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.