eCommerce Chargebacks: New Challenges, New Solutions

Ecommerce is booming, and there’s no end in sight. Statista predicts the sector to grow from $5.8tn last year to $8tn by 2027 - representing a quarter of global retail sales. At the same time, fraudulent chargebacks rates have risen in tandem to reach unprecedented levels, wreaking financial devastation on affected merchants. This article examines the biggest challenges chargeback fraud presents to Ecommerce merchants - and how to solve them. 

The Rise of Friendly Fraud in eCommerce

As a sector that operates exclusively online, where the receipt and quality of goods can be hard to verify, eCommerce is one of the industries worst-affected by chargebacks. This is partly due to the card-not-present nature of its transactions, which makes both true and friendly fraud more likely - fraudsters can gain access to the card details of others, and cardholders can easily attempt to deny that a purchase was theirs.

Given the name, you might assume that ‘friendly fraud’ would be less harmful to eCommerce merchants than true fraud, but in fact the reverse is true. Mastercard estimates that merchants will pay over $100 billion in chargebacks in 2024, and that friendly fraud - where cardholders dispute legitimate transactions - will represent 61% of this figure. Visa’s estimates are even more damning, suggesting that friendly fraud accounts for 75% of chargebacks overall. 

Worse still, friendly fraud is rising fast. 2023 saw a 19% increase from the previous year, and experts predict further increases going forward. Gen Z are among the biggest culprits - in 2023, 42% of the digital native generation admitted to committing friendly fraud. As their spending power increases over the next decade, the financial impacts of this behavior look set to become increasingly harmful for merchants hit by increasingly expensive disputes. 

The stakes for merchants can be quite high:

• Lost chargebacks typically cost 2.5X the transaction amount, including lost goods, shipping, and acquirer fees. If you’re dealing with high-cost, low volume transactions, a handful of lost chargebacks can be make or break. 
• Manual dispute management diverts valuable staff time and resources from core business activities.
• Despite most chargebacks being illegitimate, merchants typically win few only a small fraction of disputes.
• High chargeback rates can trigger additional penalties and fines, damage merchant reputation, and risk account closure.
• Total chargeback losses can amount to 25% of net income.
• Card scheme rules and the requirements of acquirers regarding disputes are subject to frequent change. This means that merchants must invest considerable time and labor in order to stay up to date.

4 Chargeback Challenges for Ecomm Merchants

1. The Problem of Seasonal Chargeback Surges

eCommerce is seasonal - transactions rarely happen at a steady rate throughout the year, but are more likely to ebb, flow, and surge. This is most dominant in retail and other sectors that have large seasonal sales during ‘shopping holidays’ such as Black Friday, Cyber Monday, January Sales, and Super Saturday. But even if your business isn’t traditionally seen as seasonal, your customers’ behavior will shift throughout the year due to changing work expectations, financial conditions, and the influence of surrounding marketing trends and sales events. 

Merchants rely on these occasions to even out their balance sheets, but it can come with a cost. This is because when transactions surge, chargebacks rise even faster. The reason for this is partly psychological: sales lead to impulsive purchasing behavior, which results in buyer’s remorse, which in turn leads to friendly fraud. Other causes include delayed responses to illegitimate refund requests due to increased demand, and high volumes of cardholder purchases, which may confuse cardholders when they view their transaction statements. 

When these spikes occur at busy times, merchants struggle to balance the increased workload with the challenge of crafting nuanced representments. Instances of human error rise as it becomes harder to adhere to rule changes and requirements of different card schemes and acquirers. Nor is the problem of scale confined to in-house teams - when an outsourced chargeback solutions team are manually handling your surging disputes, as well as those of hundreds of other clients, things naturally fall through the cracks - unfortunately that includes your win-rate and revenue.

2. BNPL: A New Frontier for Chargeback Fraud

The rapid growth of Buy Now, Pay Later services has created additional challenges in chargeback management. While BNPL providers often advertise reduced chargeback liability for merchants, the reality is more complex. Justt’s research shows that 62% of U.S. consumers have requested a refund or chargeback on BNPL purchases in the past year, with Americans three times more likely than UK consumers to dispute these transactions.

BNPL chargebacks present unique risks: multiple payment installments create more opportunities for disputes, customers often fail to recognize recurring charges, and BNPL transactions are often impulsive, leading to buyer’s remorse later on. Furthermore, unclear refund processes and poor communication between merchants, BNPL providers, and customers can lead to confusion that results in chargebacks.

As installment loan transactions are projected to grow rapidly in 2025, both BNPL providers and merchants that accept BNPL on their checkout should prepare for this emerging challenge by implementing scalable chargeback management solutions that can handle both traditional and BNPL-related disputes effectively. 

3. Managing Multiple PSPs

For most eCommerce merchants, using multiple payment service providers (PSPs) is now unavoidable. While typically securing more transactions for merchants,, this creates significant challenges for chargeback management. This is because, despite adhering to card scheme regulations, each PSP has its own unique approach to handling disputes during the initial representment, or pre-arbitration stage. Each PSP has strict rules about evidence formatting, response timelines, and dispute management processes. 

The technical challenges are equally significant. Each PSP has its own portal, API, or interface for accessing transaction data and submitting evidence. Merchants must manage  with these different systems to gather the necessary information for disputes, which adds further complexity to the process. This complexity often leads to missed deadlines, incomplete evidence collection, and lower win rates - especially when merchants are handling dozens, hundreds, or even thousands of chargebacks across multiple PSPs. As eCommerce businesses grow, the challenge of navigating these different systems while maintaining quality becomes increasingly difficult - especially during volume surges.

Status tracking across multiple PSPs presents another layer of complexity. Each PSP displays chargeback statuses differently – some might show a chargeback as "won" that later reverts to a loss, some require merchants to track the flow of funds to determine the dispute’s status, while others use difficult card scheme jargon. These shifting terminologies and indicators make it hard to maintain a clear overview of dispute status across different platforms. Justt simplifies this by standardizing status tracking across all PSPs, providing merchants with clear, consistent visibility into their chargeback cases.

4. Negotiating Chargebacks for Cross-Border Transactions

Cross-border eCommerce has opened global markets to merchants, but it has also created complex chargeback challenges. When disputes occur between countries, merchants face a labyrinth of differing regulations, consumer rights, and dispute processes across jurisdictions. Evidence deemed compelling in one country may be insufficient in another, with varying reason codes for different card schemes further complicating responses.

Currency fluctuations add another layer of complexity, as exchange rates can change between transaction and dispute dates, while language requirements present a further challenge. For instance, disputes in Latin America typically require evidence submissions in Portuguese for Brazil, and Spanish for most other nations. While Justt’s multilingual solution automatically switches language for these zones, linguistic demands such as these can lead to delays and misunderstandings for in-house or template-reliant teams.

The risk of true fraud is particularly high in cross-border transactions, with the European Central Bank reporting that 63% of card fraud value in 2021 involved cross-border payments. Fraudsters exploit limited data sharing between regulatory bodies and the challenges of cross-jurisdictional law enforcement. 

While chargeback mitigation solutions are not designed to challenge true fraud cases, operating in regions with higher true fraud rates makes it all the more essential to adopt a data-driven solution like Justt’s that can discern and fight friendly fraud effectively when it appears. Otherwise, merchants run the risk of forfeiting cases based on the mistaken assumption of genuine fraud, or having inadequately informed issuers make the same error.

What Can Merchants Do About Rising eCommerce Chargebacks?

Clear return policies, reliable shipping partners, and verification methods like AVS and CVV/CVC are each indispensable chargeback preventatives for eCommerce merchants. However, as instances of friendly fraud continue to soar, preventative measures are simply not enough. Merchants must prepare to fight the rising tide of disputes, and equip themselves with mitigation solutions that maintain quality regardless of volume. 

Unfortunately, both manual, in-house solutions, and template-driven outsourcing prove unable to scale effectively, and see win-rates fall as disputes rise. Only a comprehensively automated, self-optimizing solution can handle evidence collection, submission, and dispute management across different PSPs, regions, and sales periods, without compromising on your win-rate.

Justt offers eCommerce merchants the first comprehensive, fully-automated solution for chargeback mitigation that tailors each response. Unlike template-based solutions that offer only generic, reason code-based responses, and which struggle with nuanced cases, Justt's AI-driven dynamic arguments feature combines machine learning with domain expertise to respond to each chargeback with a detailed, bespoke and data-informed argument within seconds. This approach consistently delivers precision-tailored representments for every dispute, at any scale.

To learn more about winning more chargeback disputes with Justt, schedule a quick demo.