Are there ramifications of false chargeback alerts?
Retailers suffer considerably from false chargeback alerts. Consequences include:
- Paying for notifications that are not really chargebacks – false positive alert rates can be higher than 50% from some chargeback solutions. This rate of false positives causes the actual cost of chargeback protection to be much higher than planned.
- Over-refunding – lost revenue and lost product result from retailers issuing refunds due to false positives.
- Higher operational costs and required internal resources– internal resources are pulled into unnecessary manual reviews, too often taking resources away from revenue generating activities.
Consider this scenario:
Cost per alert – $50
False positive rate – 49%
Chargeback dispute volume/year– 13,500
Total paid to alert service – $675,000
Average price of product – $65
Calculations using the above data show very serious ramifications for the merchant:
- Unnecessary payment of $330,750 on 6,615 alerts that were false positives
- $429,975 in lost sales revenue to unnecessary refunding
- True cost per chargeback is $112.45, not $50
These calculations only include the costs of false positives and lost product. Not included are the costs of unnecessary man-hours diverted from revenue producing activities.