ANNUAL CHARGEBACK REPORT & STATISTICS

Why does The Year in Chargebacks report show a decrease in year-over-year trends when other studies indicate chargeback risks are intensifying?

The difference is an ongoing effort to manage disputes.

Chargebacks are still a significant threat as this report’s 1.94% chargeback-to-transaction ratio indicates. If merchants didn’t make any effort at all to reduce risk, the data in The Year in Chargebacks would be much different.

However, the merchants in this study recognize the dangers that chargebacks pose to their business and have focused on reducing them.

Therefore, the drop in the chargeback-to-transaction ratio emphasizes the effectiveness and value of Midigator’s ongoing, proactive chargeback management efforts.

Recommendations

Merchants are encouraged to follow a comprehensive chargeback prevention strategy to reduce unnecessary revenue loss, costs, and penalties. 

This should include a combination of pre-sale strategies (address verification service, card security codes, third-party vendors), post-sale tools (prevention alerts, Consumer Clarity, Order Insight), and post-chargeback management initiatives.

Fighting chargebacks can be a difficult task. And because it isn’t always easy, a lot of merchants don’t even try to recover lost revenue. However, that can be a costly mistake.

In 2020, merchants who fought chargebacks experienced an average return on investment (ROI) of 595%. When broken down by industry averages, revenue recovery ranged from $6,577 to $416,116 per merchant with individuals recovering as much as $2.7 million. Labor savings averaged between 61 and 20,973 hours per merchant with merchants saving as much as 44,524 hours — which is the equivalent of 21 full-time employees.

Ultimately, with the right evidence and the right response strategy, it pays to fight.

Recommendations

Merchants should create a strategy for fighting chargebacks that includes collecting necessary compelling evidence, setting fight rules to optimize ROI, customizing responses, and meeting submission deadlines. Technology can help ensure the highest win rates possible with the least amount of expenses.

The COVID-19 pandemic had a significant impact on nearly all businesses in all industries in all regions of the world. Everything from inventory and shipping to customer service and refunds was affected.

And for some merchants, chargeback management strategies were altered too. For example, common struggles included an influx in disputes, an inability to fight chargebacks before they expired, a lack of transparency regarding outcomes, and much more. 

However, these challenges only affected certain merchants — primarily those who managed chargebacks internally or used one of Midigator’s competitors.

Because the merchants included in this study had benefited from Midigator’s advanced technology and expert advice — some for more than five years — the results in The Year in Chargebacks were markedly different from what was reported throughout the industry. 

For example, Midigator’s team of experts anticipated a potential increase in fraud activity and helped merchants obtain the tools they needed to reduce risk — the use of identity verification tools increased 43% between 2019 and 2020. This, combined with a significant increase in transaction volume, helped ensure the study’s downward trend in the chargeback-to-transaction ratio continued in 2020. 

Moreover, because of Midigator’s automation and streamlined workflows, merchants were able to keep chargeback management a top priority in 2020. While other merchants struggled to meet deadlines due to an increase in chargeback volume and manual processes, the merchants in The Year in Chargebacks continued to fight a significant portion of disputes — more than 78% were fought — year-over-year.

Positive chargeback management outcomes can’t negate the devastation that merchants faced. However, these small victories were a welcome relief for many during such a tumultuous time.

Recommendations

Merchants can use this unprecedented experience as an opportunity to reconsider their opinions about chargeback management. 

For those who haven’t already accepted professional chargeback management help, now is the time. Proactively seeking assistance before chargebacks become a liability is key. Merchants can use technology, like Midigator, to remove the complexities of payment disputes so they can focus on what matters most: growing their business.