Chargebacks: What are they? And how can you make them stop?
Sometimes, consumers need to dispute a charge on their credit card. Maybe a business refuses to provide a refund for whatever reason, or perhaps they’ve been the victim of fraud. Either way, their last resort is to contact their bank to reverse a payment — a chargeback. (Learn more about the basics of chargebacks here.)
It’s important for consumer protection. But criminals often exploit this process by disputing legitimate purchases and demanding a refund. This is chargeback fraud and is one of the most popular forms of fraud threatening ecommerce businesses today.
It's estimated that online fraud is costing the UK almost £5 million every day. So, with ecommerce sales volumes on the rise, preventing chargebacks is more important now than ever.
How? Watch the video below for a quick summary or read on for the details:
As a business, you always have the option to fight chargebacks, but you have to make a pretty solid case to win a dispute. And even if you win, a chargeback still counts against your chargeback ratio. So it’s better to prevent them than defend them.
Preventing chargeback fraud usually entails a lot of manual work. Your compliance teams need to cancel individual fraudulent orders and then block IP and email addresses one by one. This “review, cancel, and block” process is a huge drain on resources. On top of that, unless your team is highly trained, differentiating between genuine and fraudulent chargebacks is tough.
In addition to manual reviews, you can also lean on third-party risk management tools. And, while they do help, they're often inefficient since they’re one step removed from where chargeback fraud happens: the point of payment.
While you can’t prevent all chargebacks, with the right payment tools, you can reduce them. That’s because the first line of defense against chargeback fraud is the payments processor.
With Adyen, businesses benefit from our risk management solution, RevenueProtect. This tool reduce manual intervention and automatically resolves chargebacks by separating legitimate customers from fraudsters. Forrester Consulting found that as a result, you can reduce chargebacks by 27% — worth £1.8 million over three years.
"Reporting and predictive analytics on the transaction and settlement side of chargebacks would never have been possible without Adyen because we wouldn’t have the granularity of data to build out accurate models."
And the 27% reduction in chargeback write-offs could be only the beginning. Forrester applied a chargeback write-off rate of only 0.8% for the composite organisation profile used in the TEI™ study. Additionally, the businesses interviewed for the study were also using existing third-party risk management tools — making them outliers among ecommerce businesses.
For iconic footwear brand Hunter, high chargebacks in the US and Canada proved challenging to address beyond manual reviews numbering in the thousands during peak periods. After switching to Adyen, the company has been able to get down their chargeback rate from 2% to 0.2%. As a result, Hunter now views payments as a conversion driver.
After branching into Mexico, fast-growing platform Athlinks saw chargebacks soar to a peak of 24%. Working with Adyen to conduct extensive risk analysis, the Athlinks team was able to get chargeback rate down to 1%. Having Adyen as a partner lets the Athlinks crew focus on what they do best — helping athletes register for events and get race results.
“We’ve managed to get our chargeback rate down from 2% to 0.2%. At the same time, we’ve managed to keep our authorisation rates high.”
While you'll likely see the most obvious impact on your bottom line by reducing chargebacks, preventing them also frees up employees to focus on business growth. So you have time to focus on driving conversions.
Forrester’s study revealed that in addition to a reduction in chargebacks, online businesses can unlock up to £5.5 million in revenue over three years with Adyen through intelligent retries, improved operational efficiency, and increased authorisation rates.