Safeguarding Businesses Against Payment Disputes as Friendly Fraud Rises

Grant Gillem
Grant Gillem
Senior Associate
Marc Chongkavinit
Will Charnley
Will Charnley
Managing Director
Stacy Schulman
Stacy Schulman
Chief Marketing Officer
Jennie Berry
Jennie Berry
Safeguarding Businesses Against Payment Disputes

The digital payments and eCommerce industries are fast-changing, and protecting businesses from unpredictable payment disputes cannot be overstated. Chargeback Protection and Management solutions have emerged as indispensable tools for merchants, offering robust methods to identify, prevent, and efficiently manage transactions at risk of payment disputes. Here, we offer insights from our recent Outside-In Report, diving into Chargeback Protection and Management and the importance of businesses safeguarding against payment disputes. 

Key Insights:

  • Chargeback Protection and Management solutions help merchants identify and prevent high-risk transactions, protecting them from revenue losses.
  • Automated tools and data enrichment are essential components of efficiently managing the chargeback dispute resolution process.
  • The Chargeback Protection and Management market is projected to experience substantial growth, with a 22.7% CAGR through 2027, driven by factors like rising fraud rates, payment digitization, and changing regulations.
  • Future success in this market will depend on vendors’ ability to develop automated solutions seamlessly integrating with payment platforms and offering unique features to address the increasing complexity and cost of first-party fraud.

The landscape of Chargeback Protection and Management services presents compelling near- and long-term opportunities. The market is projected to reach $30.7 billion by 2027, with a CAGR of 22.7% from 2023, up from a $13.5 billion TAM in the same year. These figures alone emphasize the substantial growth potential within this sector, but there are other considerations, too:

Rising Rates of Fraud: Fraud is relentless, with friendly fraud chargebacks growing by 30% in 2022. Friendly fraud can result in substantial financial losses for businesses, and allocating staff to investigate and respond to chargeback disputes diverts attention away from other critical activities. This trend is creating an urgent need for accurate real-time risk models to identify high-risk transactions promptly.

Digital Payments Surge: The shift to digital payments continues to rise, with online payments growing by 20% from 2020 to 2023. Chargebacks can erode the trust between businesses and genuine customers. When chargebacks occur frequently, businesses may become increasingly skeptical of their customers, leading to more stringent security measures that create additional friction for legitimate shoppers. This rapid growth drives a parallel demand for robust chargeback solutions to address digital transaction complexity.

External Pressures: External pressures from card networks are compelling merchants to seek efficient chargeback tools. Card networks have implemented liability shifts to incentivize the adoption of more secure payment methods. For example, if a merchant does not support EMV chip payments in the United States and a fraudulent transaction occurs, the liability may shift to the merchant rather than the card issuer. Some payment gateways are even blacklisting merchants with excessive chargeback rates, posing a severe threat to online retailers.

Understanding Chargeback Protection and Management

Chargeback Protection and Management solutions serve merchants’ first line of defense against payment disputes. These solutions meticulously score users and adeptly manage disputes arising from unauthorized or fraudulent transactions. Their core objectives encompass identifying false claims, furnishing evidence to dispute chargebacks, and, critically, protecting merchants from revenue losses by shifting the liability and cost of a chargeback.

With the mounting rates of friendly fraud, increased digitization of payments, and intensified pressure from card networks, having a robust chargeback solution is no longer optional. For merchants, it is a strategic imperative to protect revenue, avoid punitive network fees, and avoid potential card processing bans.

Navigating the Competitive Landscape

While the prospects for Chargeback Protection and Management solutions are promising, the landscape is competitive. Payment platforms like Stripe and other card networks have ventured into the domain, offering transaction fraud solutions, and this evolving competitive terrain necessitates innovation. Some vendors are responding by developing automated solutions that seamlessly integrate with payment platforms and offer differentiated features capable of adapting to the ever-evolving fraud landscape.  

As fraud risks become increasingly intricate, chargeback vendors that address multiple use cases are poised for success. Buyers seek comprehensive solutions to prevent, manage, and resolve fraud threats across the complete identity lifecycle.

Key Use Cases 

Chargeback fraud poses intricacies across electronic transactions and eCommerce, but it’s a realm where innovation has emerged to help businesses combat this persistent threat more effectively:

Transaction Fraud Prevention: These solutions provide near real-time risk assessments and scores, empowering businesses to make informed transaction decisions. High-risk transactions driven by sophisticated fraudsters drive companies to deploy solutions that address pre-transaction chargeback. Notable players include Braintree, Kount, and CyberSource.

Pre-Dispute Remediation: Post-transaction dispute resolution techniques are implemented to prevent chargeback initiations. The number of users disputing transactions is rising, necessitating solutions to manage filed chargebacks. Notable players include Chargebacks911, Ethoca, and Verifi. 

Chargeback & Dispute Management: These solutions are crucial in addressing and resolving chargeback cases through streamlined communication between customers, banks, and merchants. Businesses seek solutions that act as liaisons between these entities to manage chargeback cases efficiently. Notable players include Chargehound, Midigator, and Sift

Chargeback Protection: Third-party providers assume liability and cover costs associated with chargeback disputes. This helps companies minimize financial losses when chargeback disputes do occur. Notable players include Vesta, Signified, and ChargebackGurus.

In today’s digital payment-driven landscape, safeguarding against chargeback fraud is imperative to protect businesses from substantial financial losses. Chargeback Protection and Management solutions are crucial to any business strategy, given the payment market’s growth potential and the urgent need for robust fraud prevention. To thrive, businesses must carefully choose chargeback solutions, as the right solution safeguards revenue and ensures long-term sustainability and success. Informed decisions about chargeback solutions are essential for fortifying defenses against fraud and maintaining financial stability.

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