Chargebacks Are Evolving, and It’s Not Getting Better for Online Retailers

Businessweek recently ran the article It’s Easier Than Ever to Dispute a Credit Card Charge, and Retailers Hate It. There were a few particularly interesting nuggets that confirmed some of the things that we’ve suspected were happening:

[T]echnology, along with a change in rules by payment networks such as those run by Visa Inc. and Mastercard Inc., is making that system a bigger headache for merchants, who are often left to eat the cost. Besides automating claims, banks have updated their mobile apps so users can dispute a charge simply by tapping a few buttons.


Fraudsters also began targeting merchants who take orders over the phone or online, who are usually responsible for the cost when frauds occur and don’t benefit from the added security of chip cards. The result: a spike in U.S. chargebacks.


U.S. banks are on track to process $5.6 billion worth of chargebacks this year, a 17 percent increase from two years ago


“Consumers are more aware of chargeback rights than ever,” Julie Conroy, a research director at Aite, wrote in the company’s report. There are online forums where users discuss strategies for disputing charges and how many chargebacks certain banks will allow a customer per year.

That puts e-commerce companies like us in a tough spot. Automated chargeback decisions, more secure in-store purchases, and consumer awareness of how easy it is to file a chargeback are all contributing to making an already difficult system even more difficult for merchants to ever win a case.

For our part, we’ve continued to do what we can do: prevent fraudulent orders from ever leaving our warehouse, and then fight the chargeback when one slips by. We’ve seen a few new scams this year. In turn we’ve had to fortify our chargeback system with a few more added layers of checks.

6 comments on Chargebacks Are Evolving, and It’s Not Getting Better for Online Retailers

  1. Peter says:

    Hi Adam,

    What new scams are you seeing this year and what new checks are you adding to your system if you don’t mind sharing? Would love to see if we can also apply that to our system as well.

    • Adam McFarland says:

      Hi Peter,

      I’m shooting you an email right now with details. Not sure I want to make public exactly what types of fraud we’re on to 🙂

      – Adam

  2. Rob says:

    What I think is crazy is that the buck stops with the seller. Why isn’t the payment processor liable? Why isn’t it their problem to fix?

    • Adam McFarland says:

      Those are great questions Rob. If we had better (any?) legislation on this, I think that would be how it should be set up. Unfortunately in the US the credit card companies are the arbiters, and they’ve decided to protect their customers, so they almost always side in favor of the consumer and – since the money has to come from somewhere – merchants end up at fault. We do win from time to time because our credit card processor (PayPal) goes to bat for us with the information we give them, but we have to have a ton of evidence to even have a chance, and ultimately the decision still lies with the customers credit card company. It is a very broken system.

      • Rob says:

        I think it’s the same worldwide, unfortunately.

        Have you tested other payment processors for this? How do they compare?

        Has 3-D secure helped at all?

        • Adam McFarland says:

          We haven’t tested any other payment processors yet, but it’s in the plans. I’m not really sure if they differ much, I’m guessing they don’t but also not ruling out the possibility that someone out there is handling this stuff better than PayPal.

          I don’t hear too much about 3D secure. In theory it sounds great but seems to be difficult to implement and a potential turnoff for good customers. There’s not a lot of good info out there but this Quora answer is pretty thorough

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