Chargeback management is essential on the post-COVID-19 road to recovery

By Monica Eaton-Cardone, CIO and Co-Founder, Chargebacks911

The COVID-19 pandemic has been transformational for businesses, the economy and our lives in general. Lockdowns and social distancing restrictions have caused fundamental changes in the way we live and their side-effects will likely be felt in the long-term. As part of this, we’ve seen industries across the board suffering chargeback losses 10 times higher than before COVID-19 and there are an array of reasons for this.

Many businesses have been agile enough to move online in order to survive, which has been a hugely positive stepping stone into the digital landscape for them. However, supply chain disruptions, shipping delays and labour shortages due to isolation and social distancing have all caused problems with orders and deliveries, meaning that these businesses have still faced their fair share of issues when entering this new market.

Furthermore, there’s been a shift in public mentality about what the chargeback process is used for, with many suggesting it’s a method to improve bank balances – even in the absence of genuine claims. This is known as ‘friendly fraud’ and is costing businesses and industries billions each year.

Additionally, pressure felt by furlough and job losses has also added to these challenges, as panicked consumers, under economic pressure, are turning to their banks to instigate chargebacks to retrieve money spent on previous purchases.

When these issues are partnered with the fact that customers are shielded by online anonymity during a time when businesses are increasingly offering digital services and rely on deliveries, where there is no-one to confirm that a package arrived safely at the point of exchange, the reasons for this sudden spike in chargebacks and friendly fraud are clear.

Facing up to the long-term implications

We can expect the rise in chargebacks to continue increasing even as the world attempts to return to some form of normality in the coming months. Not only will this be the result of genuine claims but also because 40% of customers that commit friendly fraud are statistically proven to do so again within 60 days of a successful claim. And, if businesses don’t fight back against this type of fraud, it could make them look weak and these consumers will be more willing to target them.

So, as we emerge from lockdowns, merchants need to understand the impact that chargebacks and friendly fraud have on their businesses and will continue to have if not properly managed. They shouldn’t be accepted as a cost of doing business and their exponential growth should be viewed as an issue that can damage a company’s profits beyond repair.

For this reason, companies should ensure that chargeback management is a staple point of their recovery plans. This will go a long way towards protecting businesses from filing for insolvency, while helping to restore the economy following the pandemic.

Where to begin

The first thing businesses can do as part of this process is optimising internal processes and amending errors that cause genuine chargebacks. This includes ensuring all product information is accurate on websites so consumers know exactly what they’re buying, investing in customer support centres to answer any queries, and having clear refund policies.

As well as this, merchants should keep clear records of transactions and data in case a dispute is filed. This can be used as evidence against a fraudulent claim, while speeding up the dispute process, making it easier to handle vast amounts of claims at once.

Altogether, by ensuring customer service teams are well prepared to deal with the influx of customer enquiries, and reducing damages caused by refunds with new and creative strategies – such as offering monthly memberships to customers that file refunds to protect cashflow and revenue streams – merchants can mitigate the risk of lost revenue to chargeback claims.

However, most importantly, to protect their business, the most critical skill they can learn is how to distinguish between genuine and fraudulent chargebacks. Unfortunately, this is the most difficult part of the process for many companies to get right.

Third-party solutions are beneficial

For smaller businesses that deal with one or two chargebacks a month, telling the difference between friendly fraud and genuine claims is a little easier; it can be done by analysing both pre- and post-transaction data. However, for larger businesses and those operating in high risk industries, such as travel, where some airlines are experiencing over 100 times their anticipated exposure, doing this manually would be extremely difficult and time-consuming.

What’s more, issues arise if this process isn’t done correctly. Businesses, can end up refunding instances of friendly fraud or disputing genuine claims, losing loyal customers in the process.

The best approach in our current climate would be for them to integrate a third-party solution. From our own research, we’ve found that businesses that use such solutions have an overall win rate a fifth greater than those who dispute chargebacks in-house – yet it seems that many companies lack this crucial element in their chargeback management.

By using such solutions, businesses can gain valuable insight into which chargebacks to dispute and which to accept. Only by knowing this can merchants respond to disputes effectively, allowing them to start recovering and prevent damages to revenue, as we emerge from lockdown.