Once the holiday shopping boom tapers off, chargeback season creeps in—and trust and safety analysts are in for a busy start to 2022. Recent insights from Sift’s global data network show that average daily chargeback cases (the number of disputes filed) increased 19% between Q1 2020 and Q1 2021, in line with steady YoY growth across digital markets. And because pandemic-driven online growth has yet to plateau, risk teams should be prepared for another annual uptick in seasonal disputes as the new year begins.
In fact, while consumers reportedly spent 1.4% less across the 2021 Black Friday-Cyber Monday (BFCM) weekend, total profits generated by seasonal online shopping are predicted to leapfrog last year’s earnings and reach $207 billion, up 10% from 2020. And wherever consumers spend money, fraudsters follow—over that same short time period, we saw a sharp increase in digital attacks, with attempted account takeover fraud (ATO) more than tripling in digital wallets, and rising significantly in payment services (PSPs), buy now/pay later (BNPL), food delivery, marketplaces, and retail.
In the digital-first economy, chargebacks have become the price of growing profits and market share. But too many businesses are betting their bottom line on dispute management strategies that can’t keep pace with increasing transaction volumes, or the inevitable fraud and chargebacks that result—leading to bottlenecks, inaccuracies, and dwindling win rates.
Where True Fraud and Friendly Fraud Collide
Shoppers rely on businesses to offer options for return or replacement, and expect to make use of money-back policies if they receive damaged goods, notice unauthorized purchases, or simply change their mind about an item or service. Of consumers surveyed by Sift, 65% reported having disputed a purchase in their lifetime—62% of whom have done so within the past year, and most often on digital-first transactions.
Consumers claim a variety of reasons for filing disputes, with well over one-third (42%) stemming from true fraud (e.g., unauthorized purchases using the customer’s payment information). But when asked separately, 17% of consumers who have filed chargebacks admitted to “friendly fraud,” wherein they filed a true fraud dispute for a transaction that wasn’t actually fraudulent—making the legitimate cardholder and the fraudster one in the same.
Although true fraud is a predominant factor in a merchant’s overall dispute rate, friendly fraud can account for up to 75% of all completed chargebacks, making even legitimate transactions more likely to cost a business down the line. And customers aren’t selective about where they’ll challenge a purchase—retailers are, not surprisingly, at the top of the list, but every vertical experiences some level of chargebacks and disputes caused by both true and friendly fraud.
Finally, an overwhelming percentage of respondents reported filing disputes on digital-first sites and services. These types of card-not-present (CNP) transactions include unique hurdles around user verification in online environments, making them more likely to result in a dispute down the road. Considering the continued, increasing consumer demand for online shopping and digital payment options, Sift’s experts predict a steady upswing in fraud and disputes over the next few years. Analysts relying on manual review and verification processes will find it incredibly difficult, if not impossible, to scale dispute management and fraud operations alongside business growth as these trends continue.
Unpredictably Normal: Preventing and mitigating rising disputes
The sweeping digital disruption caused by the pandemic gave fraudsters fluctuating online transaction volumes to hide behind, an influx of new data to steal, and a growing number of credentials to hack, leading to swelling fraud rates and lost profits across every type of industry. Between 2019 and 2020, the average value of attempted fraudulent purchases across the Sift network rose an alarming 69%. And just days into the 2021 holiday shopping season, attempted payment fraud spiked by as much as 328% in some industries, with
Our just-released report, the Q4 2021 Digital Trust & Safety Index: Navigating the new normal of digital fraud and disputes, explores the symbiotic—and often parasitic—relationship between online account takeover, payment abuse, and rising disputes in the global Fraud Economy.
Download the report for new insights on traffic and transaction volumes across e-commerce, fraud rate changes in different industries, average chargeback costs across verticals, and expert advice on navigating the coming dispute season.
