1、Chargeback challenges and what you can do about themGlobal insights 2024Executive summary 301 Key elements to understanding chargeback challengesMethodology and glossary of key terms502 How managing chargebacks became chaotic for merchants903 Why chargeback management is so complex1304 Chargeback ma

2、nagement transformed from cost bucket to revenue recovery machine2005 Four ways merchants can improve chargeback management23Contents2Chargeback challenges and what you can do about them3Executive summaryIn the booming ecommerce landscape,sales soar annually,offering lucrative opportunities for both

3、 established giants and newcomers to grow.But this influx of sales also leads to rising chargeback rates.Consumers increasingly turn to chargebacks as a means to recoup funds,with around 75%of American and British customers filing a chargeback in 2023*.Often,consumers file these chargebacks because

4、they genuinely havent received an item or their card has been charged fraudulently.However,increasingly,consumers file chargebacks to receive compensation under false pretenses.So,as ecommerce sales have grown,so too have chargebacks and,in turn,chargeback fraud.Add to that the tremendous complexiti

5、es and inefficiencies in managing chargebacks,and most would agree:ecommerce has entered an era of chargeback chaos.Merchants know fraudulent claims constitute a significant portion of their total chargebacks,known as first-party fraud.But current management processes make it more costly to dispute

6、fraudulent claims than to simply accept them in the long run or even proactively refund.Chargeback challenges and what you can do about them Executive summary*Consumer attitudes towards chargebacks in 2023:Comparing the U.K with the U.S.(Tel Aviv:JUSTT,2023)https:/justt.ai/consumer-attitudes-towards

7、-chargebacks/4Merchants face no choice but to let revenues slip away due to inefficiencies in chargeback management.As chargeback figures rise,its erosion on profits is reaching an epidemic point.Riskified partnered with industry advisors Paladin Fraud to interview more than 300 chargeback managers

8、from leading merchants worldwide to discover:The size of the chargeback challengeHow merchants manage chargebacks todayThe biggest pain points in chargeback managementHow merchants can realize a brighter future for chargeback managementAt a high level,the research found:Chargebacks continue rising w

9、ith 76%of chargeback managers seeing as many or more chargebacks YoY.Merchants struggle to recoup costs,with three in four merchants recovering less than half of all chargebacks.More worryingly,merchants knowingly let revenue slip away,with more than 73%saying that 20%or more of their chargebacks ar

10、e first-party fraud(fraudulent chargebacks by customers).The true cost of chargebacks quickly creeps up beyond lost merchandise revenue,driven by complex,time-consuming,and inefficient chargeback management processes.When it comes to managing chargeback disputes,merchants want more automation,platfo

11、rm consolidation,better data management and reporting abilities,and more tools to aid prevention.Chargeback challenges and what you can do about them Executive summary5Chargebacks exist to protect cardholders,but increasingly,they enable consumers to behave badly,recouping funds under false pretense

12、s.First-party fraud,referring to chargebacks filed for false reasons,informs a significant portion of chargebacks and merchants know it.But the inefficiencies and technical complexities of current management processes make it more costly to dispute fraudulent claims than to simply accept them in the

13、 long run.01Key elements to understanding chargeback challengesInefficiencies in chargeback management force merchants to allow revenue to slip away.This profit erosion has reached an epidemic point as chargeback figures continue to rise.6MethodologyRiskified partnered with industry advisors Paladin

14、 Fraud to interview more than 300 merchants worldwide,specifically the personnel dealing with chargeback management every day,to discover:The size of the chargeback challengeHow merchants manage chargebacks todayThe biggest pain points in chargeback managementHow merchants can realize a brighter fut

15、ure for chargeback managementThe companies represented include a wide range of verticals across physical and digital goods,including fashion,travel,food(grocery and delivery),electronics,and marketplaces,among others.The majority of respondents operate within North America,with significant represent

16、ation from EMEA(Europe,Middle East,Africa),Latin America,and the Asia Pacific regions.Merchants by regionChargeback challenges and what you can do about them MethodologyNorth America:41%EMEA(Europe,Middle East,Africa):23%Latin America:19%Asia Pacific:16%Other:1%7Participants by company departmentAnn

17、ual revenue of merchantsChargeback challenges and what you can do about them MethodologyA substantial portion of merchants in the study reported annual sales volumes between$500 million and$3 billion,followed by those in the$75 million to$500 million range.Accountingor financeRisk/loss preventionCus

18、tomersuccessIndependent/cross-dept.teamOtherChargeback management teams operate through different operational structures.Just over 50%of those in the study report through a dedicated risk/loss prevention team with just under 18%through customer success.Percentage of merchantsPercentage of merchants8

19、Glossary of four key termsChargeback challenges and what you can do about them Glossary01Chargeback rateThe percentage of chargebacks a merchant receives out of all sales.02Chargeback win rateThe percentage of chargeback disputes that a merchant successfully wins out of all chargebacks disputed.03Ch

20、argeback recovery rateThe percentage of chargeback disputes that a merchant successfully wins out of all chargebacks received(whether disputed,accepted,or otherwise).04First-party fraudAlso known as“chargeback fraud,”“chargeback abuse,”and“liar buyer,”first-party fraud refers to chargebacks that hav

21、e been filed fraudulently by customers.9In recent years,ecommerce sales surged and chargebacks skyrocketed.In fact,in the last year alone,more than three out of four customers in the United States and United Kingdom filed a chargeback*an all-time high.Chargebacks now represent a normal part of consu

22、mer online shopping behavior and a significant part of ecommerce business management.02How managing chargebacks became chaotic for merchantscustomers in the United States and United Kingdom filed a chargeback in the last year alone an all-time high.*Three out of four*Consumer attitudes towards charg

23、ebacks in 2023:Comparing the U.K with the U.S.(Tel Aviv:JUSTT,2023)https:/justt.ai/consumer-attitudes-towards-chargebacks/10The upward trend in chargebacks,in part,stems back to the COVID pandemic.Of course,online returns and chargebacks existed before 2020,but two key behavioral shifts left a lasti

24、ng impact:First,customers were afraid to leave the house to shop,spurring the online shopping boom.Second,chargebacks took off as people were also less inclined to go through the returns process,which often involved an in-store visit or a trip to the post office.Chargeback challenges and what you ca

25、n do about them How managing chargebacks became chaotic for merchantsAre you seeing a change YoY in the volume of chargebacks?76%of chargeback managers say chargebacks have increased or remained steady in the last year,with more than a third of those describing“significant”growth.Chargebacks became

26、popular during the pandemic for their convenience and safety.Much like online shopping,this chargebacks trend didnt recede when life returned to normal.Its reasonable to assume customer psychology changed too if successfully reimbursed via a chargeback,customers feel emboldened to claim again.Abusiv

27、e and fraudulent claims became far more normalized without the traditional feelings of“shame”associated with committing fraud in-store.Percentage of merchants11Merchants profits continue to erode year over year due to chargebacks.With so much effort and cost involved in disputing chargebacks,its uns

28、urprising many merchants weigh whether its worth the effort or cheaper,in the long run,to simply accept fraudulent chargebacks as a cost of doing business.Chargeback challenges and what you can do about them How managing chargebacks became chaotic for merchantsAt what rate do you dispute chargebacks

29、?Three in four merchants recover less than half of all chargebacksNearly 60%leave 40%or more of chargebacks undisputedPercentage of merchantsMerchants face impossible decisions considering which chargebacks they can source enough evidence for or are likely to win.After periods of high spending such

30、as Black Friday/Cyber Monday,soon after comes an influx of chargebacks that teams simply dont have the resources to handle.12Chargeback challenges and what you can do about them How managing chargebacks became chaotic for merchantsMore than 73%of merchants believe 20%or more of their chargebacks are

31、 first-party fraud.Fraud chargebacks that are first-party fraudPercentage of merchants13The true cost of chargeback management creeps up from disparate sources,from varying bank processing fees to the cost of goods and services lost plus the operational expenses to ramp up staff to support chargebac

32、k operations during seasonal spikes.With most merchants operating across several payment gateways,truly comprehending the cost and complexity of chargeback management can be a struggle.The obvious cost reversal of sale Value of lost merchandiseShipping costs Chargeback processing feeOperational cost

33、s Full-time employees working on chargeback teams on average one to three Employee time on each dispute Root cause analysis and preventionMarketing costs to promote the itemRisk of losing an acquiring account and potential fines(in extreme cases)The findings in this research reveal three key challen

34、ges driving chargeback management costs and profit erosion:operational,technical,and bureaucratic.03Why chargeback management is so complex14Key chargeback management challengesChargeback challenges and what you can do about them Why chargeback management is so complex55%manage multiple chargebacks

35、across multiple systems55%find process too time-consuming36%lack visibility and difficulty inmonitoring and reporting35%cant access or use all relevant data as evidence15Chargeback challenges and what you can do about them Why chargeback management is so complexCurrent chargeback management challeng

36、esProcess is too time-consumingLack of visibility,difficulty monitoring,and reportingInability to access or use all relevant data as evidencePerformance is too lowNot enough headcountDifficulty with scalability resulting from increased volumeOtherPercentage of merchants16Operational challenges to ch

37、argeback managementToday,sizable teams focus on managing chargebacks.Even the“simple”first steps of identifying and categorizing chargebacks takes time.However,just over 60%of chargeback teams operate with only one to three full-time employees,and roughly the same percentage manage chargebacks fully

38、 manually.The hours quickly add up when nearly two in five merchants spend at least 10 minutes per dispute,and 18%spend more than 20 minutes a dispute.Teams also invest significant time in root cause analysis and prevention efforts,a highly resource-intensive activity if done manually.Unsurprisingly

39、 then,that 55%think the process is too time-consuming.Chargeback challenges and what you can do about them Why chargeback management is so complex61%of chargeback teams operate with one to three full-time employees.Number of full-time chargeback management employeesPercentage of merchants17To win a

40、chargeback dispute,merchants need to compile evidence from various gateways,teams,and data streams.This means disputes and evidence can easily fall through the cracks,not forgetting that teams outside of fraud and chargeback management will naturally consider it less of a priority to find and supply

41、 evidence,which can further hamper efforts.Chargeback challenges and what you can do about them Why chargeback management is so complexOperational challenges to chargeback managementTwo out of five merchants spend at least 10 minutes per dispute18%spend 20+minutes per disputeHow much time one charge

42、back takes to processPercentage of merchants18Technical challenges to chargeback managementTechnical challenges also cause major headaches in chargeback management.Most merchants work with several payment service providers(PSPs)and acquirers,so a major challenge here is the fragmented technical oper

43、ation that unfolds.First of all,teams access and correlate information from various disconnected systems,making the process slow and complicated.Collecting and organizing evidence from separate sources adds to the manual load,leading to increased human processing time and higher risk of errors.Final

44、ly,the disparate,disjointed systems create fragmented data that teams struggle to collate,interpret,and make effective use of.The end result:a lack of clarity into dispute performance,and difficulty tracking and reporting on KPIs.Merchant responses support this more than half(55%)found having to man

45、age chargebacks across multiple systems was a major challenge.The inability to access or use all relevant data as evidence remains a key challenge for 35%,while a similar number felt a lack of visibility and difficulty in monitoring and reporting were major hurdles.Chargeback challenges and what you

46、 can do about them Why chargeback management is so complex55%manage multiple chargebacks across a variety of systems35%cant access or use all relevant data as evidence19Bureaucratic challenges to chargeback managementDisputing chargeback claims also comes with lots of regulations and rules,primarily

47、 from card schemes and issuers,that make the process more complicated and require merchants to keep an eye on changes and update processes quickly in line with regulations.Payment networks enforce increasingly stricter guidelines about how much information they need to authorize a chargeback.Periodi

48、cally,these regulations evolve too.For example,Visa rolled out Compelling Evidence(CE)3.0*in April 2023 for fraud chargebacks,while PayPal changed its Seller Protection Program*rules in January 2024.Both of these required merchants to quickly adjust processes to maintain compliance and successfully

49、file disputes.Finally,in extreme cases of excessive chargebacks,merchants risk losing acquiring accounts or racking up potential fines.*Alon Livneh,“Updates to Visa Compelling Evidence:What to know about CE 3.0”Riskified,March 9,2023.*Daniel Kolko,“PayPal announces seller protection rule changes for

50、 merchants heres whats changed”Justt.ai,January 2,2024.Chargeback challenges and what you can do about them Why chargeback management is so complexThe research revealed that travel companies on the whole benchmark higher than any other industry for annual chargeback rates and illustrates some of the

51、 key challenges:Lower-than-average recovery rates:Nearly 90%of respondents see revenue recovery of less than 45%,and zero of the travel merchants surveyed saw recovery rates above 60%.High rates of first-party fraud:Half of travel merchants estimated their rate of abusive chargebacks above 40%.Worry

52、ingly low dispute rates:Just over 50%of travel merchants dispute less than 10%of their chargebacks,and only 14%dispute between 80%to 100%.Big internal teams:The majority have four full-time employees,while 21%have more than five employees dedicated to chargebacks.What would make the difference?Trave

53、l merchants overwhelmingly(86%)want to automate some or all of the process.Theyd also like to have one centralized platform and the ability to make better use of data to dispute chargebacks.20Spotlight:Travel and chargeback management Special consideration:Online travel agencies and chargebacksOnlin

54、e travel agencies(OTAs)face acute,unique challenges with chargebacks because of the intermediary role played between customers and airlines.OTAs have no direct control over much of the data needed to evidence and dispute a chargeback,including data and transaction details from the airline,proof of s

55、ervice,or customer interaction insights.Relying on airlines to provide accurate and timely information therefore exacerbates existing chargeback management challenges and significantly hinders the ability to dispute chargebacks.Chargeback challenges and what you can do about them Why chargeback mana

56、gement is so complexTravel merchants(86%)overwhelmingly want to automate some or all of the chargeback management process.21Chargeback management crept up on the ecommerce industry as an issue.Rising chargeback rates exacerbated the complexity and lost revenues to a point where it can no longer be i

57、gnored.Just as fraud prevention shifted in the last decade to become more sophisticated and AI-based,chargeback management is ready to have its digital transformation moment.04Chargeback management transformed from cost bucket to revenue recovery machine22How can chargeback management be more effect

58、ive and efficient?Merchants currently use a combination of in-house,third-party,or a hybrid approach to management,with the majority(59%)managing all in-house.Regardless of what approach they take or plan to take,chargeback managers know they have significant room for improvement to recover more rev

59、enue and increase efficiency,accuracy,and measurement.Most important ways to change chargeback managementIncreased automation:The most requested improvement across merchants(65%)was for a more automated process.Simple,centralized access:Half of respondents stressed the need to be able to access all

60、chargebacks in one place.Better labeling and evidence management:Less than 15%of respondents customize compelling evidence by gateway/PSP,just 17%by issuer,and a staggering 35%dont even customize for reason categories.Improved prevention strategies:One third of chargeback managers felt that they cou

61、ld get more involved in prevention,using root cause chargeback data as a feedback loop into the fraud-screening process.Chargeback challenges and what you can do about them Chargeback management transformed from cost bucket to revenue recovery machine23Chargeback challenges and what you can do about

62、 them Chargeback management transformed from cost bucket to revenue recovery machineTop ways to change chargeback management65%automate some or all of the process50%manage all chargebacks from one centralized platform47%improve measurement and reporting46%use more data in compelling evidence32%incre

63、ase involvement in upfront chargeback preventionPercentage of merchantsAutomate some or all of the process Manage all chargebacks from one centralized platform Improve measurement and reportingUse more data in compelling evidenceGet more involved in upfront chargeback(fraud)preventionHire more perso

64、nnel2405Four ways merchants can improve chargeback management01 AutomationApplying automation to some or all of the chargeback management process increases efficiency more effectively than any other action.Automation can be applied in a tiered strategy too.For example,lower value or more straightfor

65、ward chargebacks can be automated,while more complex,sensitive,and higher value cases handled with the expertise of agents.Automation also frees up teams to focus on more strategic and challenging disputes and empowers them to tackle what might previously have gone uncontested.02 Platform consolidat

66、ionCentralizing different chargeback sources not only makes life easier for chargeback managers but stops chargebacks and key evidence from falling through the cracks.A centralized platform can serve as a one-stop shop for chargeback management,while also storing all historical data,documents,and ev

67、idence.03 Data management and reportingBuilding on the above,chargeback managers struggle to compile,label,and slice data as they need to.As a result,understanding performance and reporting become challenging.Having better means to capture and categorize chargebacks today can help give a clear sense

68、 of rates,improvement over time,and also provide a feedback loop to improve upfront screening.Four ways merchants can improve chargeback management2504 Offense is the best defenseWhats better than managing chargebacks more effectively?Preventing them in the first place.All of the above can help feed

69、 into merchants ability to help improve their prevention rates by identifying specific chargeback drivers(such as product lines,carriers,or regions),and concentrating efforts on upfront screening.Chargeback challenges and what you can do about them Four ways merchants can improve chargeback manageme

70、nt Chargeback challenges and what you can do about them About Paladin FraudFounded by a group of insider industry experts who knew what fraud prevention can and should be,Paladin Fraud offers an extensive and customizable suite of services for both merchants and vendors.We strategize for the long ga

71、me,helping clients and partners defend against todays threats and tomorrows.Paladin places special focus on education and training,arming merchants and vendors with the insight they need to stay on top.About RiskifiedRiskified(NYSE:RSKD)empowers businesses to unleash ecommerce growth by taking risk

72、off the table.Many of the worlds biggest brands and publicly traded companies selling online rely on Riskified for guaranteed protection against chargebacks,to fight fraud and policy abuse at scale,and to improve customer retention.Developed and managed by the largest team of ecommerce risk analysts,data scientists and researchers,Riskifieds AI-powered fraud and risk intelligence platform analyzes the individual behind each interaction to provide real-time decisions and robust identity-based insights.For more information,visit R or contact a chargebacks expert at .