Chargebacks Rising in the United Kingdom

Chargebacks are on the rise in the United Kingdom, and even if you operate in another market, it’s wise to pay attention to external trends as they could portend future conditions in your home market. So what’s happening in the UK? Researchers found that over 75 percent of respondents from May 2022 to May 2023 reported at least one credit card payment dispute. Worryingly, this marks a double-digit rise from the prior period.

Perhaps worst of all, serial chargeback behavior increased by eight-fold. Serial chargeback behavior is defined as a customer who files six or more chargebacks per year. While a lone chargeback may simply be due to a legitimate dispute, chronic disputes hint at genuine fraud. It’s quite possible that the cardholder is simply trying to score free stuff, for example. Or cardholders may not be properly securing their online accounts and credit cards.

Fortunately, in the United States, serial chargeback behavior declined from 18 to 12 percent within a year. However, the stark rise in the United Kingdom is something retailers the world over should pay attention to. On one hand, it’s possible that conditions in the UK, including local chargeback laws and bank policies, have made it ripe for serial chargebacks. On the other hand, rising chronic chargebacks may become a trend in other markets.

Let’s take a closer look at the situation in the UK.

Digging into the Details of Rising Chargebacks

Certain industries are getting hit harder than others in the United Kingdom. For example, the number of local consumers who filed a travel chargeback doubled to 36 percent over the last 12 months. Gambling chargebacks also surged to 49 percent (over the last 12 months).

What might be fueling the surge in chargebacks? Part of it may fall onto merchants. Labor shortages and supply chain issues have hindered many businesses in the UK and across the globe. This may lead to companies failing to meet consumer expectations. Still, consumers filing chargebacks for political reasons rose by 10 percent, perhaps unfairly targeting companies for events outside their control.

While merchants -unintentionally or not- may be part of the problem, other factors could be fueling the rise in chargebacks. Crucially, some developments may spur disputes and fraud in markets outside of the United Kingdom (including the United States).

Other Potential Causes for Rising Chargebacks

Across the world, many consumers are feeling their wallets pinched by inflation. In the United Kingdom, inflation has topped 8 percent in recent months. Across the rest of the world, inflation exceeding 5 percent has been ubiquitous. This could lead to cardholders looking for ways to save money. For better or worse, filing chargebacks to reverse payments offers one such way to cut spending.

How? A customer could engage in first-party fraud to essentially score free products and services. For example, a customer might buy shoes from an online merchant, which then gets delivered. Only, the customer could claim that they never received the shoes and thus file a chargeback. If the cardholder wins the dispute, they could essentially get a free pair of shoes.

Such unscrupulous customers have traditionally been the exception, not the norm. However, the costs associated with chargebacks can quickly add up, especially for merchants processing hundreds or thousands of orders per month. Merchants will lose revenue and inventory and be hit with chargeback fees, which typically range from $25 to $100.

Then there’s all the lost labor that goes into filing fraudulent orders and also trying to manage disputes. Fortunately, there are some steps merchants can take to protect themselves from chargebacks.

Here’s How Merchants Can Fight Chargeback Disputes

First, it’s smart to set up an efficient, responsive customer service department. If customers contact you with a legitimate complaint, it’s best to resolve it before they file a chargeback. You can even set up chargeback alerts, which will alert you to pending chargebacks. This can provide crucial time to resolve the dispute before a chargeback is filed.

Strong cybersecurity protocols and verifying suspicious orders can also mitigate fraud. Signed shipping receipts and other data can also help merchants win chargeback disputes. Learning how to fight chargebacks by drafting effective rebuttal letters could also help.

Fortunately, dispute management platforms now make it easier to manage chargebacks and collect information. Some platforms integrate advanced tools like chargeback alerts. With chargebacks on the rise in the UK and likely elsewhere too, a proactive approach could prove crucial to a merchant’s long-term success.