019
to an anticipated $165 billion in 2024. (www.riskified.com)
Merchants across all industries are reporting severe finan- Prevalence of friendly fraud: Major card networks esti-
cial losses as fraudulent claims grow more sophisticated. mate that up to 70% of all credit card fraud stems from
After the high-volume shopping and returns activity of the chargeback misuse, commonly referred to as "friendly
2024 holiday season, the start of the year often brings an fraud." (https://thepaypers.com)
influx of chargebacks, as customers dispute transactions
made during peak holiday shopping. This trend threatens Merchant challenges: In 2023, merchants faced an esti-
to amplify losses for merchants already contending with mated $117.47 billion in chargeback-related costs, with
seasonal pressures. merchant errors, such as confusing billing descriptors, be-
ing a significant contributor to disputes. (https://thepay-
All in all, navigating the turbulent chargeback landscape pers.com)
demands vigilance and strategic action. This article pro- Impact on revenue: On average, merchants lose 3% of
vides insights on how merchants can mitigate friendly their annual eCommerce revenue to payment fraud, high-
fraud and minimize its impact. lighting the substantial financial impact of chargebacks.
Tackling the chargeback epidemic (www.cybersource.com)
Industry-specific rates: The education and training sec-
The trend of refund policy abuse, first-party misuse and tor experiences the highest chargeback rate at 1.02 percent,
overall chargeback volumes is unsurprising, given the in- while restaurants have the lowest at 0.12 percent. (www.
creasing popularity of ecommerce and card-not-present chargeback.io)
transactions. According to Chargebacks911’s 2024 Charge-
back Field Report, 72 percent of surveyed merchants report- Thse statistics underscore the critical importance for merchants
ed an average 18 percent increase in friendly fraud cases. to implement robust chargeback management and fraud pre-
This rise indicates that, while some chargebacks result vention strategies to safeguard their revenue and maintain op-
from genuine errors, a growing number are initiated by erational stability.
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