Chargeback Statistics

(Updated September 2021) 

Chargebacks are a huge headache for any business. Not only do businesses lose profit and merchandise, they often have to pay fees to their credit card processor, and it costs a lot to dispute. Most chargebacks are due to fraudulent activity known as friendly fraud, where it's almost impossible to determine if a transaction is fraudulent until it is too late. Let’s take a look at chargeback statistics. 

Average U.S. Household Consumer Debt Profile:

Chargeback Ratios: The Lower the Better

Chargebacks will be a reality for every business that accepts credit cards or debit cards as payment. Every industry strives to have a chargeback ratio that is as close to zero as possible. The prevalence of chargebacks in your particular industry as a business owner will determine whether or not your business is considered high-risk by credit card processing companies.

YOUR INDUSTRY MATTERS

Across all industries, the average chargeback to transaction ratio is 0.60%. This translates to 6 out of every 1000 transactions will be a chargeback. 

Retail and travel industries have about a 0.50% chargeback rate. Merchants who sell physical goods tend to have a chargeback ratio at or below 0.5%. Merchants who sell digital goods or services have a high chargeback ratio.

Financial Services and those in education/training industries are seeing a chargeback to transaction ratio exceeding the 1% maximum that most merchant account providers impose. Those businesses that provide a consumer with intangible services instead of physical products have a higher risk of chargebacks, due to the nebulous nature of consumer expectations. 

Identity Theft: The Main Cause of Chargebacks

Somehow, some fraudster accessed your credit card information and used it to make purchases. Luckily, you noticed right away and called your credit card issuer to inform them of the fraudulent charge. They issue a chargeback so you as the consumer, won’t have to pay for the charges. While most credit card processors won’t hold the consumer liable for the purchases, the merchant will still lose their merchandise and revenue. 

And you’re left wondering, how did my credit card information get stolen in the first place?

How do credit cards get stolen?

Credit card information is often obtained online through data breaches. A company or online presence that has your credit card information can be prone to hackers who can access your personal information if they gain access to the company’s system. 

Credit card information can also be gained online through phishing scams, keylogging, and malware. If it sounds suspicious, it probably is. So don’t click through any links or give out your personal information. 

And of course, your credit card information can be stolen through pickpockets, skimmers, or crimes of opportunity (like when your server takes your credit card at a restaurant). 

Most fraudulent charges and fraudulent chargebacks are made from online or card-not-present purchase transactions. In fact, card not present fraud is now 81% more likely than point-of-sale fraud. Point-of-sale transactions and EMV terminals have security measures in place to decrease the risk of fraud, such as cardholder verification and identity verification tools. However, online and eCommerce merchants and other CNP transactions have yet to have the same robust security measures in place. 

Chargeback fraud

Unfortunately, chargeback fraud is very difficult for a merchant to prove. Since most chargeback fraud is due to card-not-present type of transactions, it is difficult to trace. And since fraudulent chargebacks are higher in industries where a service is rendered instead of a physical product or the outcome is subjective, the waters get even muddier. It becomes more difficult to sort out illegitimate chargebacks.

 It also takes time and money for a merchant's legal team to manage disputes and fight chargeback claims. Only about 60% of merchants dispute their chargebacks because the win rate for the merchant is about 1 in 5.

Fraud prevention is a concern for every business owner. Thankfully, there are some steps business owners can take for chargeback prevention to help decrease their chargeback ratio and keep revenue in their own pocket, instead of losing it to criminal activity. 

The High Cost of Credit Card Fraud

Identity theft was the 3rd largest cause of fraud in the USA in 2018. Credit card fraud and identity theft go hand in hand, so it’s no surprise that chargebacks follow. In fact, credit card fraud increased by 18.4 percent in 2018 and is still climbing. 

While there are many features on a point-of-sale system to prevent fraud, it’s no surprise that with the rise of online shopping that Card not present fraud is now 81 percent more likely than point-of-sale fraud. It’s so easy for someone to use your credit card numbers to make an online purchase, especially if it’s from identity theft. In fact, in 2017, the average merchant had 306 successful fraudulent transactions per month. 

The cost of fraud climbs ever higher for US retailers as well. Every $1 of fraud now costs US retailers $3.36 in 2020, while it was $3.13 in 2019. In 2018, the average merchant lost 1.8% of total revenue due to fraud.

Prevent Chargeback Fraud

Of course, the old saying goes, an ounce of prevention is worth a pound of treatment. Having protocols in place that are specifically designed to offset fraud risk can help get your chargeback ratio down and leave more money in your pocket. Cardholder verification practices are key for fraud prevention.

Common Questions on Chargebacks

Chargeback statistics

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Conclusion

There are some shady merchants out there, and there are legitimate reasons to file a chargeback. For example, you notice fraudulent charges but a merchant refuses to issue a refund, or the store sent the wrong product or charged for something you didn’t order. 

Customers can engage in fraudulent activity, too. In fact, most chargebacks and losses are due to fraudulent activity from stolen credit cards. This happens when someone is engaging in what is known as “friendly fraud,” meaning they get exactly what the product asked for and still don’t have to pay because it was from a fraudulent account. With successful fraudulent chargebacks, the business loses profit and merchandise. 

Obviously, chargebacks are a headache and no one really wants to deal with them. The card issuer ultimately will decide which party pays. Chargebacks are more common in high-risk industries because of the prevalence of fraud. In fact, it’s one of the defining characteristics that can contribute to your business being labeled as a high-risk merchant.