The Chargeback Crisis
Merchants are losing billions to chargebacks every year. Here's why it matters and how to fix it.
The Growing Chargeback Problem
Chargebacks were originally designed to protect consumers from fraud, but they've become a major source of revenue loss for merchants.
In 2023, merchants lost over $79 billion to chargebacks, with the average merchant losing 1.5% of their revenue to disputes.
What's worse, 70% of merchants lose their chargeback disputes, resulting in significant financial losses and operational strain.
Key Statistics
- •For every $1 in chargebacks, merchants lose $2.40 in total costs
- •60-80% of chargebacks are cases of "friendly fraud"
- •Merchants spend 15+ hours per week managing disputes
- •Chargeback rates increased by 25% in the past year
Types of Chargebacks
Understanding the different types of chargebacks is the first step to preventing them
True Fraud
When a criminal uses stolen payment information to make unauthorized purchases.
Percentage of chargebacks: 10-15%
Friendly Fraud
When a legitimate customer disputes a charge they actually made, either intentionally or by mistake.
Percentage of chargebacks: 60-80%
Merchant Error
When a merchant makes a mistake, such as shipping the wrong item or processing a duplicate charge.
Percentage of chargebacks: 10-20%
The Real Cost of Chargebacks
Chargebacks cost merchants much more than just the disputed amount
For a $100 Order:
| Order payment | $100 |
| Payment Fees | $3 |
| Product cost | $40 |
| Shipping costs | $10 |
| Operational costs | $15 |
| Dispute fee | $25 |
| Customer Acquisition | $40 |
| Total Loss | $233 |
When a chargeback occurs, merchants don't just lose the payment amount. They also lose the product, shipping costs, operational expenses, and face additional fees. The total cost is often 2.4 times the original order value.
Additional Hidden Costs
Time and Resources
Merchants spend an average of 15+ hours per week managing disputes, taking valuable time away from growing their business.
Processor Penalties
High chargeback rates can lead to increased processing fees, account freezes, or even termination of merchant accounts.