Credit card chargebacks register boost, become a growing concern

According to a research conducted by Chargebacks911, 86% of chargebacks may be fraudulent in cases where cardholders fail to contact the merchant before turning to their banks for resolution. Visa has estimated that chargeback fraud also known as friendly fraud is growing by about 41% each year.

The report unveils that the majority of fraudulent chargebacks are typically associated with five specific chargeback reason codes. Because of this, the company maintains that banks should perform due diligence and investigate claims filed under these codes rather than automatically penalizing online retailers with chargebacks and fees.

The five chargeback reasons most commonly associated with friendly fraud are: services not provided or merchandise not received, merchandise defective or not as described Transaction not recognized, fraud (card not present)/no cardholder authorization.

Consumers often cite these reasons when they experience buyers remorse after making a purchase, particularly if they did not want to perform or did not qualify for a refund/exchange in accordance with the merchants policy. With recurring transactions, subscriptions or installment billing, the customer might never have contacted the merchant to cancel the service, or they may have canceled a credit card to avoid paying for their purchases. Alternately, consumers may have forgotten making a purchase or they may be unaware of a purchase made by a spouse, child or someone else with access to their credit card.

Visa previously responded to merchants concerns by implementing several changes in relation to chargeback reason code 83 (fraud, card not present). It expanded the scope of what is considered compelling evidence for merchants to dispute a chargeback, and it requires that credit card issuers contact the cardholder when a merchant provides compelling evidence against a chargeback.