Chargebacks: Tackling the hidden impact on pandemic payments

November 20, 2020

There’s a whole lot to living life in a pandemic that’s just out of our hands, unfortunately. As frustrating and vulnerable as that feels sometimes, there are some obstacles that do fall within your sphere of influence – like chargebacks – and the time to take control of chargebacks is now.

Making a necessary transition to digital commerce in order to survive, many businesses are also grappling with the nuances of online business, learning different modes of fulfilment and creating a brand new and engaging customer experience. An enormous undertaking in any circumstance, this move also coincides with supply chain disruptions, shipping delays and labor shortages due to lockdown and social distancing measures. But even for those who have fared well during the transition because of robust online operations and fulfilment logistics in place, further challenges arise when it comes to fraud and chargebacks.

We’ve seen industries across the board suffer significant chargeback losses. And with peak holiday sales just around the corner, jeopardizing this vital revenue isn’t an option. As consumers have become increasingly comfortable with e-commerce as a normal and expected part of their retail experience, we can expect online sales to rapidly increase during the seasonal period – and chargebacks, too.

The best defense is a good offense

One key fact about chargebacks is that not all are genuine. In fact, far from it. False customer disputes known as friendly fraud account for as much as 70% of all credit card fraud, costing the industry over £100 billion (US$132 billion) a year, not including the additional losses that merchants must absorb. Increasing at a rate of 41% every two years, it’s the leading cause of chargebacks. What’s more, once a merchant has been hit by friendly fraud – and it goes unnoticed – they’re likely to be hit again. This is because 50% of customers who commit friendly fraud are statistically proven to do so again within 60 days of a successful claim.

According to Chargebacks911’s recent research, most merchants don’t know how to distinguish friendly fraud from genuine chargebacks. This is the single biggest stumbling block when it comes to chargeback management, and one of the primary reasons they succumb to illegitimate losses.

To resolve this issue, merchants need to identify where chargebacks originate (criminal fraud, merchant error or friendly fraud) and dedicate their efforts to remedying operational issues and challenging friendly fraud cases. Maintaining clear records of transactions and customer data is the first step towards doing so. It’s also important to optimize internal processes and amend errors that cause genuine chargebacks. Using new technologies and expertise can improve results and remove guesswork during this process.

Friendly fraud on the rise

Unfortunately, we can expect the heightened chargeback levels to continue – even as the world attempts to return to some form of normality. While genuine chargeback claims may settle as manufacturing and delivery disruptions subside, long timeframes for chargebacks mean the increased levels will go on for months after the pandemic officially ends.

Businesses shouldn’t be put off by these long timeframes during the holiday season. Historically, we see chargebacks from this period initiated in the early months of the new year. Companies would be wise to act now and prepare themselves for the influx of chargebacks in the early months of 2021.

Changes in consumer behavior caused by the pandemic are also exacerbating the challenge of increasing chargebacks. Impacted by furlough or job losses, panicked consumers are now turning to chargebacks to recoup money. Shielded by online anonymity and with no one to confirm that a package arrived safely at the point of exchange, chargebacks and friendly fraud are a growing concern.

“Our plea to merchants is this: Don’t accept chargebacks as simply a cost of doing business,” says Chargebacks911 COO and co-founder Monica Eaton-Cardone. “More chargebacks mean more lost revenue, additional fees and fines and poor customer satisfaction, all of which have a long-term impact on bottom lines. Without concerted effort to balance this equation, merchants leave themselves open to increased losses, repeat instances of friendly fraud and higher rates of attrition. This is a dangerous and unnecessary risk to take.”

A timely solution for merchants in need

For merchants struggling with chargeback management, whether it’s due to increasing volumes or challenges with getting it right, postponing efforts to establish a solution to the problem does not have to be the only option. Powered by Chargebacks911, Worldpay’s Disputes Defender provides Worldpay merchants with integrated access to enterprise-level, automated chargeback management services, removing any guesswork involved with chargeback mitigation and resolving friendly fraud at its source.

The solution uses data from the entire payment process and user experience, enriched industry data, big data and proprietary AI and machine learning applications to identify the cause of each chargeback.

By using this comprehensive, fully integrated chargeback management solution, you can take back control of your chargebacks, keep more of your revenue, prevent future fraud and focus on making the holidays a profitable and successful season.