Friendly fraud—when an authorized cardholder initiates a chargeback on a legitimate transactions—is a significant cause of merchant chargebacks, according to a new report from Mercator Advisory Group.
“Merchants are incurring a major pain point dealing with consumer-disputed sales transactions that can lead to chargebacks. This can mean merchants lose not only the sales revenue but also the merchandise and related overhead costs as well,” said Raymond Pucci, director of merchant services at Mercator Advisory Group, in a release on the research
Mercator Advisory Group estimates friendly fraud will reach $50 billion in 2020.
Mercator recently identified several trends in chargebacks and friendly fraud, including:
- The chargeback resolution process has become highly automated.
- Demand for chargeback services continues to grow in lock step with e-commerce growth.
- Friendly fraud detection is particularly hard to spot, but detection companies are closing in.
- Chargeback services overlap to cover process management, merchant representation, and intermediation.
- M&A activity will increase for chargeback solutions with customer bases and proprietary tech.
- Merchants will increasingly assess their chargeback rates to determine if they need to outsource chargebacks.