Decoding Dispute Trends

Economic stress has led many consumers to find creative ways to save money, including participating in first-party fraud. The democratization of fraud has lowered the barrier to entry, with modern scammers using social media to sell tips and tactics, making fraudulent activity more accessible. Fraud tools and technology are available on the deep web, which offers on-demand Fraud-as-a-Service (FaaS) tools and services that anyone can purchase to commit fraud. On messaging apps like Telegram, fraudsters share tips for exploiting retailer return policies, leading to more widespread return fraud and deeper financial losses for merchants.

With a significant 27% of consumers encountering online content offering “hacks” to get refunds despite being satisfied with their purchase, it’s easier now than ever for shoppers to take advantage of refund and dispute policies. Of these consumers, millennials and Gen Z were more likely than Generation X and baby boomers to encounter online content on how to hack the refund process. Similar data shows the younger the consumer, the more likely they are to engage in first-party fraud. The evidence demonstrates that increased exposure to this type of discourse can directly influence behavior.

Consumers who filed a dispute due to true fraud often faced additional fraudulent activity. Data shows that 28% of these consumers were subsequently victims of additional online fraud. Of these consumers, 61% experienced additional payment fraud, 44% received increased spam or scam messages, and 30% suffered account takeovers. In many cases, consumers didn’t notice or weren’t alerted of suspicious activity in time to cancel their cards or change their passwords to prevent further harm.

Although the majority of fraud-related chargebacks stem from first-party fraud, there are considerable costs associated with not protecting trusted consumers from becoming victims of payment fraud. Unauthorized purchases made on a brand’s website or app can significantly impact consumer loyalty.

Survey results show that 43% of consumers would be less likely to make a purchase from a brand if they experienced an unauthorized transaction on that brand’s website or app. Another 28% of consumers would permanently stop shopping with the brand and seek out another business. Many consumers hold brands responsible for payment fraud on their sites, leading to lost trust and lifetime value (LTV). It also negatively affects customer acquisition costs and growth opportunities, forcing brands to spend resources on reactive measures instead of improving the customer experience or expanding their customer base.

Businesses must be prepared for the upcoming 2025 chargeback season by understanding the true cost and consequences of chargebacks. With the anticipated increase in chargeback rates and values following the holiday shopping period, implementing best practices for dispute management is essential.

Fraud and risk teams should focus on preventing first-party fraud through clear cancellation and return policies, leveraging Visa CE 3.0 to defend against illegitimate chargebacks, preparing for the evolved Visa Acquirer Monitoring Program (VAMP), and using advanced solutions to prevent fraud across the user journey. By prioritizing winnable cases, efficiently gathering compelling evidence, and submitting quick responses, businesses can improve their chargeback win rates and minimize financial losses.

Leveraging Sift’s AI-powered fraud solutions provides a proactive approach to mitigating the risk of chargebacks and other fraudulent activities. Sift analyzes transaction patterns in real time to identify potential fraud and automate the dispute management processes, enhancing overall business operations. By integrating comprehensive fraud prevention and dispute management solutions, companies can stay ahead of evolving fraud tactics, protect their revenue, and secure the customer journey.