Digital subscriptions sector registers highest chargeback rates, Global Risk Technologies reports

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Digital subscriptions top the list of sectors worst affected by chargebacks, according to new data from Global Risk Technologies.

The chargeback and risk mitigation experts found that chargebacks accounted for as much as 24% of all UK purchases in the digital sector over the last quarter of 2015.

Chargebacks are the return of funds to a consumer that are forcibly initiated by the issuing bank as the instrument used by a consumer to settle a debt.

The data, based on material from 250 financial institutions, also reveals that Russia, Australia and Brazil have the highest rates for chargebacks for the sector across the globe, hovering around a third of all purchases.

The analysis looks at 50m transactions over the festive season for the health & beauty, diet, men’s, women’s and digital subscriptions sectors. It found that the diet, health & beauty and women’s products offered better news for UK retailers; the percentage of chargebacks for these being around half of those for the digital sector, according to cross-industry data from one major UK high street bank.

However, the male product sector registered a 20.5% chargeback rate from the same bank. Monica Eaton-Cardone, founder and CIO of Global Risk Technologies, said: “What is particularly surprising about the new data is that it is the digital sector that is being hit hardest by chargebacks.

“Fraudsters are targeting vulnerabilities online that don’t exist in the card-present world. More needs to be done to protect consumers online to avoid unauthorised transactions being completed and hitting merchants in the form of costly chargebacks.

“A staggering 86% of chargebacks are fraudulent and many consumers often bypass merchants to directly file complaints with card-issuing banks.

“In my opinion, chargebacks are generally a learned behaviour. Most consumers do not intentionally attempt to get something for free the first time there is a dispute. However, once they profit from so-called friendly fraud, many are tempted to repeat fraudulent chargebacks.

“Fraudulent activity affects the merchant’s bottom line and in turn those losses are often pushed onto the prices consumers pay.

“Merchants can take effective precautions that can reduce chargebacks, such as asking for Card Security Code numbers (CVC) and cross checking IP addresses to physical addresses.

Merchants can and must learn to dispute fraudulent behaviour with knowledge and confidence.”