No online merchant will be surprised to hear chargebacks are rising. In the last year alone, more than three out of four customers in the United Kingdom and United States filed a chargeback — an all-time high. The global volume of chargebacks is expected to reach $165B in 2024.

During the COVID pandemic, chargebacks became popular for their convenience and safety. Customers shopped online in their droves while physical stores were closed, but people were also less inclined to go through the returns process, which usually still involved an in-store visit or a trip to the post office. However, much like online shopping, the chargeback trend didn’t recede when life returned to normal.

Chargebacks now represent a normal part of consumer online shopping behavior, and in turn, have become a significant part of ecommerce business management. Reversal of the sale is the obvious cost of chargebacks, but what is surprising to merchants is that this cost is just the tip of the iceberg of how chargebacks are eating into their revenues.

The full cost of chargeback management creeps up from disparate sources and many retailers struggle to truly comprehend its impact. Three key areas can help us understand the real cost and resource drain of managing a rising number of chargebacks.

1. Operational headaches

Even the “simple” process of identifying and categorizing chargebacks takes time. A whopping 60% of merchants still manage chargebacks entirely manually, according to a new research report, Chargeback challenges and what you can do about them: Global insights 2024, with the majority having to employ one to three full-time employees to handle the workload.

Time adds up quickly too. Nearly two in five merchants spend at least ten minutes per dispute, and 18% spend more than 20 minutes. Not forgetting the significant time spent in root cause analysis and prevention efforts — if done manually, this is a hugely resource-intensive activity. Unsurprisingly, 55% think the process is too time-consuming.

Disputes and evidence can easily get missed or lost too. To win a chargeback dispute, merchants need to compile evidence from various gateways, teams, and data streams. Some merchants rely on information from external suppliers, further hampering efforts.

2. Taxing technology

Fragmentation is the biggest cause of technical pain. Most merchants work with several payment service providers (PSPs) and acquirers, making management disjointed. Unsurprisingly, over half of merchants cite having to manage chargebacks across multiple systems as a major challenge.

Teams access and correlate information with much greater difficulty and far more slowly from disconnected systems. Plus, collecting and organizing that fragmented evidence further adds to the manual load, leading to increased human processing time and higher risk of errors. Finally, disjointed systems create disjointed data, making any effective measurement, tracking and reporting on KPIs near impossible. Inability to access or use all relevant data as evidence is a key challenge for 35% of merchants, while a similar number felt a lack of visibility and difficulty in monitoring and reporting were major hurdles.

3. Bureaucratic battles

Rules and regulations around disputing chargeback claims are another major pressure point that drives chargeback management cost up. Primarily coming from card schemes and issuers, these rules make the process more complicated and require merchants to keep an eye on changes and update processes quickly in line with any regulatory updates.

Payment networks enforce increasingly stricter guidelines about how much information they need to authorize a chargeback, and these evolve periodically. For example, Visa rolled out Compelling Evidence (CE) 3.0 in April 2023 for fraud chargebacks, while PayPal changed its Seller Protection Program rules in January 2024. Both required merchants to quickly adjust processes to maintain compliance and successfully file disputes. Finally, in extreme cases of excessive chargebacks, merchants risk losing acquiring accounts or racking up potential fines.

Taking charge of chargeback management

With the sharp and unprecedented increase of chargebacks in recent years, it’s easy to see how the management side of chargebacks has become unwieldy. Merchants are at a crucial turning point as rates rise, and know they need to improve the process.

Merchants had four key requests to ultimately drive down the true cost of chargeback management. Above everything else, 65% want to increase automation and half stressed the need to be able to access all chargebacks in one place. These two factors undoubtedly will have the biggest impact. In addition, there’s a need for better best practices around data processing. Support to better label and manage evidence — either by gateway, PSP, or issuer, was another key area raised, with 35% currently not even customizing evidence for different reason categories. Meanwhile, a third of chargeback managers also felt that they could be better involved in the prevention, using root cause data as a feedback loop into the fraud screening process. After all, offense is the best defense.

Find out more about the latest findings on chargeback management in Chargeback challenges and what you can do about them. And for help redefining your chargeback management strategy, reach out to a chargebacks expert today.