What are the top reasons for credit card chargebacks?
Typically chargebacks occur if there’s cyber fraud by a criminal with unauthorized access to someone’s card details or lack of fulfillment by a merchant that customers choose to resolve using chargebacks. Sometimes, they also occur when customers commit fraud using their own credit card.
These culminate in the seven most common causes of chargebacks. Let’s explore.
1. Cyber Fraud
Cyber crimes where fraudsters use stolen credit card information to purchase online is common. In such situations, if the original card owner notices such a fraudulent charge in their credit card statement, they tend to raise a dispute and file for a chargeback. Cyber fraud can manifest in several forms, from triangulation fraud to phishing scams that commonly attract chargebacks. These chargebacks are legitimate but may be prevented by employing a top-notch eCommerce anti-fraud solution focused on the pre-transaction data.
2. Affiliate Fraud
Chargebacks linked to affiliate fraud arise when affiliate marketers artificially inflate the effectiveness of their efforts to receive a larger commission payout.
Affiliate marketers are performance-based professionals that partner with the business to promote the business’ offerings. They’re paid a pre-agreed commission for the sales they drive. Sometimes dishonest marketers solicit fraudulent purchases using stolen credit card information in affiliate fraud. Using this, they cash out on their commission payments from the merchant. This leads to a wave of chargebacks when the original cardholders notice such charges, and they file chargebacks against the merchant.
3. Friendly Fraud
There are many instances where legitimate transactions made by cardholders are disputed for a reversal, citing illegitimate or false reasons. Such chargebacks come under the term “friendly fraud” and may be intentional or unintentional. A Forbes article states that friendly fraud accounts for between 40 to 80 percent of all fraud losses.
As such, friendly fraud is broad in scope and includes varied scenarios. Some of them include the following:
- A customer trying to trick the merchant by purchasing a product or service, using it, and then leveraging chargebacks to avoid paying for it ultimately.
- Buyer’s remorse, or a situation where a buyer is trying to get a refund by routing it as a chargeback. They do so because they fear their refund request won’t be honored per the refund policy.
- A cardholder’s inability to recognize a legitimate transaction, perhaps because the transaction was made by someone in their family using their card or even by them, but they don’t recall. This is also sometimes called family fraud.
4. Delay in receiving purchases
When the actual shipment time of a good takes longer than expected or, as stated by the eCommerce merchant, customers tend to get suspicious and file for chargebacks for the unreceived goods.
In 2021, 45 percent of companies that process transactions identified delivery delays as a top reason for their increase in chargebacks.
5. Unsatisfactory product or service
If the customers are dissatisfied with a product or service received and cannot get a refund, they tend to contact the card network for a chargeback directly. For example, they tend to do so for damaged goods, missing items, or wrong items shipped with a non-returnable policy. This also occurs if they contact customer service and it fails to address their concerns promptly and meaningfully.
In 2021, 43 percent of companies identified customer service delays as a top reason for their increase in chargebacks.
6. The incorrect amount being charged
Sometimes, customers get wrongly debited due to manual data entry errors by the merchant’s team. For example, this may be due to entering the wrong digit or mistakenly charging the card multiple times. In such cases, cardholders dispute the incorrect charges upon receiving the statement and request a chargeback.
In 2021, 38 percent of companies identified merchant errors as a top reason for their increase in chargebacks.
7. Recurring Transactions
As subscription commerce is growing at an explosive pace, and subscription fatigue and inflationary pressures are mounting on customers, subscription-related chargebacks are another cause on the rise.
Data from a Mastercard survey suggest that 60 percent of chargebacks filed on their network were related to recurring payments.
Subscription-related chargebacks occur in multiple scenarios. These include:
- Customers signing up for multiple subscription services and then forgetting about them. Once they notice a debit, they file a chargeback to avoid paying.
- Sometimes, subscription merchants tend to make the cancellation process tricky and cumbersome. In those cases, resorting to a dispute and requesting a chargeback is an easier escape for the customer.
- There are also situations where merchants’ subscription billing systems are not updated immediately after a subscription cancelation, and canceled subscribers are also debited in the following billing cycle.
