Key Insights for the State of eCommerce, Fraud & Chargebacks in 2021

May 14, 2023

Chargeback trends2020 was a rough year for everyone. If there was a silver lining to it, though, we can point to the fact that the eCommerce market outpaced everyone’s expectations.

US eCommerce jumped by more than 30% this past year, equivalent to nearly three years of growth in just one twelve-month period. At the present rate, the online environment will represent nearly one-fifth of all retail sales in the US by 2024.

During the holiday season alone, total online shopping spend increased by 21%. We’re looking at a projected 25-35% year-over-year jump in sales between early November and the end of December.

Of course, even against the backdrop of higher-than-average online retail figures, we must remember that it’s not all good news. While 2020 is now (mercifully) behind us, there are still vulnerabilities that will grow more pronounced in the coming months.

For example, with more activity in the eCommerce space, we’re guaranteed to see more fraud and chargebacks, too. To illustrate, let’s examine the 2020 holiday season, as well as the ramifications it may hold for eCommerce in 2021.

Returns versus Chargebacks

Returns vs ChargebacksConsumers will return $57 billion worth of merchandise they purchased during the 2020 holiday season. That’s 30% of total eCommerce spend during the period outlined. Of course, this only covers the raw transaction value; it doesn’t account for any of the overhead involved in shipping, processing, and trying to resell returned merchandise.

No one enjoys putting up with returns, but they’re not the end of the world, either. In fact, 77% of shoppers who complete a return around the holiday season intend to either exchange the goods for something else or make another purchase.

Each product return presents the opportunity to recover your sale and build a positive brand impression among your base of consumers. Contrast this with a chargeback:  you lose sales revenue and any merchandise shipped, as well as overhead costs like shipping and transaction fees. You’re also responsible for paying costly chargeback fees.

Cardholders are projected to dispute roughly 615 million card transactions in 2021, and the losses associated with these disputes will compound over time. Each chargeback issued negatively impacts your chargeback ratio, which can result in hefty fees and penalties over time, potentially jeopardizing your business’s future.

Friendly Fraud Set to Soar in 2021

Friendly Fraud DisputesA new report published by Veriff finds that 10% of all verification attempts submitted in the US in 2020 were fraudulent. The United States now has the highest fraud rate in the world, beating out other countries of origin like Vietnam (9.3%) and Nigeria (5.9%).

As worrying as that is, it’s important to note that many of the chargebacks that cardholders will file in 2021 are going to be illegitimate. These cases—commonly known as “friendly fraud”—have been increasing at a rapid year-over-year pace for the last decade. friendly fraud as one of the fastest-growing threat facing their business in 2020.

The COVID-19 pandemic served to accelerate a trend that was already underway, and it’s not showing any signs of slowing. Clearly, friendly fraud is now part of the “new normal” you’ve been hearing so much about over the last year.

When it comes to chargebacks, the best course of action is to prevent disputes wherever possible. This means separating chargebacks by their source, deploying solutions to prevent criminal fraud and merchant error, and fighting any illegitimate friendly fraud chargebacks through tactical representment.

To see more of this up-to-the-minute data, and to learn more about what you can do to prevent chargeback losses in 2021 and beyond, check out the full infographic  on the Chargebacks911 blog.

May 14, 2023 | Merchants | Guest Post