Tom-Chris Emewulu
Chargeflow's Digital Evangelist
Table of contents

As the pandemic resulted in different forms of government-mandated restrictions worldwide, e-commerce became the best available option for transactions and shopping.

The pandemic ushered in an unprecedented new wave of e-commerce growth like we’ve never seen before. According to ACI Worldwide Research in May 2020, global e-commerce retail sales achieved 209% year-over-year revenue growth. Experts say this quantum of e-commerce growth in one year would’ve taken at least four to six years to materialize ordinarily. 

In their descriptive analysis of e-commerce growth and trends in recent months, Adobe states that total online spending in May 2020 amounted to a staggering $82.5 billion, taking an uptick of 77% from May 2019. On their part, Kount research found that same day or next day shipping grew by 237% in mid-March and took an upward clip in late April by 305% compared to the same week of 2019.  The research further highlighted that transaction volumes in key product categories such as wellness and vitamin online transaction volumes grew by 91% year over year in mid-March. And by the beginning of the second quarter, Sporting goods online card-not-present transaction volume saw a massive 599% year-on-year growth.

Post Covid Online shopping trends
Consumers across various age groups says that they'll keep online shopping well after the pandemic

Spending in Online Transactions Attracts Fraud

Before we go into further details about how the explosion in e-commerce growth is fueling chargeback fraud, here are six e-commerce businesses you can put your money in right now.

  1. E-learning: According to Statista, the e-learning industry could reach over $370 billion in 2026, with a Compound annual growth rate (CAGR) of 14% in the next five years.
  2. Online Retail: Worldwide, sales in e-retail represent 14.1% of all retail sales, and Statista predicts that these figures will reach 22% by 2023. Now you can understand why Amazon generated a revenue of nearly $76 billion and $89 billion in the first and second quarters of this year, respectively.
  3. Online Grocery Sales: Several studies indicate that online grocery is a promising e-commerce niche, and the growth prospects will continue well-after the pandemic. One data shows that e-commerce growth in grocery sales reached 22% in the US in 2019.
  4. Food Vending: An online food delivery marketplace could be a rewarding investment if you work out the logistics alright. Consider this, data from Research And Markets projects that global revenue from online food delivery will reach $200 Billion by 2025.
  5. Online Rental Marketplace: Rental service verticals such as transport, gym equipment, video game, furniture rental have seen astronomical growth in recent times. Research from Statista estimates that the US equipment rental market alone is growing at a 6.1% CAGR and could reach $59.4 billion in 2021.
  6. Medicare: With the global digital health market expected to surpass a valuation of $693.4bn by the end of 2026, this sector promises to be a lucrative investment option.

With those vital investment tips in the backburner, we look at some pressing challenges of chargeback fraud arising from the ongoing spike in e-commerce businesses worldwide. And we see that a spike in e-commerce transactions comes with a sharp increase in chargeback fraud and other complexities.

Understanding the Issue

In the wake of the e-commerce boom in March, industry leaders and digital fraud prevention experts began to sound a knowing alarm. They cautioned e-commerce merchants on the need to take necessary steps against chargeback fraud. And true to form, research has shown that the boom in e-commerce growth generates a significant increase in chargeback fraud of about 23%. Although no industry is exempt from the rise in chargebacks, some e-commerce sectors experience chargeback frauds more than others.

For example, the digital content industry, which experienced a 75% uptick in transaction volume from March, received a 31% surge in chargebacks. Likewise, with a 126% year-on-year growth in online sales revenue as of April 2020, online gaming merchants struggled with an 18.3% increase in disputes in the same month. 

ACI Global records that, on average, fraudulently attempted purchase value increased by $26 in April. This spike was driven by electronic purchases and increases in click-and-collect, which corresponds to a fraudulent attempted transactional value increase of 9.9 percent.

Overall, when you quantify the volume of chargeback fraud against the sales revenue of e-commerce vendors, it becomes apparent the chargeback fraud increases the more revenue a merchant generates. That could equate to a 40% to 80% loss of sales revenue to e-commerce businesses in monetary terms.

But in all fairness, although chargeback fraud is chief among the culprits for the lost revenues recorded, there are other forms of digital frauds that e-commerce businesses deal with today. There’s also the issue of Accounts Takeover (ATO). That happens when a fraudster gains access to an account that does not belong to them, changes information such as login credentials or personal information, and then makes unauthorized transactions in that account. Javelin's research records that three times as many consumers were affected by ATO.

So what’s going wrong? Are merchants are becoming so reckless as the industry grow?

The answer is simple: growth comes with underlying challenges. As Debbie Guerra, executive vice president of ACI Worldwide, explained in their publication:

“Consumers are increasingly making use of click-and-collect options because of convenience and safety—but these changing patterns also attract fraudsters, resulting in a significant uptick in attempted fraud. Fraudsters continue to use the disruption to the status quo to target unsuspecting consumers and unprepared businesses.”

The graph below highlights some of the notorious fraud patterns that e-commerce merchants combat:

Types of ecommerce frauds

Rise to The Occasion

When former First Lady Michelle Obama faced off Late, Late Show host James Corden at a Team USA vs. Team U.K. dodgeball match last year, she was determined to win the game. In her characteristic motivational speech to her all-star team, she said to her girls, “When they go low, we also go low, because that’s how dodgeball works.” And you best believe it, they played like champions and won the friendly game!

The moral of the story? You can’t approach the fight against chargeback fraud like a pillow princess. You have to get professional chargeback assistance if you wish to come out on top. By the way, according to data from Vesta research, 55% of surveyed merchants acknowledge that in-house chargeback management drains resources from revenue-generating departments. Also, nearly 65% of respondents agree that outsourcing is the most cost-effective option.

The Way Forward

The growth in e-commerce means more fraud cases. But it's not full-stop hopelessness. Apart from helping you to accurately thwart all forms of chargeback fraud attempts, Chargeflow can also help you recover lost revenue in the case of eventualities. Our top-of-the-line chargeback and dispute automation infrastructure provide you with exclusive insights into each customer interaction.

More so, it offers you clear pathways on how to improve the identity protocols for every transaction to reduce issues of false positives, thereby enhancing customer experience. Join the fastest growing e-commerce businesses using Chargeflow to burst chargeback fraud maneuvers and recover more money. Sign up right away.


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