Chargebacks have become a growing concern for merchants as rising dispute volumes threaten profitability, customer relationships, and operational efficiency. Research from Mercator Advisory Group highlights the increasing role of “friendly fraud,” where legitimate cardholders dispute valid transactions for a variety of reasons ranging from merchant confusion and shared card usage to policy abuse and delayed refunds. As consumers gain easier access to dispute channels and merchants continue to navigate supply chain disruptions and service challenges, understanding the root causes of chargebacks is becoming essential to reducing losses and improving the customer experience.
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Data for today’s episode is provided by Mercator Advisory Group’s Report: Chargebacks: Increases in Credit Card Disputes Threaten Merchant Profitability
6 Categories of Friendly Fraud:
- Accidental usage fraud: A consumer made the purchase, but does not recognize it due to limited information on their credit card statement.
- Intentional usage fraud: A consumer made a purchase and recognizes the purchase, but still requests a credit from the issuing bank, claiming they did not make the purchase.
- Merchant error: This category includes limited merchant descriptors on a bank statement, incorrect item description, incorrect pricing, poor customer service, etc.
- Shared card fraud: Many consumers share a card with family members. If one person uses the card and does not inform the other, this can lead to friendly fraud.
- Policy abuse fraud: Generous return policies allow users to return items without needing to provide a reason.
- In-flight refund: When a business issues a refund, consumers expect the refund to be instantaneous. If it’s not, the customer may call their card issuer and initiate a chargeback.
About Report
Mercator Advisory Group released a report covering chargebacks titled Chargebacks: Increases in Credit Card Disputes Threaten Merchant Profitability. The research explores the current state of the chargeback landscape, including the key factors causing a rise in chargeback volumes since the onset of the pandemic.
Merchants continue to experience high volumes of chargebacks, which pose significant risks to business operations and increase the likelihood of reputational loss. In the current supply-chain crisis, merchants must take proactive steps to better understand their chargeback issues and reduce the likelihood of high dispute volumes during the holiday season. It is particularly critical to develop a firm understanding of organizational capability to address all the dimensions of chargeback causes, and make an informed decision on how to address this growing issue.
“With consumers having access to easier means of initiating transaction disputes, merchants are facing growing chargeback risks in today’s market,” comments Amy Dunckelmann, Vice President Research Operations, at Mercator Advisory Group. Dunckelmann continues, “As merchants are bound to experience logistics and supply-chain issues this holiday season, it is of paramount importance to actively prevent as many chargebacks as possible through planning and targeted solution development. Mercator’s recommendations and insights through this report will aid all U.S. merchants in making informed operational decisions for the upcoming months.”
