Reducing Chargebacks Requires Cooperation from Banks, Retailers, and Consumers

Last Updated on February 15, 2021 by

You would think that with all of the new technology, the rise of the fintech industry, and AI-driven chargeback-fighting solutions, that chargebacks would become a thing of the past.

If anything, they’re actually growing because when new fraud prevention solutions strike down one method, two new schemes pop up in its place.

While a large number of chargebacks are actually put down to friendly fraud, there are still plenty of consumers who truly need real chargeback relief. On the other hand, retailers and financial institutions are trying to balance the needs of the consumers with stopping thieves from stealing billions of dollars.

There are a myriad of problems leading to this:

• Some consumers won’t try to figure out a mystery credit card transaction on their own, so they issue a chargeback and leave it up to the bank to sort it out.
• Some banks refuse to issue credit card statements written in plain, easy-to-understand language.
• Some retailers ignore chargeback notifications until they’re placed on credit card probation and make it easier for fraudsters to operate.
• And this is all on top of the fraudsters and crooks who take advantage of the confusion to steal from anyone they can.

These are just a few of the causes of the chargeback problem, but everyone is trying to do their part to solve the problem and reduce the number of chargebacks. Except the crooks.

Last month, PYMNTS.com held a roundtable discussion on this very topic. PYMNTS CEO Karen Webster hosted Andre Edelbrock, Ethoca; Keith Thompson, Cabela’s and Bass Pro Shops Senior Manager of Fraud and Investigations; and Steve Furlong, First National Bank of Omaha Director of Fraud Management.

The panelists all agreed that “clearing up the jargon and guesswork — while pinpointing real fraud — can go a long way toward improving digital commerce itself.”

According to Edelbrock, the huge increase in digital shopping led to part of the problem — 22% of retail transactions in March and April were digital, double the number of digital purchases in 2019.

Edelbrock asked the panel, “The big question could be: ‘Could that put us over a billion in the U.S. from an issuer side on costs or chargebacks and fraud?’ And that’s a big number.”

He said one in four disputes is tied to transaction confusion. The result is there will be at least 20% more chargebacks and disputes in 2021, which will cost U.S. credit card issuers $800 million.

Oh sure, that’s a big number. Know what’s a bigger number? The amount of money the retailers lose to chargebacks and friendly fraud. According to a 2020 report by the Mercator Group, friendly fraud will cost retailers $50 billion in 2020.

So, you know, more.

How are Large Retailers and Banks Fighting Chargebacks and Friendly Fraud?

Keith Thompson of Cabela’s said they’re seeing an increase in certain kinds of disputes, especially non-receipt of items whether related to carrier issues, porch pirates, or friendly fraud. Another problem is that they have different distribution centers shipping products, and they may all authorize a portion of an order on a credit card.

“The way we authorize is we don’t authorize until we ship,” Thompson said to the panel. “So, a consumer might buy a hundred dollars’ worth of items. It may come in 10 different boxes.”

In other words, ten shipments may mean ten charges, and if the customer was expecting one big charge on their credit card statement for $100, but they see ten charges of various prices, they may just issue a chargeback on all those line items. (Remember how consumers are just letting the bank sort it all out?) This means more disputes and more headaches, especially if there are strict return policies on certain items.

Another problem, said Thompson, is the issue with account takeovers, as thieves will hack a customer’s account, have something expensive shipped using the credit card stored online*, and then delete the evidence of the order.

* This is why retailers should never store static CVV2 numbers on their websites.

Finally, because fraud has become rampant — Edelbrock said that for digital purchases, as much as 80% of chargebacks are a result of friendly fraud — merchants, credit card issuers, and consumers need to work together more.

Edelbrock said this is why it’s critical that transaction information is enhanced, clarified, and made easy to understand. He called it “consumer clarity.”

“There’s a much better customer experience when we put the right information in the hands of the cardholder,” he said. “And if that didn’t jog the memory, you put that information in the hands of a call center rep.”

This is where products like Ethoca and CDRN by Verifi (a Visa company) can make a difference to merchants and consumers. With these issuer-based solutions, whenever a consumer has a dispute or question about their statement, they’ll deal with a call center representative who will explain the questionable credit card charges and see if it’s something the cardholder forgot, didn’t recognize, or was made by someone else in the family.

You can watch the entire video of the PYMNTS.com panel discussion on their website, and hear more about the other solutions and issues we didn’t cover.

Or if you would like to learn more about how you can use different solutions to reduce the number of chargebacks and friendly fraud you deal with, Corepay can certainly help. Just visit our website or call us at (866) 987-1969.