2020
The Year in
Chargebacks
Condensed Report
INTRODUCTION
Table of
Contents
Top 9 Highlights of the 2020 Report
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The chargeback-to-transaction ratio decreased.
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The majority of chargebacks were classified as fraud.
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Compelling evidence has a significant impact on win rates.
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There’s value in fighting.
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Chargebacks are filed faster.
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Risk associated with international transactions fluctuates over time.
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Prevention alerts are popular and effective.
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Many customers file more than one chargeback.
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Midigator helps merchants succeed.
Want these results for your business?
The data in The Year in Chargebacks report reflects the outcomes that Midigator helps merchants achieve. If
you’d like similar results, Midigator can help you too. Sign up for a demo, and see the technology in action.
Visit https://midigator.com/request-a-demo
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1. The chargeback-to-transaction ratio decreased.
The overall chargeback-to-transaction ratio for the merchants in this study dropped by 20.6% between
2018 and 2019. In total, the ratio has dropped 31.1% since 2017.
Why does this matter?
Chargebacks are still a major problem—the 2.59% ratio is well above the card brands’ 1% limit. However,
the decrease is encouraging. The drop in the chargeback-to-transaction ratio proves that ongoing efforts
and professional expertise help prevent chargebacks with greater accuracy.
Merchants in this study were actively managing disputes and attempting to keep risk in check. They had
benefited from Midigator’s expert advice and advanced technology. As a result, they saw a decrease in their
ratio despite the industry-wide increase in chargeback activity.
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2. The majority of chargebacks were classified as fraud.
For the third year in a row, fraud-related disputes accounted for the vast majority of chargebacks. Also
for the third straight year, the percent of disputes categorized as fraud increased. Visa® fraud disputes
increased by 5.4% and Mastercard® showed a 9% increase.
Why does this matter?
Fraud is certainly increasing, but what kind of fraud?
On the surface, it seems that malicious or legitimate fraud is a merchant’s biggest threat. But in reality,
77.25% of disputes classified as fraud were proven to be friendly fraud.
Strange as it may seem, this is actually good news. Why? Because for many merchants, managing malicious
fraud is a costly process that’s filled with errors. Studies1 have found that the cost of false positives, or
legitimate purchases that are incorrectly flagged as fraud, is 13 times more than the cost of the actual
fraud.
On the other hand, with the right strategy and technology, it’s possible to fight friendly fraud and recover
the lost revenue. This means the return on investment (ROI) for managing friendly fraud is often much
higher than it is for malicious fraud.
1. https://www.javelinstrategy.com/press-release/false-positive-card-declines-push-consumers-abandon-issuers-and-merchants
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3. Compelling evidence has a significant impact on win rates.
Visa updated certain dispute response regulations as part of the previous year’s Visa Claims Resolution
(VCR) initiative. Now a chargeback response for reason code 10.4 (Other Fraud - Card Absent Environment)
needs to contain evidence that proves the cardholder’s identity was verified. This can be done with positive
matches2 from address verification service (AVS), card security code (CVV), and Visa Secure (3D Secure).
However, 55% of merchants in this study—who accounted for 82.7% of the transaction volume—chose not
to use those tools because they were focused on providing the smooth and simple checkout process that
today’s consumers demand. As a result, there was a considerable decrease in year-over-year win rates for
invalid fraud disputes.
Why does this matter?
Most fraud-coded chargebacks are friendly fraud—which can and should be fought. To win, merchants
need compelling evidence that the cardholder did authorize the transaction, which means proving the
cardholder was actually the one to make the purchase. The best way to do that—and the only way to do it
for Visa disputes—is to provide positive response codes from identity verification tools.
However, some merchants feel these identity verification tools increase checkout friction. Fortunately, it’s
possible to have both a smooth checkout experience and the data to prove friendly fraud.
Merchants who don’t currently use identity verification tools may want to reconsider. By testing different
acceptance rules, it’s possible to find the perfect balance for generating revenue and recovering revenue.
2. https://midigator.com/response-codes
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4. There’s value in fighting.
Merchants who excelled at collecting required compelling evidence and crafting customized responses
were rewarded with higher-than-average win rates.
Why does this matter?
Merchants often think there is no value in fighting chargebacks. They claim it’s impossible to win. And in
most cases, these statements turn out to be self-fulfilling prophecies.
If merchants don’t collect the necessary compelling evidence throughout the customer journey and they
don’t customize their dispute responses, merchants probably won’t have a very good win rate.
But if merchants recognize there are benefits to fighting and make a valid effort with each response, they’ll
be rewarded with high win rates and positive ROI.
Merchants from both perspectives were included in the study, and the corresponding outcomes were
observed.
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5. Chargebacks are filed faster.
Chargebacks were filed more quickly in 2019. There was a shorter period of time between the transaction
processing date and the chargeback processing date.
In 2018, 8.3% of chargebacks were filed within a week of the transaction processing date. In 2019, 14.58%
of chargebacks were filed in seven days or less, resulting in a 75.54% difference year-over-year.
Why does this matter?
In general, it’s valuable to monitor chargeback lag time because the insight can help improve prevention
efforts. For example, if the majority of chargebacks happen on day seven, merchants might want to reach
out to customers on day six to gauge satisfaction and address any issues.
More specifically, it’s important to note that the chargeback process is getting faster and faster. Shorter
lag times are the result of the industry’s increasing use of automation and technology. If merchants aren’t
likewise using technology, they may soon be unable to keep pace with the industry’s quicker standards.
It’s important for merchants to use a chargeback management platform, like Midigator, that offers realtime reporting so they can capitalize on these shorter lag times. The sooner merchants learn about hidden
problems, the quicker they can solve them and prevent future disputes from happening.
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6. Risk associated with international transactions fluctuates over time.
The high chargeback-to-transaction ratios for Peru, India, and Dominican Republic remained fairly steady
from 2017 to 2019. And Norway, New Zealand, Sweden, and Switzerland had consistently low ratios.
However, year-over-year rates fluctuated drastically for the other countries in the study.
Why does this matter?
When expanding into new markets, merchants should evaluate the revenue potential of each individual
country versus the anticipated risk. However, evaluating risk on a country-by-country basis should be a
dynamic process.
Everything from customer preferences to politics and health crises can shift trends from one year to the
next. Data analysis can help ensure educated decisions, rather than hunches and guesses, are driving
international expansion.
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7. Prevention alerts are popular and effective.
The merchants in this study showed an increasing interest in chargeback prevention alerts with 5.1% more
merchants using alerts in 2019 than 2018. Of those merchants who used chargeback prevention alerts,
56% resolved 30% or more of disputes before they progressed to costly and damaging chargebacks.
Why does this matter?
Prevention alerts are an effective way to quickly reduce chargeback counts. If merchants are worried about
potentially breaching the card brands’ limits, or they already have, prevention alerts can help.
Merchants also use prevention alerts to save fulfilment costs on disputed orders, improve the customer
experience, and identify problems quicker.
Midigator’s prevention alert services have already proven effective at helping merchants keep chargeback
counts low. Likewise, Midigator’s order validation services, such as Eliminator and Order Insight, will play
an increasingly important role as merchants strive for both a reduction in chargebacks and a reduction in
revenue loss.
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8. Many customers file more than one chargeback.
The majority of cardholders, 61.36%, disputed only one purchase with the participating merchant.
However, a significant portion, 38.64%, initiated multiple chargebacks. In fact, an alarming 2.44% of
participants’ customers filed five or more chargebacks—one cardholder disputed 35 purchases with a
single merchant!
Why does this matter?
Data shows there were three reasons why customers filed multiple chargebacks:
1. A fraudster first placed a test order and then made a larger purchase since the stolen card was still
valid.
2. A cardholder bought something with a subscription billing model and disputed multiple months
worth of purchases at one time.
3. A cardholder made several one-time purchases on different days and sporadically disputed them.
All three of these situations can be managed to prevent unnecessary revenue loss. But to do that,
merchants need to know why their disputes happened and which tool is best suited to manage them.
A technology platform like Midigator can simplify this process. An all-in-one platform with comprehensive
services ensures merchants have the tools they need when they need them. And real-time reporting and
in-depth analytics help merchants discover the underlying reason for disputes so problems can be solved
at the source.
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9. Midigator helps merchants succeed.
Not only does Midigator achieve the best results in the industry, we are constantly improving outcomes
year-over-year. Take a look at what Midigator was able to achieve for five of our top-performing merchants.
Why does this matter?
Chargebacks are an ever-present concern for merchants, especially for those who process card-notpresent transactions. And friendly fraud rates continue to increase each year.
However, as the data in the report shows, Midigator is able to help merchants keep their risk in check. And
not only does Midigator keep chargebacks and revenue loss to a manageable level, merchants actually
experience a decrease in risk and losses over time.
The results are impressive, but the way the outcomes are achieved is even more important.
At Midigator, we believe the challenge of running a business should be delivering great products or
services, not managing payment risk. We want to empower businesses to get back to business.
Midigator’s expertise and advanced automation simplify the complexities of payment disputes. No matter
what the objective is—preventing, fighting, or analyzing chargebacks—Midigator makes it easy to achieve
the desired outcomes.
If you want to receive the best possible chargeback management results with the least amount
of effort, contact Midigator today: https://midigator.com/request-a-demo
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