Google's Chargeback Problem

Table of Contents

1. Where are Google's chargebacks coming from?
2. How much money is Google losing to chargebacks?
3. Why doesn't Google fight chargebacks?
4. How would we handle Google's chargebacks?
5. Is a Google chargeback illegal?
6. Do I pay chargeback fees for Google chargebacks?
7. What's the difference between a chargeback and a refund?

Anyone who’s spent any time running an online business has probably stopped for a moment to imagine what it must be like to be Google. To be at the absolute top of your industry, with virtually unlimited resources at your disposal, you could accomplish almost anything you wanted to.

And yet, the word going around in the card payments industry is that Google (or to be more specific, many of the Google companies owned by Alphabet) does not fight their chargebacks. But why not? It’s not a lack of resources. If they wanted to, they could probably develop one of the most efficient chargeback-fighting operations in the world. To Google, the chargebacks they receive must seem like little tanks and airplanes shooting at Godzilla — annoying at times, but never an existential threat.

However, just because Google can afford to shrug off chargebacks doesn’t mean that they aren’t harmful to them, or that fighting them would be a waste of their time.

According to our sources, the two Google companies being targeted the most right now are Google Fiber and Google Ads. Fraudsters sign up for these services, request a chargeback, then sign up again with a new account to repeat the process. Of course, there are also many chargebacks that go through Google Pay and the Google Play Store, but those are typically passed on to the merchant who received the payment.

Once all fees and hidden costs are accounted for, chargebacks often cost merchants more than twice the original transaction amount. That can be a big drain on any business, so why isn't Google fighting these chargebacks, and is it really the right decision?

Where are Google's chargebacks coming from?

Google's parent company, Alphabet, may be one of the largest technology companies in the world, but they're just as vulnerable to chargebacks as any other merchant. When a customer is unhappy with their purchase and doesn't want to go through the merchants, or when they just want something for nothing, they'll contact their bank to dispute the charge, and Google will pay the price.

Most of Google's revenue comes from advertising, which accounts for 87% of the total revenue from Google services.

It's no surprise, therefore, that Google Ads is where most of their chargebacks come from. While Google undoubtedly has some top-of-the-line fraud protection in place, they also make it extremely easy to create an account and start spending on ads, which helps them attract new customers. Unfortunately, it also attracts chargeback fraud.

A fraudster can easily set up a new account and either attempt to pay for ads using one or more stolen credit card numbers or pay for ads themselves with the intention of filing a chargeback later. Either way, the fraudster will get free advertising and Google will get hit with a chargeback. While Google does blacklist account that file chargebacks, that often won't stop a fraudster from creating a new account and doing it all over again.

While it’s likely that Google’s passive attitude toward chargebacks makes them a lucrative target for fraudsters, many of their chargebacks will be coming from legitimate customers who have some sort of complaint or issue with Google’s products.

If they don’t fight their chargebacks for a company like Google Fiber, they’re not seeing the detailed reasons for why customers are filing those chargebacks, and they're losing out on the chance to learn more about their customers’ experiences and how they could improve their products, services, and processes.

How much money is Google losing to chargebacks?

Alphabet’s revenue was over $55 billion in Q1 2021 alone, with the vast majority of that coming from Google Services — which includes search ads, YouTube ads, the Play Store, etc. — and a much smaller portion coming from “other bets” like Google Fiber. If we very conservatively estimate that these revenues are taking a hit of half a percentage point from uncontested chargebacks, that could be well over half a billion dollars they’re losing each year, while making little effort to hold on to it.

By declining to fight chargebacks, Google is passing up the opportunity to learn more about them and gather data that can be analyzed. This has implications for them that go beyond lost revenue.

Google may be unchallenged when it comes to internet search engines, but businesses like Google Fiber are not without serious competition.

Why doesn't Google fight chargebacks?

There are several reasons why Google might be less interested in fighting chargebacks than most companies. The most obvious is that some of the chargebacks that go through Google are simply passed on to someone else.

If a customer disputes a charge made through Google Pay, Google simply passes that chargeback straight to the merchant like any other payment processor. When Google gets a chargeback for a purchase made on the Google Play store, they treat it as a refund and deduct the amount from the merchant's payments.

Google Ads is the main place where Google is forced to take chargebacks on the chin, but even there chargebacks don't cost them as much as most merchants.

For most merchants, every purchase costs them money to fulfill, whether in the form of a physical product or wages paid to employees to provide a service. Normally that money is more than offset by the revenue from the purchase, but when a chargeback is filed, suddenly they're in the hole with nothing to show for it.

That's not quite true for Google Ads. While Google's business certainly costs an enormous amount of money to operate overall, placing an individual advertisement doesn't really cost anything at all. Where an eCommerce merchant might lose the transaction amount, the product, and the shipping costs, Google only loses the transaction amount.

In addition, Google's business model means they have a high profit margin in general compared to most merchants. While getting Google Ads to where it is today certainly took a great deal of money, the day-to-day operating costs are tiny compared to the amount of revenue it brings in. That means that even if Google is losing a similar amount of revenue to chargebacks as other merchants, they're losing a much smaller portion of their net profits.

How would we handle Google's chargebacks?

So the question we like to ask ourselves at Chargeback Gurus is: What would it be like to handle Google’s chargebacks for them? We think the fraudsters would be the easiest ones to handle. When you take a look at fraudulent chargebacks, often the fraudster has failed to follow the correct procedures by contacting the company before requesting a chargeback, and we would be able to win those disputes by providing the relevant documentation.

We expect Google’s rates of fraudulent chargebacks would plummet once fraudsters realize they’re no longer a pushover that doesn’t fight back.

As for the chargebacks with a legitimate basis, we would be able to provide Google with both the granular data and high-level statistical analysis that would show them why these chargebacks were happening, and it would be up to them to make the necessary changes and improvements to prevent them from recurring.

The end result would be that Google has even more money in their pockets at year’s end, which they could then use to acquire additional value-added companies that would complement their services, growing their user base and expanding the breadth and depth of their market reach.

While smaller companies might not be able to acquire a whole new enterprise with the money they save by fighting chargebacks, but we think that no matter how small (or big) your company, the advantages you gain from fighting chargebacks are too important to ignore. If you want to take action against your own chargeback problem, drop us a line and we'll tell you how we can help.

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