How to Overcome the Rising Challenge of Chargebacks

The cost of chargeback claims can quickly add up for an online retailer. In this article, learn about the single most effective way to overcome the challenge of chargebacks.

At this point, there's no denying that the cost of card-not-present (CNP) fraud is increasing quicker than anyone anticipated. By 2023, it's projected that global yearly losses associated with CNP fraud will reach as higher as $36 billion.

In the U.S. alone, fraud losses are projected to reach $12 billion by that same time. 

Fraudulent chargeback claims make up a large percentage of that total cost, and they're unfortunately something that nearly every online retailer has had to learn to deal with. While it's certainly possible to eliminate chargebacks by rejecting every potentially fraudulent transaction, this strategy will usually backfire on merchants resulting in a sharp increase in false declines. 

Even the most accurate fraud prevention technology can make a mistake and decline a legitimate purchase. Over time, the losses from false declines will compound and seriously impact a business' ability to grow. 

The best way to overcome the challenge of chargeback fraud is by investing in a fraud solution that offers complete chargeback reimbursement protection. Keep reading to learn more about how a chargeback guarantee works, and why it's an essential component to a successful fraud prevention program. 

What is Chargeback Fraud?

To start, let's define what a fraudulent chargeback is. 

A chargeback is a payment that is refunded to a consumer after they have successfully filed a dispute for an item on their account statement. The customer wins the dispute by claiming that they didn't authorize the transaction, or didn't receive the product or service that was purchased. 

The merchant receives notice that the customer filed a dispute and they're told to refund the money while the financial institution conducts an investigation. This process can sometimes take up to 75 days to complete.

It's estimated that less than 32% of online retailers actually win a chargeback dispute. Larger companies have a better chance of winning disputes when they have representment. Representment describes providing evidence to show that the sale was correctly completed. Showing that the claim isn’t true helps the business get money back from false chargebacks.

When a customer files a chargeback claim for a purchase that they authorized, this is chargeback fraud. There are two types of chargeback fraud: friendly, and criminal.

Friendly fraud describes a situation where the cardholder knows about, allows, or benefits. They request a chargeback knowing that the product or service was, in fact, provided.

Criminal fraud includes the following examples.

• The person uses a stolen or lost card for the purchase
• Criminals create and use counterfeit credit cards and account numbers
• Criminals change the shipping information after the completion of a legitimate purchase
• A person falsifies a signature

What Is Chargeback Reimbursement Protection?

The purpose of chargeback reimbursement protection is to eliminate the merchant's liability for chargeback claims. For example, Vesta Payment Guarantee offers a zero-fraud-liability guarantee that completely protects a merchant's revenue from all fraud chargeback liability. If Vesta approves a transaction, and the cardholder files a fraudulent chargeback claim later, we will cover the loss and any associated fees. This "guarantee" lifts the burden of dealing with fraudulent chargebacks off the shoulders of merchants so they can focus on growing their business. 

If you're struggling with a high fraud rate and overwhelming chargeback fees, investing in a fraud solution that offers a chargeback guarantee would be the single most effective approach to solving this problem. 

Chargebacks Can Be An Opportunity for Growth

Merchants tend to view chargebacks as a detriment to their business, but we try to see chargebacks as an opportunity to learn more about how fraudsters behave. Vesta's dedicated approval operations team analyzes each new chargeback claim that's incurred to learn exactly why the chargeback was issued, and how it can be prevented in the future. 

Vesta offers the only online purchase platform with instant, end-to-end transaction guarantees. We’ve refined scalable payment protection solutions worldwide for over 25 years. Our goal is to drive the true cost of fraud to zero.

If you're ready to eliminate the risk of chargeback fraud for your business, request a demo of our Payment Guarantee solution and we can show you how Vesta eliminates fraud liability for some of the largest global brands.