Non-payment Risk in European eCommerce Reaches Record Low

The non-payment risk in European ecommerce has fallen to the lowest level in seven years, according to a new report. The chargeback ratio – the share of credit card payments charged back after an objection by the cardholder – is down to just 0.26%, from 0.34% in the year before. This is a record low in the history of the annual ‘e-Commerce Report’, which has been published since 2002 on the basis of payment transactions processed via the platform of Deutsche Card Services.

In contrast to other research, the report is based on real-life transactions, not on surveys. The database consists of roughly 30 million purchase transactions processed via the platform of Deutsche Card Services between October 2007 and September 2008. The research also found:

  • Using the up-to-date security technology 3-D Secure considerably reduces the risk of fraud for merchants. This is evident from a look at the chargeback ratio for the new online payment method Maestro, where the use of the security technology is obligatory. The overall ratio is only 0.10% and declines to 0.07% if 3-D Secure is used. Even though 3-D Secure is not offered by all banks, using it makes sense for merchants. Merchants will not be exposed to the risk of a high number of credit card payment chargebacks if they want to use 3-D Secure, but an authentication is impossible because the cardholder or the cardholder’s bank do not support the system.
  • The decline in the chargeback ratio is largely due to the fact that the ratio for Germany fell from 0.19% to 0.12%. Most chargebacks occur because the cardholder has not authorised the transaction or because the card was not presented. 3-D Secure prevents such events, which are usually fraud attempts. 77.32% of all chargebacks are due to attempted fraud. The most important reason for a rejection of a credit card transaction in European e-commerce is that the financial institution or authorisation system rejects the card.
  • German consumers in particular still like direct debiting as an online payment method. However, from the merchants’ vantage point this payment method entails the risk of chargebacks. The debit charge may not be honoured because of a lack of funds in the debited account, because the account does not exist at all or because the account holder objects to the payment and questions its legitimacy. While the direct debit chargeback ratio fell from 4.27% to 3.24% in Germany, it is still much higher than the non-payment ratio for credit card payments. Lack of funds is still the main reason why direct debits are not honoured in Europe.
  • British merchants saw the risk of non-payment halve when their customers used credit cards. This suggests that British merchants increasingly use fraud prevention measures. 3-D Secure is already obligatory for Maestro, so it seems the procedure was extended to credit cards. The fact that the direct debit chargeback ratio of consumers from the rest of Europe fell from 1.946% to 0.032% is probably due to the fact that these consumers have adapted online payment methods.
  • The chargeback ratio rises in parallel to the transaction value. This was less evident in the preceding year. However, the trend is not visible for direct debits, where the chargeback ratio is highest for the transaction value category ‘below €10’. The direct debit chargeback ratio (4.802%) is highest for transactions worth less than €10 in German shops. In other words: almost one out of 20 payments fails. It seems that merchants try to do without additional security measures in this low-price segment.


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