As much as 72 per cent of merchants have experienced an increase in chargebacks in just the last three years, leading to many businesses raising their prices to offset the growing costs, according to new research from chargeback technology leader, Chargebacks911.
In its 2024 Chargeback Field Report, which surveyed 300 retailers, from small businesses to enterprise merchants, Chargebacks911 highlights that the rise in chargebacks – driven largely by first-party misuse (also known as friendly fraud) – is having a direct impact on pricing strategies across industries.
The findings come as the payments industry comes to terms with the fact that illegitimate disputes by cardholders through card-not-present (CNP) transactions are outpacing the growth of e-commerce sales.
According to the report, presented in partnership with Edgar, Dunn & Company, the merchants that observed increases in the frequency of chargebacks experienced an average increase of 18 per cent. As a result, nearly one-third of respondents admitted that the financial burden of managing these disputes has forced them to increase the prices of their goods and services.
“The rise in chargebacks is becoming a vicious cycle,” explained Monica Eaton, CEO of Chargebacks911. “Merchants are raising prices to cover the cost of disputes, but in turn, this pricing pressure gives more incentive to those inclined to commit first-party misuse. The data clearly shows that friendly fraud is the real issue, far surpassing criminal fraud in many sectors.”
The report highlights a shift away from concerns over criminal fraud, with friendly fraud becoming the leading cause of chargebacks for many merchants. Nearly half of the respondents estimated that friendly fraud was responsible for at least 50 per cent of their chargebacks, and 45 per cent of those surveyed believed that customer misunderstandings – like not recognising transactions on billing statements – were a key driver.
‘Merchants need to be proactive’
Many merchants are struggling to effectively combat illegitimate claims. While 75 per cent of participants reported challenging some chargebacks, nearly half admitted that they don’t track second-cycle disputes, which suggests their recovery rates may be lower than expected.
In response to the rise in chargebacks, many merchants are turning to new technologies and strategies to mitigate losses. Two-thirds of survey respondents reported either using or planning to implement AI-powered fraud prevention tools. Despite these efforts, the report warns that businesses must do more to address the underlying issue of first-party misuse and better educate consumers on the proper use of chargebacks.
“Merchants need to be proactive, not just reactive,” added Eaton. “By employing better chargeback prevention tools and leveraging professional dispute management services, businesses can reduce their exposure to friendly fraud and regain control over their bottom line.”
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