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Chargeback fraud – avoiding revenue loss


Global e-commerce is on the rise and is showing no signs of slowing down anytime soon. Emarketer reports the global digital commerce market will grow from $3.54 trillion in 2019 to an estimated $6.54 trillion in 2023, an increase of 84% over the next four years. The Asia-Pacific region, most notably China, make up a large margin of the e-commerce business being conducted, representing over 64% of the overall market. 

However, in today’s digital world where millions of transactions occur every second, cybercrimes have also shown a frightening increase in recent years. The consumer credit reporting company Experian reported online shopping fraud grew 30% in 2017, marking another record year for fraudulent transactions. 

One of the greatest threats businesses face in today’s digital environment is revenue loss due to chargebacks. This article will take a closer look at chargeback fraud and how dLocal’s payment platform provides reassurance to customers that these adverse actions will not slow their business down. 

What is a Chargeback?

A chargeback can be defined as a transaction reversal initiated by a cardholder’s bank. These actions are meant as a consumer protection mechanism, but many time is over-utilized, causing adverse impact to merchants. 

There are many reasons for legitimate chargebacks activated by customers after a purchase. A customer may be double charged for an online order, issues with the product or service delivered, or the goods purchased may simply never reach the customer for any number of reasons, be it a doorway theft or a supply chain breakdown. 

Although chargebacks are meant simply as a consumer protection action when fraud is the overall motive, these activities become what is known as chargeback fraud or ‘friendly fraud’ where consumers request chargebacks once they receive purchased goods. This is an alternative to a consumer asking for a refund from the merchant, which is a true reversal in the overall exchange of goods and payment. 

How Chargeback Fraud Hurts Merchants

Chargeback fraud is a growing risk for global merchants and one that is hard to truly quantify. Mainly due to several losses being tied to this adverse event that goes beyond the initial transaction, which includes incurred chargeback fees, loss of shipping costs, waste of transaction processing fees, and allocation of resources required to dispute charges. 

Overall, Javelin reported chargebacks, whether fraudulent or friendly, totaled $31 billion in 2017. This is a staggering number that directly impacts merchant’s bottom lines all over the world. The more chargebacks a merchant experiences, the greater the damage to their bottom line, reputation, and ability to service their e-commerce customers. Indirect losses associated with fraudulent chargebacks include a depleted inventory of goods, adverse impact to the brand, or loss of trust with the merchant. 

This is especially important for businesses looking to expand their business into emerging global markets to scale and grow their consumer base. Merchants must be careful when evaluating which global markets to enter to weigh the risks of chargeback fraud risk impact on their strategic objectives. 

Are Emerging Countries High-Risk Zones?

Midigator recently published a report outlining emerging markets which are at a higher risk of chargeback fraud. These markets include Bahrain in the Middle East, Bhutan in South Asia, Guatemala in Central America, and Malta in Europe. This report shows how diverse chargeback fraud is from a geographical view, showing how due-diligence is needed when selecting which markets to enter from a retail e-commerce standpoint. 

In past years, many merchants saw chargeback expenses as simply the cost of doing business. Still, with the significant amount of digital transactions occurring in today’s global markets, these fraudulent costs are quickly becoming a risk that can not be overlooked or accepted by retail businesses. These costs, if not controlled, can result in severe damage to revenues and loss of merchandise, something no retail business wants to endure.

dLocal Fights to Protect your Business

At dLocal, we truly believe that fraud prevention is not only a responsibility of merchants but a necessary step to provide services delivered in an efficient chargeback solution. 

Experience in Emerging Markets

We leverage our extensive experience in emerging economies around the world, coupled with advanced technology to provide a fraud prevention solution, which is a cut above our competitors. dLocal accomplishes this goal with a simple methodology, using historical data gathered over the years to provide a better fraud prevention platform where our customers can focus more on their business and less about chargebacks eating away at their profits. 

Unique, Adaptive Tools 

We at dLocal believe more data equals a smarter approach; it’s just that simple. What sets us apart is we work with local providers in emerging markets to identify real-time risk customers face daily, using unique local data points that can verify the authenticity of orders in real-time. 

Our experience working in diverse global markets provides our teams with the qualitative knowledge, which, when combined with data-driven quantitative analysis, creates a holistic context to address fraud prevention at the local level.  

dLocal’s adaptive technological resources help merchants on the ground level, no matter the industry or location. Our competitive advantage is in how we know our merchant’s business environment just as good as they do, making us a technology partner, not merely a platform. 

Our machine learning engine scans all card transactions across thousands of businesses aggregating data from these payments and converts this data into behavioral signals, which predicts fraudulent activity. This process helps block transactions with a high probability of being fraudulent while allowing legitimate payments to flow seamlessly through customer’s payment platforms. 

At dLocal, we take a unique approach to combating chargebacks, protecting merchant revenues, and keeping customers happy. A few reasons why we are the best when it comes to merchant fraud prevention include:

  • With intimate knowledge of international consumers, we are best prepared to recognize specific patterns to separate legitimate transactions from fraudulent ones
  • Using unique, local data points we can verify the authenticity of orders no matter the location, anywhere at anytime
  • We know the importance of not only rejecting fraudulent activities but also recognizing legitimate cardholder transactions creating a frictionless buying process for merchants
  • Our fraud tool is easy to use across any country or industry, adapting to possible changes in normal and risk behaviors in real-time
  • dLocal does offer products with 100% guaranteed coverage of any fraudulent chargeback helping our customers avoid business interruptions from these adverse events

Start Protecting your E-commerce Business Today

Merchants should not accept chargeback fraud as the cost of doing business anymore. Cybercriminals are exploiting digital payment systems for illicit gain, leaving innocent, hard-working businesses to suffer. 

Not anymore, dLocal has fraud prevention to help businesses keep their profits safe from outside predators while assisting e-commerce companies all over the world to enter emerging markets to grow their customer base. 

The time is now for businesses to fight back to make sure their e-commerce soars to new heights. At dLocal, we not only focus on fraud prevention, but we also make a concerted effort to be a repellent to keep fraudsters away from our clients.