Chargebacks and ‘Friendly Fraud’ suck.
Seeing these lines in the financials pisses me off. Chargebacks are increasing. There’s the impact to the numbers. But there’s also the wasted time of dealing with each one. But outweighing those is the wasted psychological energy spent. At worst you are being stolen from. And at best, you are being forced into another Sisyphean journey up the mountain by a customer too lazy to email you.
The Wall Street Journal recently wrote a depressing article about the acceleration of chargebacks in the US.
- Card Issuers have made it super easy for card holders to dispute charges and card holders face few if any downside from card issuers
- Last year in the US, there were 105 million disputed charges for $11 billion
- Disputed charges are growing 11% annually according to Datos Insights
- Cybersource (owned by Visa) reports a 69% increase in chargeback misuse
- About 20% of disputed charges are ‘friendly fraud’
A very small set of people are causing the problems. Chargebacks represent about 0.2% (a fifth of one percent) of US credit card volume or transactions.
The card issuers make it easy for a small group of people to avoid dealing directly with the merchant and instead launch “the nuclear option” and make disputes the “go-to way to settle grievances large and small” as the WSJ put it.
So the cardholder doesn’t have to pay, the merchant loses COGS, profit, CAC, time and precious energy and the card issuer often just takes the hit while the card issuer just take the L against their massive balance sheets.
It’s the fraud compounded by the unfairness of the card issuer process that makes me so angry.
Option 1 is to chalk this up to the cost of doing business and just recover the costs through increased prices to all customers.
But how awesome would it be to be able to identify high chargeback / high refund customers before they check out and either block the sale or dynamically change your pricing to make them pay more?
Does this Option 2 exist? Is there a start up doing a black list cooperative among merchants?
And can we take it even a step further? The card issuers are afraid of losing cardholders and government regulators. They are definitely not afraid of merchants. Say what you will about the American legal system, but one thing we are excellent at is suing people. We get one class action law firm on board and DTC Twitter can pull together the class of merchants in 24 hours. The point isn’t the fees. The point is to force the card issuers to make the dispute process fairer to merchants and ultimately discourage the small group of bad actors.
Let me know your thoughts!