Sift (credit image/Pixabay/Robinraj Premchand)A new report from Sift found that nearly 1 in 4 consumers admit to disputing a legitimate purchase. Purchasers saying, they didn’t receive it or there was an issue with the order, to get their money back. Sift found that chargeback dispute rates have risen over 35% since Q1 2022. As a result, everyday consumers are increasingly seeking to claw back money from businesses.

The report is based on data from Sift’s global network of over 34,000 sites and apps. In addition to a survey of over 1,000 consumers. The report highlights how chargebacks and “friendly” fraud have increased as budgets are constrained amid rising inflation, geopolitical turmoil, and a global economic slump. Friendly fraud (also known as first-party fraud) occurs when a consumer makes a purchase with their credit card. They then choose to dispute the purchase with their financial institution and requests a chargeback. Despite receiving the purchased goods or services.

Fraud claims and costs rise while economy dips

According to the report, two-thirds of consumers have filed disputes. From that subset, nearly 1 in 4 (23%) admitted to participating in friendly fraud. In addition to the rising rate of consumer fraud disputes, the average disputed dollar amount is also higher than last year. Increasing 16% to $192.53. This jump signals a more widespread negative impact on businesses’ bottom lines during the remainder of the 2022 holiday shopping season and beyond.

As the dollar amounts of disputes and rates of chargebacks rise, businesses are left picking up the costs. Not all industries, however, are fighting the same battle. Verticals such as digital goods and services, retail, and fintech face the highest average number of disputes. The top three most disputed items are clothing (21%), subscription goods (19%), and electronics (18%).

(Credit image/LinkedIn/Brittany Allen)
Brittany Allen, Trust and Safety Architect at Sift

“As the economy cools down from historic highs, consumers are looking to save money however they can. Luring many to resort to first-party fraud,” said Sift Trust and Safety Architect Brittany Allen. “These chargebacks quickly tally up against merchants who are already under stress from the sagging economy. Merchants can mitigate chargebacks by employing a Digital Trust & Safety strategy. This protects against fraud and abuse, streamlines the dispute process, and eliminates friction for legitimate customers.”

The hidden costs of chargebacks

Chargebacks not only impact merchant budgets, but their reputations in the long term as well. Of the consumers surveyed by Sift who have filed a dispute with a merchant, more than 83% reported they would be less willing to buy something from that brand in the future. What’s more, 50% say they would never shop with a brand again if the merchant failed to resolve their dispute within 30 days. This highlights how crucial it is to take these high risks of brand abandonment seriously.

While card networks offer some protections, like Visa’s imminent CE3.0 update, they are only part of the solution. Merchants must protect themselves for the post-holiday chargeback season now. With a Digital Trust & Safety approach, businesses can scale their fraud prevention strategies at every touchpoint to reduce abuse. The approach also streamlines chargeback management and maximises growth.

Enterprise Times: What this means for business.

Both businesses and consumers are having to survive in the middle of a cost-of-living crisis. This is exasperated by global recession fears, with companies of every size looking to cut costs. The consequence is a chain reaction of belt-tightening across markets. Based on data from past economic downturns, Sift, a key player in digital trust & safety know multiple types of fraud increase in times of uncertainty. This includes chargebacks. Sift data shows merchants are already seeing rising disputes, impacting revenue and brand loyalty.

Merchants are also at a disadvantage when it comes to the relationship between the customer, financial institution, and themselves. Most consumers will file a dispute directly with their credit card company instead of contacting the merchant first. They assume the merchant will make it difficult and time-consuming to get their money back. Merchants can set themselves up for less first-party fraud in the new year by having clear cancellation and return policies in place for the holidays.

Although some merchants are hoping to curb the exploitation of returns by shortening return windows, having a longer return runway can help reduce the number of disputes teams will have to field. They can also turn to technology to manage every aspect of a firm’s fraud operations.

Retailers, in particular, need to instantly detect and block risky transactions, shut off fraudulent currency movement, and proactively prevent alternative payment abuse to protect their business down to every transaction. Digital chargebacks or friendly fraud is particularly challenging to manage since they can impact on a brand’s reputation. However, companies still need the tools to identify this issue, so that they can take the appropriate actions.




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