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Fraud chargeback statistics

Posted by Michael Bloch in ecommerce (Monday April 21, 2008 )

The word “chargeback” is enough to send shivers down most merchants’ spines. They are an unfortunate part of commerce and particularly challenging problem for online business – the following are some related statistics.

According to the 2008 edition of CyberSource’s Annual Online Fraud Report, 38% of merchants reported a fraudulent order rate of 1% or more – that’s accepted orders; one that get past screening. That means 38% of merchants are in danger of losing their merchant accounts in my opinion as the 1% mark is where merchant account providers start getting toey. Either that or a great number of the 38% have what are known as “high risk” merchant accounts – more expensive transaction fees etc.

Fraud orders that make it through screening are miniscule in comparison to attempted fraud – in some industries it would be around the 70 – 80% mark; particularly in the soft goods and online subscription services sector.

Screening for fraud and dealing with chargebacks is incredibly costly. The Cybersource report states that over a third of merchants contested disputed 90% or more of their (alleged) fraud chagebacks, but on average, only win around 40% of the chargebacks they dispute.

The report states the average time spent on fraud chargebacks was 1.8 hours per incident. Thirty-five percent of merchants spend 0.5% or more of their revenue dealing with online fraud.

The CyberSource survey was carried out with over 300 merchants in the USA, from small to large businesses. The report contains a stack of interesting information on online fraud in general – well worth a read. You can download a copy here (PDF – free registration).

Chargebacks, fraud related and otherwise, are a time sucking and expensive problem that can seriously threaten your online business – pick up some tips for preventing and challenging chargebacks.

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