The total value of refunds and charge disputes could be as high as £13.2 billion per year in the UK1, with the cost implications for retail Britain set to be greater still, according to new research from the Digital Solutions team at Equifax, that specialises in fraud detection and chargeback management solutions offered on its Kount-branded platform.
Meanwhile, more than two in three consumers (71%) have never had a refund or chargeback denied, and a third (34%) don’t think keeping an item and requesting a refund despite it being satisfactory might count as fraud, in a sign that UK retailers could be leaving themselves overly exposed to refund abuse and chargeback fraud.
Chargebacks occur when a cardholder disputes a transaction and initiates a refund process typically through their bank. While an important consumer protection mechanism, chargebacks are also susceptible to abuse, including by a merchants’ own customers in so-called ‘friendly’ fraud.
Research from the Digital Solutions team at Equifax found that, annually, the face value of items and services either refunded or disputed is £250 per person, with Brits on average going through these processes around five times per year2. However, the cost impact to merchants could be disproportionately higher, as retailers incur additional fees associated with processing disputes, whether a claim is legitimate or not.
Despite the high potential for abuse, most people report one or fewer refund or charge disputes per year (48%), suggesting the majority wield their refund powers fairly and misuse is limited to a smaller number of actors. The research from Equifax also revealed that up to 90% of the annual cost to retailers could come from just a fifth of consumers.
The capital is the UK’s hotspot with one in 10 (9%) Londoners making weekly refund or charge disputes compared to an average of just 2% in all other regions. It is also more prevalent among younger consumers, with 11% of 18-24-year-olds initiating refunds weekly versus less than 1% of buyers over 45.
Simon Vallis, head of international partnerships for the Digital Solutions team at Equifax, said: “Refunds and chargebacks provide an important mechanism that empowers consumers and the vast majority exercise this honestly, but the sheer scale of activity is a quietly mounting challenge for retail Britain and also ripe for abuse. Whether initiated by a malicious third-party fraudster or even a retailer’s own customer, chargebacks can cause disproportionate damage to online businesses.”
New initiatives do exist to protect retailers and help them dispute suspicious chargebacks. However, the burden of proof sits with the merchant, and generally requires a complex combination of transaction data evidence to show a refund may be fraudulent, which can be difficult and time-consuming to obtain without the right technology in place.
Vallis added: “Merchants cannot afford to take chargeback abuse on the chin and must turn to data-driven solutions to unlock the new protection mechanisms available in the marketplace. This is vital to future proof online retail and foster a safer and more transparent environment for retailers and consumers alike.”
