There is tremendous opportunity in the chargeback protection and management market, with the compound annual growth rate in the sector projected to grow by 27% until it hits $30 billion in 2027, according to the investment-strategy advisory firm Liminal.
"Chargeback Protection and Management solutions have emerged as indispensable tools for merchants, offering robust methods to identify, prevent, and efficiently manage transactions at risk of payment disputes," write the Liminal authors in an online article entitled "Safeguarding Businesses Against Payment Disputes as Friendly Fraud Rises."
Chargeback fraud, sometimes called “friendly fraud,” happens when a cardholder deliberately requests a refund on goods purchased despite the goods having been received.
This differs from honest payment disputes, such as when cardholders are victims of identity or credit-card theft, don't recognize the merchant’s name on their statements, have family members buy things without their knowledge or really never did get the goods they paid for.
However, most cardholders acting in good faith will try to contact the merchant for a refund. Fraudsters know it's quicker and easier to directly contact the card issuer, who often won't ask questions and will shoot the charge back to the merchant with a processing fee tacked on.
The number of suspicious chargebacks rose by between 20% and 30% in 2022, Visa Chief Risk Officer Paul Fabara told Axios at the end of 2022, costing merchants and retailers billions in lost revenue.
"Netflix, alcohol, Uber charges, DoorDash charges — those are generally the ones that make up the majority of this category," Fabara said.
Part of the growth can be attributed to the COVID-19 pandemic, which accelerated the ongoing shift from cash to payment cards and saw greater use of online services and apps.
But there may be a growing realization among petty criminals that chargeback fraud is easy to get away with. Merchants will often just eat the charges rather than enter a lengthy three-way dispute process with the card issuer and the customer. Even those merchants who dispute chargebacks win less than half the time, according to Fabara.
Chargeback protection and management solutions use "automated tools and data enrichment" to quickly flag potentially fraudulent chargebacks, the Liminal researchers explain.
The solutions may aggregate data on customer purchases, compile evidence that can be used in disputes and help navigate the liability gray area that often exists between merchants and card issuers. Some even offer chargeback insurance that aids businesses in avoiding unexpected chargeback costs.
For more information on chargeback protection and management solutions, and the growth projections for the market, please visit the Liminal article.
