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Merchants – challenge those chargebacks

Posted by Michael Bloch in ecommerce (Saturday December 13, 2008 )

The tenth annual CyberSource Corporation survey of ecommerce fraud has revealed online merchants expect to lose a record $4 billion to fraudulent transactions during 2008. Furthermore, it appears that many merchants are generally taking chargebacks on the chin, rather than challenging them.

In relation to the fraud figures, the loss rate has been 1.4% of revenue consistently over the past couple of years, but growth in the volume of ecommerce sales means the final dollar tally is up nearly 10% on last year.

According to CyberSource, the highest fraud rate during 2008 among eight industry segments is the electronics category where 2% of accepted orders turn out to be fraud.

An interesting point on a related topic was in relation to chargebarks. Merchants have been challenging only about 50% of the fraud chargebacks they receive say CyberSource, wearing the added costs without argument. I don’t know how many times I’ve seen people issue a chargeback using a false statement over the years, but it’s been very, very often. For example, they’ll sign up for a service, pay for a month or two, then decide they don’t want it and issue a chargeback; stating that it’s an “unauthorized” charge.

While challenging chargebacks can be a time consuming and frustrating process, Cybersource’s survey found merchants that do challenge fraud related chargebacks are successful in having them reversed in 28% of the cases.

28% can add up to a lot of bucks over a year. Additionally, each chargeback that isn’t reversed is a black mark against the merchant so it’s really in the best interest of merchants to challenge them wherever possible.

If a merchant accumulates enough black marks, they can find themselves paying higher processing fees or worse still; losing their merchant account altogether. Once you’ve had a merchant account terminated over chargeback issues, it’s very difficult and expensive to get another account.

Chargebacks are a great protection for consumers, but can be a major nightmare for merchants – an ounce of prevention is certainly worth a pound of cure. While effective fraud screening can help keep the fraudsters at bay; the other big issue are rogue customers who in my mind are as equally as dishonest as the career fraudsters. Pick up some tips for preventing and challenging chargebacks.


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