As we enter the second month of 2023, the global economic outlook remains hazy, fraud continues to accelerate, and both merchants and consumers still find themselves in a state of uncertainty. Businesses can, however, leverage last year’s fraud data to make educated decisions on how to approach the remainder of the year. Below, our Trust and Safety Architects analyze the latest post-holiday chargeback data from Sift and what it means for merchants, and reflect on the key takeaways from Gartner’s 2022 Market Guide for Online Fraud Detection.
Rising disputes, chargeback values, and friendly fraud
With the holiday shopping frenzy well behind us, merchants are now officially in chargeback season—the post-holiday period when chargebacks and disputes start rolling in—which can be a time-consuming and costly process for companies. This year, however, chargebacks have the potential to have an outsized impact on businesses, as recent Sift data points to a rise in dispute rates and the value of those disputes.
Compounding the problem of chargebacks is an alarming increase in first-party fraud (or ‘friendly fraud’), with almost 1 in 4 consumers who disputed a purchase admitted to.
“Average consumers, especially those hit hard by inflation and economic uncertainty, may feel more pressure to cut costs, making friendly fraud seem like an easy way to save money,” observes Sift Trust and Safety Architect Brittany Allen.
See what else Brittany had to share in Retail Touchpoints.
Unchecked chargebacks and the threat of brand abandonment
If merchants can’t keep up with rising disputes, they not only risk short-term revenue loss, but also long-term damage to their brand. Half of the consumers surveyed by Sift said they would abandon a brand if their dispute wasn’t resolved within 30 days.
“That is really tough for merchants because the delay is not going to be completely something that they can control,” Allen says.
The complex and time-consuming process of resolving a dispute is not generally understood by consumers, Allen goes on to explain.
Accepting a credit card chargeback as a merchant results in a slower refund for the customer: “Now, all that I can do is accept the chargeback, which just means the merchant agrees with it and agrees to return the funds. It’s going to take anywhere from 30 to maybe even 75 days for that to go back through the system and for you to get the refund, and there’s literally no other thing I can do.”
Fortunately, there are things merchants can do to reduce chargebacks and resolve more disputes when they do occur. This includes having clear cancellation and return policies and implementing a strong dispute management process—one that relies on machine learning and intelligent automation to resolve chargebacks more quickly and efficiently.
Read more about the risk of dispute-related brand abandonment in Fintech Nexus.
Choosing wisely: navigating the fraud prevention market
As fraud continues to evolve and become more accessible to even the average consumer, it’s more evident than ever that having an advanced fraud fighting solution is critical if an online business wants to protect and grow revenue. But navigating the increasingly complex fraud prevention market can be overwhelming, and knowing what to prioritize in a vendor isn’t always clear.
Gartner’s newly released 2022 Market Guide for Online Fraud Detection highlights the key qualities merchants should look for when selecting a fraud solution, one of which is relying on a vast network of data to predict and prevent fraud in real time.
Sift VP of Trust and Safety Kevin Lee agrees: “Operating in the global, interconnected Fraud Economy, these cybercriminals quickly move on to another attack vector or the next target, looking for new ways to exploit security gaps. This is why the data network is so important. When companies are targeted, they can unite forces and share information about the attacks to prevent others from facing the same challenge. This will put businesses in a better position to mitigate risk and reduce losses due to fraud.”
Read all of Kevin’s key takeaways from the report.
Read the full Gartner® 2022 Market Guide for Online Fraud Detection.