Statistics Every High Risk Merchant Needs to Know

Chargeback Statistics

It’s not easy being categorized as a high-risk merchant. If the nature of your business involves higher risks and high chargeback ratios, you may find it hard to apply for a high-risk merchant account from banks.

So if you’ve been approved of one, it’s very important to learn about these five statistics that will affect your chargebacks and ultimately, your credibility as a high-risk merchant:

The Most Common Reasons For Chargebacks

To help businesses determine the common reasons consumers file a chargeback, ClearSale conducted a study and revealed these numbers:

• 30% of consumers said the purchase was made using a stolen credit card
• 26% claimed the product they were charged for never arrived
• 15% said they received the wrong product
• 4% said the product didn’t meet their expectations
• 4% claimed that the product they received didn’t match the description on the website
• 3% claimed that the ordered was either billed twice or there were clerical errors

The study also revealed that the software industry received the highest chargeback ratio at (0.66%) followed by financial services (0.65%), media and eContent (0.56%), retail (0.50%), travel (0.50%) and gaming (0.43%).

These numbers may not seem so big, but you have to remember that once a chargeback-to-transaction ratio reaches 1%, most merchant providers and banks will already re-consider an account or cancel it altogether.

The Case Of Friendly Fraud

According to the study, 86% of all chargebacks are related to friendly fraud, which is a type of fraud where a customer will file a chargeback for a transaction that was otherwise valid and legitimate.

A lot of people do this to get their money back for a product that they already used, which is a loss on the part of the retailer. It is said that merchants lose at least $2.40 for every dollar of chargeback caused by friendly fraud. When summed up, a merchant loses 1.47% of its total revenue due to fraud costs.

The sad reality is, only 1 in 20 customers will call to file a complain directly to their business. This means that the remaining 19 customers will most likely file a chargeback.

The study also revealed that 81% of customers freely admit to filing a complaint for convenience. These people either don’t know the difference between a return and chargeback or they just don’t care about how their act could impact the business they patronize.

Worse, 40% of consumers who tried filing a chargeback for the first time are most likely to file another complaint within just 60 days.

The Bottomline

Although not widely discussed, chargebacks hurt a lot of businesses around the world. With chargeback rates increasing by as much as 47% every two years, something needs to be done to protect businesses from the economic impact of these chargebacks to them.

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So if you’re a high-risk merchant, make sure to protect your account and your business’ credibility by working with the right merchant provider and investing in tools that will help you detect fraudulent activities.