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Chargeback challengesand what you can do about them Global insights 2024 Contents Executive summary 3 01Key elements to understanding chargeback challengesMethodology and glossary of key terms5 02How managing chargebacks became chaotic for merchants9 03Why chargeback management is so complex 13 04Chargeback management transformed — from cost bucketto revenue recovery machine20 05Four ways merchants can improve chargeback management23 Executive summary Merchants know fraudulent claims constitute a significantportion of their total chargebacks, known as first-party fraud.But current management processes make it more costlyto dispute fraudulent claims than to simply accept themin the long run or even proactively refund. In the booming ecommerce landscape, sales soarannually, offering lucrative opportunities for both establishedgiants and newcomers to grow. But this influx of sales alsoleads to rising chargeback rates. Consumers increasingly turn to chargebacks as a meansto recoup funds, with around 75% of American and Britishcustomers filing a chargeback in 2023*. Often, consumersfile these chargebacks because they genuinely haven'treceived an item or their card has been chargedfraudulently. However, increasingly, consumers filechargebacks to receive compensation under falsepretenses. So, as ecommerce sales have grown, so too havechargebacks and, in turn, chargeback fraud. Add to that thetremendous complexities and inefficiencies in managingchargebacks, and most would agree: ecommerce hasentered an era ofchargeback chaos. Merchants face no choice but to let revenues slip awaydue to inefficiencies in chargeback management.Aschargeback figures rise, its erosion on profits is reachingan epidemic point. At a high level, the research found: Chargebacks continue risingwith 76% of chargebackmanagers seeing as many or more chargebacks YoY. Merchants struggle to recoup costs,with three in fourmerchants recovering less than half of all chargebacks. Riskified partnered with industry advisors Paladin Fraud tointerview more than 300 chargeback managers from leadingmerchants worldwide to discover: More worryingly,merchants knowingly let revenue slipaway,with more than 73% saying that 20% or more of theirchargebacks are first-party fraud (fraudulent chargebacks bycustomers). ●The size of the chargeback challenge●How merchants manage chargebacks today●The biggest pain points in chargeback management●How merchants can realize a brighter future forchargeback management The true cost of chargebacks quickly creeps up beyond lostmerchandise revenue, driven bycomplex, time-consuming,and inefficient chargeback management processes. When it comes to managing chargeback disputes,merchantswant more automation, platform consolidation, better datamanagement and reporting abilities, and more tools to aidprevention. 01Key elementsto understandingchargebackchallenges Chargebacks exist to protect cardholders, but increasingly, theyenable consumers to behave badly, recouping funds under falsepretenses. First-party fraud, referring to chargebacks filed for falsereasons, informs a significant portion of chargebacks — andmerchants know it. But the inefficiencies and technical complexitiesof current management processes make it more costly to disputefraudulent claims than to simply accept them in the long run. Inefficiencies in chargebackmanagement force merchantsto allow revenue to slip away.This profit erosion has reachedan epidemic point as chargebackfigures continue to rise. Methodology Riskified partnered with industry advisors Paladin Fraud tointerview more than300 merchants worldwide, specificallythe personnel dealing with chargeback management everyday, to discover: ●The size of the chargeback challenge●How merchants manage chargebacks today●The biggest pain points in chargeback management●How merchants can realize a brighter future forchargeback management The companies represented include a wide range of verticalsacross physical and digital goods, including fashion, travel,food (grocery and delivery), electronics, and marketplaces,among others. The majority of respondents operate within North America,with significant representation from EMEA (Europe, MiddleEast, Africa), Latin America, and the Asia Pacific regions. Chargeback management teams operate through differentoperational structures. Just over 50% of those in the studyreport through a dedicated risk/loss prevention team withjust under 18% through customer success. A substantial portion of merchants in the study reportedannual sales volumes between $500 million and $3 billion,followed by those in the $75 million to $500 million range. Glossary of four key terms 01 03 Chargeback recovery rate Chargeback rate The percentage of chargeback disputesthat a merchant successfully wins out of allchargebacks received (whether disputed,accepted, or otherwise). The percentage of chargebacks a merchantreceives out of all sales. 02 04 Chargeback win r