Preventing a Chargeback Crisis

Preventing a Chargeback Crisis

COVID-19 has caused an overnight revolution in commerce and customer behaviour. With so many storefronts and outdoor venues remaining closed and the threat of infection persisting, customers are filling the gap with digital subscriptions and e-commerce.
However, as consumers spend record amounts on digital services and mobile apps, it’s important for sellers to be prepared for a wave of payment disputes and chargebacks. Many businesses, especially smaller merchants, are fighting for survival. Although they’re supported by the Government’s Job Retention Schemes and small business grants, cashflow and liquidity issues will pose an existential crisis for many. Gabe McGloin, Head of International Sales and Merchant Development at Verifi, shares his thoughts on how to counter the issue with Finance Monthly.
Addressing the chargeback crisis requires coordinated effort among the three main parties in the dispute: the merchant, the issuer, and the customer. Clearer communication from sellers to customers and more collaboration between issuers and merchants can pre-empt chargebacks and eliminate the burden of a formal dispute process.
A New Chargeback Culture
As coronavirus has impacted the wider economy, plans have been changed, events cancelled, and destinations closed indefinitely. This has brought about a sudden and significant increase in disputes between customers and sellers. Yet, companies also need to beware the dangers of delayed chargebacks for products and services already sold and ‘accounted for’.
With up to 120 days to claim chargebacks on credit card purchases, consumers have rushed to cancel experiences and gifts purchased as last year’s Christmas presents. Travel and hospitality have been hit heavily, as have subscription-based businesses deemed non-essential – such as gyms.
As coronavirus has impacted the wider economy, plans have been changed, events cancelled, and destinations closed indefinitely.
There’s also the very real possibility of a second wave of chargebacks surfacing further down the line. Certain sectors, including online entertainment and gaming, have experienced a considerable boost during the early months of lockdown, but this uptick isn’t chargeback-proof. Typically, an increase in transactions is followed by an increase in disputes. Even sectors performing strongly now could face a ‘chargebacklash’ a few months from now as consumers reconsider purchases made during lockdown.
The foreseeable challenge for merchants could be a lack of resources to combat the spike in disputes. The necessary personnel to manage transaction inquiries, credits, and representments may not be available due to working from home, furlough, or layoff. You can also never be certain when the wave will hit, only compounding the issue.
Proactive, Preventative Customer Service
Once a dispute has led to a chargeback, businesses have limited freedom of action. They must comply, completing all processes and admin required. The best way to manage disputes, therefore, is to prevent them from escalating. However, this must never be at the cost of the customer relationship.
To maintain positive customer relations under these circumstances, communication is key. Companies should proactively reach out to customers to provide alternatives to chargebacks, such as extending return deadlines and the validity of vouchers to provide consumers with other options. As always, ensure clarity in transaction receipts, terms and conditions, and all correspondence. This will limit disputes caused by customer confusion.
Regular, but not bothersome, education and explanation are also important. Customers often don’t realise the effect their chargeback claims could have on their favourite merchants. Appealing to their goodwill and patience can help to flatten the chargeback curve.
Even after a chargeback, merchants should continue to positively engage with the customer. It’s important that the seller pursue the customer’s best interests, even when they’re unhappy with a product or service. This includes carrying out their role in returning the funds to a customer’s account. A chargeback isn’t the end of a customer relationship and, in the current climate, sellers need to show that they care for their customers and their business.

Pick Your Battles Wisely
Remaining open, transparent, and proactive with customers will boost loyalty and help deescalate potential disputes. However, many chargeback disputes cannot be avoided or mitigated against. To ease the logistical and administrative burden, sellers need to pick their battles. It takes time to respond to disputes. Depending on the volume of disputes, sellers must decide which ones are worth challenging and which ones are easier to just credit.
This can be aided by greater information-sharing between sellers and issuers. The exchange of customer support contact information and transaction data, helps merchants decide which disputes are worth pursuing. They can then move beyond basic considerations like transaction sizes to more effectively deploy their resources. As a result, businesses benefit from reduced investments in manual processes.
Businesses should also provide the capability for customers to track the progress of their dispute. When the customer understands where they are in the resolution process, they are less likely to make unnecessary requests of customer service. Indeed, the more calls a customer has to make the greater the chance they will take their business elsewhere in the future.
It remains to be seen what changes to the payments ecosystem from COVID-19 will be permanent. However, merchants can be certain that continued economic uncertainty and contactless commerce will stretch their dispute resolution capabilities to the limit. But there is no better time to introduce the customer-first processes and payment protection systems needed to manage disputes, minimise losses, and maintain customer loyalty.

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Preventing a Chargeback Crisis
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