Jodi Lifschitz
Head of Content
Table of contents

Chargebacks, by nature, are unique and variable. Several reasons explain why. We can mention the ever-evolving fraud economy. Or we could point to immense technology in just the past few years. Rapid shifts in consumer behavior certainly play a part.

But one of the most important reasons explaining the varied nature of chargebacks involves industry-specific factors. Every retailer works with unique business conditions. Different product types, consumer bases, transaction types, etc., create specific disputes. The business environment alters how and why chargebacks develop.  

For example, consider travel retailers. They work with a long delay between payment and service, so customer forgetfulness takes focus. All the while, health services concern themselves with product safety and quality, as failures in dosage of defective health devices cause most of their chargebacks. Everyone's defenses change according to the industry-specific factors at play.

So why is understanding the chargeback data of another industry a good practice? Well, because we can learn targeted prevention strategies. Other businesses have learned the most effective solutions to the specific chargeback reasons that affect their sector. We can apply those findings to improve our own defenses—without all the exhaustive trial and error.

Let's explore the chargeback data (taken from Chargeflow’s State of the Chargeback 2024 report) for the following industries: Apparel, Home & Garden, Beauty and Cosmetics, Food & Beverage, Health, and Travel.  

Industry Breakdown:

Apparel

Reason code analysis shows chargebacks in apparel are related to the physical nature of clothing. The most commonly cited reason is “Product not Received”, owning a 37.01% share. In second place is the reason code “Not as Described”, taking a 21.82% share.  

These reason codes make sense—shipping and delivering large quantities of clothing is a considerable challenge. And physical clothing often suffers between digital expectations and reality. Sizing issues lead to disputes. Same with changes in color, fit, or material.

These conditions likely lead to friendly fraud or return abuse. A clear example is the presence of wardrobing (where customers wear expensive items for an event only to return them a day later). Since the apparel industry can at times focus on fast fashion with high transaction volume, catching these forms of cardholder abuse can be a challenge.  

Still, the industry earns a high win rate (35.81%). Which means many fashion retailers are doing things right. Known strategies include things like virtual fitting rooms. High-quality photos and detailed product descriptions are also crucial.

For non-apparel retailers, the primary takeaway is managing expectations. If you deliver physical products, communicate delivery times clearly to better align customer satisfaction. And match what the consumer sees online as closely to the physical product as possible.  

Home & Garden

Chargeback data for Home & Garden show three specific issues.

First, there is the issue of delivery. Like Apparel, Home & Garden works with physical items. But the challenge is that products for the home are often large, bulky, and very hard to transport. Order fulfillment is a primary issue (the reason code "Product Not Received" holds a 36.45% share).

Second, customer satisfaction is a clear issue. This extends complex assembly, installation processes, or hard-to-read instructions. These events frustrate customers, who then feel justified in filing a dispute.

Lastly, furniture or garden products are high-value items. If the customer is unhappy, they have a lot of incentive to get their money back. Unfortunately, returning a sofa is also challenging. That pushes a lot of customers who feel buyer’s remorse to turn to a chargeback.

What are the key defense strategies? For Home & Garden, transparency and high-quality customer service remain crucial. Of course, fixing delivery issues will always help. But service reps who can guide customers through all the challenges of delivery and setup of complex items help eliminate a majority of chargebacks. That is valuable for any merchant, regardless of industry.

Beauty & Cosmetics

For Beauty & Cosmetics, fraud presents a primary issue (that includes both true fraud and friendly fraud).

Low sales values may be a contributing factor. Beauty products are often small, easy to handle, and low-cost. That is ideal for fraud testing, where bad actors try out a scam before moving to high-ticket items.

Technology also supports the growing fraud problem. There is a vibrant resellers market, making it hard for merchants to follow incoming and outgoing transactions. New business models like subscription boxes also make it easy to commit fraud. A customer can easily return a box, just with a few select items missing.

Complicating the issue is that cosmetics usually cannot be returned (like used lipstick or makeup). Think of a customer who buys a product only to have an allergic reaction. They cannot return the item. They may feel a dispute is their only fair action.

What defense strategies can we learn from here? For one, strict product quality and consumer safety are crucial. Transparency once again proves to be a primary part of any chargeback strategy. And, of course, use robust fraud prevention. Digital tools that can help manage digital transactions and identify friendly fraud are necessary for all retailers.

Food & Beverage

Like Beauty & Cosmetics, fraud is rampant in the Food & Beverage sectors. Reason code data shows that 78.91% of chargebacks are reported due to fraud. That is an astoundingly high share.

What is causing such high fraud reports? The rise of digital options may be one reason why. Online delivery services are certainly open to digital attacks. Many require customer accounts, and some third-party providers may not have the best security (e.g. stolen credit card prevention). An example of a common chargeback fraud scam includes requesting food but stating it was not delivered, a way to “digitally dine and dash”.

There are likely some customer satisfaction issues leading to friendly fraud as well. Third-party services may not deliver on time, charge incorrectly, and include hidden fees.

Of course, customer satisfaction ties into industry-specific issues unique to food retailers must contend with. That includes things like perceived freshness. Same with portion sizes. Spoiled food or contamination are other quick ways to receive a dispute.

What can we learn from these challenges? Quality control and accurate descriptions should take center stage, especially with perishable items. In-house customer service always remains one of the most effective defense tools. And, retailers must invest in high-quality technical systems with fraud prevention.

Health

Problems in the Health sector are closely connected to service expectations and customer satisfaction.

For example, think of a customer who needs relief from pains and aches. If the care they receive is less than expected, frustration can grow. Same when the product advertises relief but does not work. Most people feel a sense of urgency when they need care—failure to receive that care can lead to chargebacks.

Frustration also grows via confusion and a lack of service. The industry works closely with insurance providers, and a breakdown in the service expected compared to cost can irritate customers.

Lastly, health services must closely adhere to product safety. Incorrect medications, dosage, or defective devices are dangerous and can destroy a lot of goodwill.

For retailers, the takeaway is enhanced communication. The more you help a customer through all points of the buyer’s journey, the better. For the health industry, that means leveraging systems, simplifying insurance processes, meeting HIPAA compliance, and clearly describing all aspects of product safety.

Travel

Travel works with highly particular chargeback conditions. For one, there is a time delay. Bookings occur far earlier than the data of the service. That can lead to a lot of customer confusion. It also makes forgetfulness a leading factor resulting in disputes.

In addition, travel services also operate with a robust third-party sellers market. There are travel agents, booking sites, and flight aggregators. This creates yet more confusion. For example, product information and pricing may be inaccurate or misleading between different operators.

Travel disruptions also heavily contribute to chargebacks. A customer expects a level of service and may not consider factors outside of the travel retailer's controls (weather, industry regulations, geopolitical issues, etc).

How has the travel sector managed these problems? Improved booking systems are one strategy. Customer service and communication are also crucial (think of things like easy refunds and empowering staff during disruptions). Lastly, the industry must focus on accuracy. From getting booking names to correct to stating fees upfront, the more clear and legible all travel information, the better.

Conclusion

Every business is unique. That means chargebacks occur for sector-specific reasons. A one-size-fits-all strategy rarely addresses the nuances related to your industry and its customers.

Luckily, we can use the information earned by other sectors to bolster our own defenses. That can help you create comprehensive protection while still using tailor-made solutions that match the needs of your business.

Want to learn more? Download Chargeflow's State of the Chargeback 2024 report to find more industry-specific chargeback data.

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