Fraud & Data Security
Navigating chargebacks: insights and prevention strategies
July 26, 2024
Within the video game industry, chargebacks and refunds are often considerable factors for a game developer's revenue. In extreme cases, the costs incurred from chargebacks or refunds can decrease profits and damage a company's reputation. While refunds are generally less complex, chargebacks are more costly and damaging due to fees, a company's public standing, and lost revenue.
Xsolla offers solutions to stop these issues before they become a problem. Our Anti-Fraud system helps prevent chargebacks through advanced technologies like machine learning and custom in-game parameters. For refunds, we provide efficient processing and various options to improve customer satisfaction. By effectively managing chargebacks and refunds, game developers can protect their revenue, enhance player experience, and maintain a strong market position.
In our previous posts on these topics, we explored the complexities of chargebacks and refunds, the process for credit cards and PayPal, regulations, and their impact on your business. We also offered best practices. Based on this knowledge, we've created a helpful guide full of the best strategies for handling chargeback fraud in your game. In this blog, we'll dive deeper into industry trends so you can make informed decisions about handling chargebacks. We'll provide the tools you need to minimize their occurrence and address them effectively.
Chargeback industry statistics
Chargebacks are a growing concern for businesses, and the latest industry statistics support this new reality. So what is causing this rise in chargebacks? Part of the issue is a lack of customer awareness and knowledge. Over 81% of customers are more frequently initiating chargebacks because it is easier than beginning the refund process with the original merchant. Up to 72% of these same customers are unaware of the difference. This surge underscores the importance of proactive chargeback prevention. According to Ethoca, a staggering 238 million chargebacks occurred in 2023, with 105 million in the US alone. By 2026, they predict a global surge to 337 million annually. While the video game industry average chargeback rate stands at 0.83%, Xsolla has achieved a significantly lower rate of 0.07% through robust prevention measures.Xsolla's prevention strategy
Xsolla's Anti-Fraud product employs a multi-layered approach to safeguarding your transactions. Our protection begins before a transaction is even initiated, utilizing cross-game analytics and blacklisting to identify potential threats. We employ advanced verification methods to mitigate risks further during the transaction process. This includes using 3D Secure, AVS checks, anti-fraud filters, machine learning, and in-depth analysis of in-game parameters. Following the completion of a transaction, our dedicated anti-fraud team conducts ongoing analysis and industry alerts to detect and respond to emerging threats. This proactive approach helps prevent fraudulent activity and minimizes the likelihood of chargebacks.Understanding chargeback win rates
The chargeback win rate is a concept worth understanding when it comes to minimizing chargebacks. A standard metric, it represents the percentage of disputes you win compared to the total number contested. While win rates are helpful for self-evaluation, comparing them across businesses may provide an inaccurate path for what your company should do. Improving your win rate and overall chargeback recovery is more critical than achieving industry averages. Industry data suggests win rates can reach 40% for companies with dedicated chargeback management teams. However, focusing solely on your win rate can be misleading, as effectively fighting all disputes (fight rate) is equally important. A good management team responds to disputes and resolves them successfully, increasing your win rate means more money back in your pocket. Ultimately, the goal is to maximize recovered funds, not just win individual cases.Xsolla's best practices for disputing chargebacks
At Xsolla, we go beyond handling chargebacks for just bank cards and PayPal with Xsolla Anti-Fraud, managing disputes for over 10 payment methods. Xsolla implements the following strategies to navigate the complexities of chargebacks effectively:- Analyze your performance: Regularly review win rates, reason codes, and evidence to identify areas for improvement.
- Understand payment methods: Collaborate with payment providers to optimize chargeback handling for specific methods. Our team regularly communicates with providers, leveraging best practices and recommendations. For instance, after integrating Klarna, our team achieved an impressive 85% win rate for chargebacks on that platform.
- Build a strong case: Gather compelling evidence, including clear reason codes, to support your dispute. Reason codes are codes provided by issuing banks that detail the reason for the chargeback, such as fraud or unauthorized charges. Understanding these codes increases your chances of winning disputes. In our experience, accurately interpreting and modifying reason codes can significantly impact win rates by up to 20%.
- Focus on friendly fraud: Prioritize disputing legitimate cases of friendly fraud, or cases where consumers complain about not receiving or authorizing a purchase they actually made in an attempt to get a refund without paying.
- Learn from experience: Continuously analyze chargeback data to refine your strategies and improve outcomes.
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