Business
New Risks—and Opportunities—for Chargeback Management in 2022
Published by Jessica Weisman-Pitts
Posted on August 2, 2021
8 min readLast updated: January 21, 2026
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Global Banking & Finance Review®
Company
Published by Jessica Weisman-Pitts
Posted on August 2, 2021
8 min readLast updated: January 21, 2026
Add as preferred source on GoogleBy Monica Eaton-Cardone, COO, Chargebacks911
To say that Covid-19 had a significant impact on global payments and finance would be an understatement. In many ways, the outbreak transformed how all parties in the payment ecosystem—financial institutions, merchants, cardholders, vendors, and other stakeholders—approach their operations.
Some of these changes may prove to be short-term states. In other cases, Covid-19 might have permanently reshaped how we approach certain processes.
The recently published 2021 Chargeback Field Report surveyed over 400 online, multichannel, and mobile commerce merchants across the US and UK markets. The aim of the survey was to identify relevant facts concerning chargebacks, disputes, and fraud, as reported by businesses on the ground.
While the responses were diverse, a few trends proved to be nearly universal. First, the Covid-19 pandemic had an almost immediate impact on the payments landscape. Second, while the resulting shutdown accelerated eCommerce and other card-not-present purchasing options, it also provided a catalyst to fraudsters.
With all that in mind, let’s examine some of these findings. Specifically, we’ll look at how the latest insights pertain to payments and chargeback management looking ahead to 2022 and beyond.
Surprisingly, a significant portion of merchants (34%) reported that Covid-19 had a net-positive impact on their business. How could this be?
We must consider the fact that, while many consumers did pare back spending during the shutdowns, a significant portion of consumer activity simply shifted online. Businesses that were already well-positioned to take advantage of a surge in purchases through digital channels were able to capitalize on this.
The balance of merchants who reported a positive net impact leaned heavily toward larger merchants (those with more than $70 million in annual revenue). This is because these large international brands were already further along in the process of integrating new digital purchasing options, and had the resources to adapt and connect their operations more smoothly.
Two-thirds of merchants said they accepted eWallet payments through apps like Apple Pay; a 40% increase compared to just two years earlier. It seems the pandemic finally pushed consumers to embrace these contactless payment options, as one of the main issues holding back wider adoption has historically been lack of consumer interest.
Of course, while some merchants were able to benefit, the majority of businesses still suffered as a result of Covid-19. We can see this reflected in chargeback issuances.
68% of merchants reported an increase in chargebacks that they attributed to Covid-19. Among those merchants, the responses indicated an average increase of 25%. This was not a flat figure across the board, though; travel and entertainment, for instance, were especially hard-hit by chargeback issuances. This is not surprising, considering that Covid-19 largely prevented these industries from operating entirely for months at a time.
When asked about the level of concern they felt regarding the impact of Covid-19 in 2021, 45% of merchants said they felt the disease was a “major concern.” Another 36% said that the lingering impacts of the virus presented “some” concern, but that it was not as pressing as it might have been last year.
What’s at the root of this ongoing concern? It may be a combination of short- to mid-term concerns about the possibility of future shutdowns as new virus variants spread, plus longer-term anxieties about changes in consumer behavior. This is especially true as it pertains to chargebacks.
Criminal fraud has been a definite concern for merchants in 2021. However, friendly fraud seems to be an even more pressing matter.
Most merchants reported an increase in friendly fraud between 2018 and 2021, with the average increase being 23% during this period. Among larger merchants (more than $70 million in annual revenue), that figure surged to 43%. But, while nine in ten respondents claimed they were concerned about friendly fraud, fewer than three in ten are currently taking steps to mitigate the practice within their business.
One of the biggest problems in this regard lies in identifying the source of chargebacks. When asked about their greatest chargeback management challenges, one-third of all merchants said that identifying chargeback sources was a top concern. This narrowly edged out preventing criminal fraud and contesting illegitimate chargebacks.
These results are not surprising. Identifying chargebacks by their sources is a longstanding obstacle for online merchants. Even though the cardholder’s bank will attach a reason code to every chargeback they issue, these codes do not accurately reflect chargeback sources.
Data from Chargebacks911 suggests that, by 2023, friendly fraud will represent roughly 60% of all chargebacks filed. Friendly fraud is predicated on hiding behind misleading chargeback reason codes based on false claims by cardholders. So, if the majority of chargebacks will have an inaccurate and misleading reason code, then there’s no meaningful indicators we can draw from them.
The disconnect between a chargeback and the attached reason codes causes problems for merchants, financial institutions, and ultimately, for cardholders. Chargebacks increase costs for businesses, which will drive up the prices paid by consumers. Unfortunately, fixing this problem demands a much greater degree of collaboration between merchant trade organizations, financial institutions, and card networks than is currently possible.
In the meantime, there are some practices merchants can adopt which will mitigate friendly fraud risk. These include:
Of course, the most effective tool in the merchant’s arsenal to contend with friendly fraud is the chargeback representment process. Representment allows merchants to literally “re-present” a transaction to the issuer after a chargeback claim, along with additional evidence and other documentation, to try and overturn a chargeback. While complex and time-consuming, representment gives merchants a chance to recover funds that would otherwise be lost to friendly fraud.
The Chargeback Field Report found that merchants engaged in representment in 43% of cases. That’s not bad at first glance; however, the average net recovery rate, or the rate at which merchants recover a sale as a portion of total chargebacks, stood at just 12%.
Merchants recovered revenue in roughly one-third of the chargebacks they represented. This is after accounting for second-cycle disputes (known as either a pre-arbitration or an arbitration chargeback, depending on the card brand). These occurred in 11% of cases on average. This all suggests a disconnect between the typical approach to representment, and successful chargeback management.
One option could be to outsource these operations. The survey found that, while only 18% of merchants relied solely on a third-party to manage their chargebacks, these merchants reported a net recovery rate nearly 30% higher than those managing disputes in-house. This is because third-parties who specialize in chargeback management have access to broader, more in-depth transaction data and can identify friendly fraud with greater accuracy.
Even when managing representment in-house, though, there are still steps which merchants can take to improve their odds:
There are other tools at the merchant’s disposal which can help them manage chargeback risk. Chargeback alerts and network inquiries, for instance, can both help intercept potential disputes before they become chargebacks. According to the survey data, merchants saw a 17% reduction in chargebacks through the use of Visa’s Order Insight and Mastercard’s Consumer Clarity. Merchants attributed another 19% reduction to the use of chargeback alerts.
These tools are not long-term solutions, though. Merchants should think of them as stop-gap measures; they can immediately reduce chargeback issuances, but they don’t address the underlying causes of those chargebacks.
The good news: most merchants won’t need to devote significantly more resources and revenue to the problem. They just need to optimize processes to ensure they’re maximizing their efforts.
A strategy that employs a combination of machine learning and human forensic expertise offers the best return on investment. It allows merchants to automate some processes, while still putting the subjective elements of chargeback management under human oversight. This can be handled in-house, or it can be outsourced to the professionals.
Looking to the future, it’s clear that merchants need to change their approach to chargeback management. The shift in consumer behavior tied to Covid-19 will have long-term repercussions, and more consumers are embracing card-not-present shopping channels. So, until merchants adapt their strategies to thrive in the “new normal,” chargebacks will continue to become more of a problem every successive year.
Monica Eaton-Cardone, COO, Chargebacks911
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