Chargebacks on Digital Goods: Why They’re Rising
Digital goods are more embedded in our lives than ever before, from your monthly streaming subscription to the e-books you download. But with that convenience comes a growing problem: more disputes and more chargebacks.
For merchants, chargebacks on digital goods can be particularly difficult to manage. Intangible products are harder to prove as “delivered,” subscriptions are easy to forget, and friendly fraud is on the rise. The result? Higher dispute volumes and lower win rates if you try to fight them.
Here’s why chargebacks in the digital goods space are increasing, the most common triggers, and how you can protect your revenue.
What are Digital Goods Chargebacks?
Chargebacks on digital goods occur when payment for products delivered electronically is disputed, forcing the transaction to be reversed. Examples include streaming subscriptions, software downloads, online courses, and in-app purchases.
Think about how technology has been shaping our lives for many years now; the latest push has been in the transformation of the payment process and making it easier to buy things online. We have prioritised immediacy in consumption, and the nature of these transactions gives rise to more chargebacks. They are more susceptible due to their intangibility, delivery can be hard to verify, and recurring charges — especially from subscriptions — are easily forgotten.
Common Types of Digital Goods
Digital goods come in different billing formats: one-time purchases, subscription models, and Buy Now, Pay Later (BNPL) arrangements. Examples include:
- Apps and mobile games
- Streaming platforms, like Netflix or Disney+
- Online courses and memberships
- E-books and audiobooks
- Video games
- Software licenses and SaaS tools
Common Reasons For Chargebacks on Digital Goods
While every merchant’s chargeback profile is different, several dispute triggers appear consistently in the digital goods sector.
- Forgotten subscriptions: Customers may sign up for a subscription or a free trial and then forget, which may lead to them disputing many charges at once.
- Dissatisfaction with the product: The customer may have expected something else due to a lack of clear explanation about the goods, or they may not be happy with their purchase.
- Unclear billing descriptors: A charge not labelled adequately may not be recognised in a bank statement, leading to a friendly fraud dispute.
- Unclear cancellation or refund policies: If a platform doesn’t make it obvious where they can refund or cancel a product, the customer may go straight to their bank with the dispute.
Why are Chargebacks On Digital Goods Rising?
According to Mastercard’s report on digital goods and services, the volume of digital services has increased by around 70% in the last couple of years due to the rapid development of the payment industry. These transactions are increasingly card-not-present (CNP) and are more vulnerable to chargebacks. Here are some reasons why:
- Intangibility: There is no physical proof of the product, such as a shipping confirmation, which makes it very hard for the merchant to prove otherwise in cases of chargebacks.
- Rise in subscription-based models: Customers easily forget they’ve signed up to a subscription, or may not have realised they had agreed to an ongoing bill. The charge on their bank statement may shock them and cause them to file a dispute regardless of having received the product.
- Friendly fraud: This type of fraud occurs when the cardholder disputes a valid transaction. With digital goods, this is easier as the product is delivered immediately, and the merchant may not be able to prove whether the customer used the product. Ethoca reports that friendly fraud accounts for around 80% of chargebacks for digital goods merchants.
- Easy checkout process: Products can be bought with one simple click using Android or Apple Pay, making it increasingly easier to accidentally purchase something or to regret it soon after.
How To Prevent Digital Goods Chargebacks
Though digital good chargebacks are on the rise, they’re easily avoidable. Here are three ways to do so:
1. Clear Communication Before Payment
Merchants can reduce the risk of unnecessary disputes by ensuring their billing descriptors are easily recognizable on customer bank statements, clearly outlining policies, including refunds, so customers know to contact the merchant first, and providing accurate product descriptions to prevent dissatisfaction or confusion.
2. Maintain Strong Post-Purchase Communications
Following up after purchases to confirm that customers have received their product, sending reminders about existing subscriptions to reduce surprise charges, and ensuring customer service is easy to reach can all help prevent disputes from escalating into chargebacks.
3. Use strong prevention tools:
Fraud prevention tools like ChargebackStop can automatically stop chargebacks using solutions such as Ethoca Alerts and Verifi Rapid Dispute Resolution (RDR), while verification measures like address verification service (AVS) and card security codes (CVV, CVC) help confirm a buyer’s identity and reduce fraud.
Additionally, Visa’s Compelling Evidence 3.0 (CE3.0) equips merchants to combat friendly fraud by leveraging qualified transaction data, such as customer IDs or IP addresses, to prove the transaction was authorized.
How ChargebackStop Can Help You
If you’re at a point where prevention didn’t work, don’t stress. Here at ChargebackStop, we not only help you fight disputes effectively but also stop future ones from happening. We keep a close eye on chargebacks and track patterns across transactions, therefore allowing us to spot issues early and respond quickly.
Our platform has the tools to prevent the next dispute and automation to help you win the ones you already have. Book a free demo and see how ChargebackStop helps you stay one step ahead of digital chargebacks.
