Inefficient processes result in a high number of unchallenged chargebacks. Credit: Panchenko Vladimir via Shutterstock.

Online merchants are facing a growing problem with chargebacks, according to a recent survey conducted by Riskified and Paladin Fraud.

Chargebacks, where consumers dispute purchases with their payment issuers, are becoming increasingly common, with 76% of chargeback managers reporting a rise in these disputes.

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This trend poses significant challenges for online businesses, leading to revenue losses and operational complexities.

Key survey findings

The survey highlighted several key findings regarding the impact of chargebacks on online merchants:

  • Increasing rates: 75% of American and British consumers filed a chargeback last year, contributing to the surge in disputes faced by merchants.
  • Revenue losses: Nearly 60% of merchants are choosing not to dispute at least 40% of chargebacks, resulting in significant revenue losses.
  • Complex processes: More than 50% of merchants find the current chargeback management process too time-consuming, complex, and manual. This adds to operational costs and erodes profits.
  • Friendly fraud: More than 73% of chargebacks are attributed to ‘friendly fraud’, where consumers exploit the system for personal gain, making it challenging for merchants to dispute these claims.
  • Demand for automation: The majority of merchants (more than 65%) expressed a desire for AI and automation to streamline the chargeback management process, recover more revenue, and increase efficiency.

Impact of Covid-19 and need for innovation

The Covid-19 pandemic exacerbated the issue of chargebacks as online shopping surged. Customers, confined to their homes, increasingly sought refunds without engaging directly with merchants.

Despite this trend, the chargeback management processes have failed to evolve at the same pace, remaining highly manual and bureaucratic.

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This has further burdened merchants, adding to the operational challenges and costs associated with chargebacks.

Addressing the challenge

In response to these challenges, Riskified unveiled an enhancement to its Dispute Resolve system in January 2024.

This system aims to empower chargeback operations teams by automating dispute processes at scale.

Leveraging AI-powered automation and seamless integrations with payment gateways, Dispute Resolve offers merchants the opportunity to improve win rates and mitigate revenue losses associated with chargebacks.

“Merchants are facing significant challenges in managing chargebacks efficiently,” said Jeff Otto, CMO at Riskified. “Our survey underscores the urgent need for technological innovations to address the complexity and volume of chargeback disputes. With AI-powered automation, merchants can streamline their operations and reclaim lost revenue.”

As online commerce continues to thrive, the effective management of chargebacks will remain crucial for merchants seeking to protect their profits and enhance customer trust.