Chargeback protection market set for explosive growth

According to investment strategy consultancy Liminal, there is enormous opportunity in the chargeback protection and management market, with the sector’s compound annual growth rate expected to increase by 27% to reach $30 billion in 2027.

“Chargeback protection and management solutions have proven to be essential tools for merchants, offering reliable methods to identify, prevent and effectively manage transactions at risk of payment disputes,” write Liminal authors in an online article titled “Protecting businesses against payment disputes as friendly Fraud is on the rise. “

Chargeback fraud, sometimes called friendly fraud, occurs when a cardholder intentionally requests a refund for purchased items despite receiving them.

This is different from honest payment disputes, such as when cardholders are victims of identity or credit card theft, don’t recognize the merchant’s name on their statements, family members buy things without their knowledge, or never actually received the goods they paid for.

However, most bona fide cardholders will try to contact the merchant for a refund. Fraudsters know that it’s quicker and easier to contact the card issuer directly, who often don’t ask questions and send the fee back to the merchant with a processing fee added.

The number of suspicious chargebacks increased by 20% to 30% in 2022, Visa chief risk officer Paul Fabara told Axios in late 2022, costing merchants and retailers billions in lost revenue.

“Netflix, alcohol, Uber and DoorDash fees are typically the ones that make up the bulk of this category,” Fabara said.

Some of the growth can be attributed to the Covid-19 pandemic, which has accelerated the ongoing shift from cash to payment cards and resulted in greater use of online services and applications.

However, small-time criminals may be increasingly realizing that chargeback fraud is easy to avoid. Merchants often simply eat the fees rather than engage in a long, three-way dispute process with the card issuer and the customer. Even those sellers who dispute chargebacks win less than half the time, according to Fabara.

Chargeback protection and management solutions use “automated tools and data enrichment” to quickly flag potentially fraudulent chargebacks, Liminal researchers explain.

The solutions can aggregate customer purchase data, gather evidence that can be used in disputes, and help navigate the gray area of ​​liability that often exists between merchants and card issuers. Some even offer chargeback insurance, which helps businesses avoid unexpected costs associated with chargebacks.

For more information on chargeback protection and management solutions and market growth forecasts, visit Liminal.