Let’s face it: Chargebacks can be an operational nightmare for ecommerce, stemming from the increasing complexity of customer shopping habits and the pandemic-related surge in online sales. Not only do you face the challenge of processing high volume, but you also deal with compiling compelling evidence from widely disparate systems — it’s an impossible situation at times, leading to chargeback chaos and lost revenue.  

The conditions for chargeback management’s perfect storm   

Recent years have seen ecommerce sales and subsequent chargebacks skyrocket. 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.  

Adding fuel to the fire was the COVID pandemic. Customers shopped online en masse while physical stores were closed. Many people were naturally less inclined to go through the traditional returns process, which usually still involved a post office trip or in-store visit.  

Chargebacks became popular for their convenience and safety but today, they represent a normal part of consumer online shopping behavior. The trend toward filing chargebacks remains strong — in fact, 76% of chargeback managers have said rates have increased or stayed steady in the last year. It’s reasonable to assume customer psychology has changed too: if you were successfully reimbursed via a chargeback, you’ll feel emboldened to claim again. 

Unwittingly, chargeback management now constitutes a significant part of running an ecommerce business. The systems for managing chargebacks evolved under pressure, in an unstructured, unwieldy manner that now actively contributes to eroding merchant profits — oftentimes even more than the reversal of sales.  

How chargeback management became a monster 

Chargeback management evolved into its own monster. Existing systems and teams suffer from being overstretched and thus unable to cope with the huge volumes of claims. Even the “simple process” of identifying and categorizing chargebacks takes time, especially with 60% of teams relying on fully manual processes. 

Technologies emerged to help manage chargebacks — but they evolved disparately, and for the most part, operate in siloes. Most merchants navigate across several payment service providers (PSP) and acquirer gateways, meaning correlating and accessing the right data needed to contest chargeback claims is painfully slow and difficult.  

To complicate matters further, rules and regulations around disputing chargeback claims also ramp up the cost and complexity, making it harder to win chargeback disputes. Merchants need to watch for changes and update processes quickly — 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.  

How to change from a revenue-eating monster to a revenue-recovery machine 

The idea of an industry creating its own siloed tech tools monster isn’t entirely new — countless sectors have experienced a similar situation. But the chaos of chargeback management has reached a critical moment that can’t be ignored. It’s time for chargeback management to stop being a hindrance to retaining and recovering revenue. Use these four recommendations to make chargeback management more efficient and effective.   

  1. Automation, automation, automation 

Applying automation to some or all the chargeback management process increases efficiency more effectively than any other action. Full stop.  

Just as it has revolutionized other areas of fraud management, machine learning dramatically expedites chargeback efficiencies. You can apply automation in a tiered strategy too. For example, merchants can automate lower value or simpler chargebacks, while still ensuring trained experts handle more complex, sensitive, and higher value cases.  

Most importantly, using machine learning in chargeback management channels your team’s time away from heavy manual data work toward more strategic and challenging disputes.  

  1. Simple, centralized platforms  

Centralizing different chargeback sources and platforms will not only make life easier for chargeback managers but also stop key evidence from falling through the cracks. Half of merchants surveyed stressed the need to be able to access all chargebacks in one place, driving efficiencies and the rates of successful disputes.   

  1. Reassess organization of data and reporting  

Less than 15% of merchants customize evidence by gateway/PSP, and a staggering 35% don’t even customize for reason categories. This is a symptom of the struggles to compile data across disparate systems, but it’s impacting reporting and effective use of that data too. Having a better means to capture and categorize chargebacks helps give you a clearer sense of rates and improvements over time, plus provides a feedback loop to improve upfront screening.  

  1. Offense is the best defense  

Even better than managing chargebacks more effectively is preventing them in the first place, right? Thankfully for merchants, all the above can help feed into your ability to help improve prevention rates by identifying specific chargeback drivers (such as product lines, carriers, or regions), and concentrating efforts on upfront screening. 

Chaos might feel like the reality right now, but with these tips in mind, merchants are better placed to beat the management monster and take control of their chargebacks. Find out more about the state and future of chargeback management in Chargeback challenges and what you can do about them: Global insights 2024.