Online merchants lost a combined half-trillion dollars last year to fraud and chargebacks
Unlike in-store payments, the cardholder cannot be definitively authenticated at the point of purchase online. As a result, merchants lose billions of dollars each year to fraud, chargebacks, operational costs, and false declines.
$74
The average cost to resolve a chargeback
45%
The rate of chargebacks grew by 45% in 2024
70%
Of merchants report rising disputes
An expensive issue for online merchants
Chargebacks are overwhelming and complicated, and if not handled well, can have a significant impact to your business bottom line.
As online transactions are currently card-not-present, the liability for the refund sits with the merchant.
Burden of proof
In around 85% of cases, the merchant cannot prove the cardholder made the transaction and therefore must refund the cost of the sale.
Bottom line impact
The merchant is doubly out of pocket for the goods that have been shipped, and the cost of the refund. Neither of which can be recovered.
Fees and costs
There are fees and admin costs associated with the chargeback process, resulting in a real loss to the merchant of 2.5 times the cost of the sale.
Instore payments are better for merchants than online
Payments taken in-store are classed as Card Present payments. This is because the cardholder and card are physically present to make the payment, and if required, a PIN can be used to authenticate the transaction.
Payments taken online are classed as Card Not Present payments because there is no way to categorically authenticate the transaction.
The difference is important because it determines who is responsible for the transaction if it is disputed or fraudulent.
Card Present Payments
When a customer pays using a physical terminal in store, the presence of the chip in the card and entering of the PIN (Chip & PIN) enables their bank to confirm it is the true cardholder making the purchase.
Because of this, the bank takes responsibility (liability) for the transaction as the chance of fraud is very low. If the transaction subsequently turns out to be fraudulent, it is the bank’s responsibility to refund the cardholder.
Card Not Present Payments
When a customer enters card details into an online checkout, there is no categoric way for the cardholder’s bank to verify they are making the transaction as neither the card nor PIN are present.
The cardholder’s bank will approve the transaction provided the card is not reported lost or stolen, but will not take responsibility for the transaction in case it turns out to be fraudulent. The liability in this case remains with the merchant. If the transaction subsequently turns out to be fraudulent, it is the merchant's responsibility to refund the cardholder.
Whoever holds liability for the transaction is responsible for the refund
Instore
Card Present
Bank
Instore
Card Not Present
Merchant
Online
Card Not Present
Merchant
False positives:
The big problem you may not know you have
If the anti-fraud solutions that merchants use to detect fraudulent transactions identifies a high-risk sale, it will not allow the sale to proceed. But there is a very high chance that the majority of the transactions the anti-fraud system deems as fraudulent (and therefore blocks), are not fraudulent at all. This is called a false positive.
