3 Chargeback Trends And How to Be Ready for Them
We’re settling into a “new normal” when it comes shopping and buying things. With worldwide retail ecommerce sales expected to more than double from USD $3.3 trillion in 2019 to USD $7.3 trillion by 2025, consumers increasingly expect easy-to-use and seamless digital experiences when engaging with brands and services.
As ecommerce soars, how we pay is shifting, too: A big uptick in card-not-present (CNP) and contactless payments is affecting the nature of disputes and chargebacks.
For one, as CNP transactions make up a far greater share of the total payments volume compared to card-present (CP) transactions, it’s creating a liability shift—with the merchant, not the issuer, typically required to reimburse the cardholder for any CNP transactions deemed fraudulent.
And while chargeback growth and CNP fraud rates vary around the world, it’s important for businesses to pay attention to chargeback trends because they are becoming even costlier and more prevalent. Businesses that are prepared for these trends—and take steps to mitigate any negative effects—can prevent chargebacks from hurting their bottom line.
So, how is ecommerce’s unstoppable growth influencing chargebacks? A new report from Ethoca explores in-depth the trends affecting chargebacks today and an outlook for the future.
Here are three trends explored in the report that businesses should know about and be ready for:
1. Global chargeback volume is surging
Global chargeback volume is growing at an unprecedented rate. By 2026, annual global volume is estimated to reach 337 million, a 42% increase from 2023. But expected chargeback growth varies across different regions of the world.
Europe’s chargeback volume, for example, is projected to decline somewhat in coming years—driven by the European Union’s Strong Customer Authentication (SCA) rules helping to reduce card fraud.
The U.S. and Asia-Pacific regions, on the other hand, are positioned to see significant chargeback growth over that same period, with U.S. chargebacks expected to more than double from USD $7.2 billion in 2019 to USD $15.3 billion by 2026.
What’s driving this growth? Chargeback volumes have grown rampantly in recent years due significantly to the ecommerce and CNP payments boom. As more payment transactions happen online and digitally, the threat of an increasing number of consumer disputes and fraudsters grows. The surge in digital purchases, such as online streaming services, can also lead to more chargebacks caused by someone in a household other than the authorized cardholder making a purchase—leading the cardholder to dispute it, assuming it’s fraud.
Why this matters: Chargeback fees and the operational costs to process them negatively impact the bottom line. Issuers and merchants need to protect themselves and prevent as many chargebacks as possible, especially for those operating in regions where volumes are growing more quickly. Businesses should implement tools offering reliable and secure payments intelligence through real-time collaboration networks. With better data sharing across merchants and issuers, these solutions can help prevent chargebacks.
2. CNP fraud losses are also soaring
As ecommerce grows, so do CNP fraud losses. Global CNP fraud losses are projected to reach a value of over USD $28.1 billion by 2026, representing a 40% increase from the USD $20 billion in global CNP losses expected in 2023.
The U.S.—which is projected to reach USD $12.8 billion in CNP fraud losses—is driving a large part of this expected growth, accounting for an estimated 40% of global CNP fraud losses by 2026.
Interestingly, data suggests that a big portion of CNP fraud loss is due to first-party fraud—when a consumer mistakes a legitimate charge for a fraudulent one and disputes it. In fact, an estimated 75% of CNP fraud losses by digital merchants is due to first-party fraud.
Why it matters: Consumers’ preference for digital interactions means we will likely continue to see high levels of CNP transactions—especially in previously CP-heavy environments like grocery. CNP fraud losses will continue to impact businesses across the globe, although to varying degrees.
Because merchants are liable for CNP fraud losses, it’s incredibly important that they look for ways to tackle it—both genuine and first-party. Otherwise, it’s only going to keep growing. Regardless of the region, businesses should pay attention to their CNP fraud, employing a multilayered approach that can resolve fraud, disputes and chargebacks at every touch point.
3. Tools are making a difference
Global chargebacks data suggests that the use of authentication and other chargeback prevention solutions is making a difference in stemming the tide of chargebacks.
For example, Europe’s required adoption of SCA has made a sizeable dent in chargeback volume and should help to stabilize chargeback growth in that region. On the other hand, very few CNP transactions in the U.S.—only 2% to 4%—use a multifactor authentication tool like 3D Secure. And in turn, chargebacks have only continued to soar there.
Why it matters: Chargeback prevention solutions—when used as part of a multilayered approach—can help businesses greatly reduce chargebacks and prevent all the damage they do. Ethoca Alerts and Ethoca Consumer ClarityTM can both be part of this multilayered approach.
Taking charge of chargebacks
Preparing for the future is important for all businesses—and being ready for how chargebacks are evolving and growing is critical given how costly and time-consuming they can be.
Ethoca offers solutions that help businesses reduce chargebacks and can fit seamlessly into a multilayered approach, preventing chargebacks at every point of the purchase journey.
Download the Ethoca white paper, Chargeback trends and outlook, to learn more about the current state of chargebacks and why it matters.
