Chargebacks: The Silent Revenue Killer

Just a few weeks ago, Matt, one of our clients - found a shocking revelation. He was losing almost 7% of his revenue to chargebacks in 2024. Yes - 7%! That's thousands of dollars that his business could have allocated to advertising, product development, or anything else.

Matt was shocked, but sadly I was not - because I see it all the time. His story was not as abnormal as you might think. The truth is that a large portions of businesses in America are losing a lot more revenue to chargebacks than they should be.

So how did we get here?

Chargebacks are seen as a consumer protection mechanism, allowing customers to dispute fraudulent or incorrect transactions. The idea is to ensure cardholder security in this digital day and age. In practice though, chargeback disputes have become a predatory mechanism by which some cardholders can dispute authorized transactions they agreed pay to because they forgot about the charge, misunderstood it, or simply didn't want to pay.

In 'days of old', a cardholder would simply reach out to the merchant in cases like this. A good number of cases could be sorted out between those 2 parties, with chargeback disputes as a step of last resort. Now disputing the charge with the bank is the first step cardholders take, not the last. Many times they do not even reach out to the merchant directly to inquire on the disputed charge in question. The loser in this trend are the merchants, plain and simple.

You might be wondering - Okay so.... what can I do?

Even though in some ways, the deck is stacked against the merchant, that does not mean there is no path forward. The short answer is that most organizations need to make chargeback disputes a higher priority. If you do not fight back against them, you will never win (no, really. the case will almost always side with the cardholder by default if you fail to dispute it). We have to establish a good process flow for them to be managed - we cannot handle them the same way we did 15 years ago.

It's not easy, but the consequences of ignoring them are far worse. This is a modern problem that requires modern tools, solutions, and data analysis to successfully combat.