68% of Merchants Cite the Pandemic As a Factor in the Chargeback Spike, Report Finds

Just as the Covid-19 pandemic spurred many consumers to turn to online shopping, merchants have experienced a corresponding increase in their chargeback rates. Sixty-eight percent of merchants said the pandemic affected their chargeback rates, found the second annual Chargeback Field Report from Chargebacks911, a chargeback-management platform. Clearwater, Fla.-based Chargebacks911 also operates Fi911, which caters to financial institutions.

Of these merchants—415 were surveyed overall—the average response indicated an increase of 25%, the report says. “More consumers relying on card-not-present channels has heightened the threat posed by chargebacks,” the report says. “In addition, many cardholders came to view chargebacks as a convenient way to recoup funds from canceled events and delayed travel plans. These factors combined led to an increase in the number of disputes with which merchants had to contend.” The survey included U.S. and United Kingdom merchants.

And so-called friendly fraud, when a customer tries to gain money back from a legitimate transaction by filing a chargeback, remains a pervasive issue for merchants, with 94% saying it was at least somewhat a concern for their businesses. 

“Additionally, merchants in the U.S. were almost twice as likely as those in the U.K. to identify friendly fraud as causing most of their chargebacks,” the report says. “This could be because the concept is more widely known in the U.S. market than in the U.K. Compared to the U.K. and Europe, the U.S. market saw more rapid adoption of [e-commerce] as a purchasing channel. Consumers in the U.S. became accustomed to [e-commerce] practice sooner and as a result, were earlier adopters of friendly fraud as a practice.”

Many merchants have taken at least some measures to address their chargeback issues, with 32% dedicating more internal resources to chargeback management and 24% moving some or all of their fraud management to a third party. Another 24% allocated more internal resources to overall fraud management and 21% moved some or all of their chargeback management to a third-party provider.

Though expectations are that these are the declining days for the pandemic, Covid remains a top concern for merchants, with 33% citing their response to it as a primary focus in 2021. Other concerns at the top of the list are acquiring new customers, 32%, bolstering their business strength and durability, 28%, and servicing existing customers, 27%.