Stopping the chargebacklash

By Gabe McGloin, Head of Intl. Merchant Sales @ Verifi

Brands have been encouraging consumers to move their shopping online for years. As a result of the COVID-19 pandemic, this has happened all at once. Even as lockdowns ease around the world, many stores and outdoor venues will remain closed or running at a reduced capacity. In the meantime, it’s easy to predict that commerce will remain digital-first – and in some cases digital-only – for some time to come.

As consumers spend record amounts on digital services and mobile apps, it’s important for merchants to be prepared for a substantial increase of payment disputes and chargebacks. Many businesses, especially smaller ones, are fighting for survival. Although they’re supported by the Government’s Job Retention Schemes and small business grants, cashflow and liquidity issues may still pose an existential threat for many.

Addressing a potential wave of chargebacks requires coordinated effort among the three main parties in the dispute: the merchant, the issuer, and the consumer. Clearer communication from merchants to consumers and more collaboration between issuers and merchants can pre-empt chargebacks and eliminate the burden of a formal dispute process.

Expect the unexpected

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 merchants and consumers. Additionally, 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 are cancelling experiences and gifts purchased months ago. Travel and hospitality have been hit heavily, as have subscription-based businesses deemed non-essential – such as gyms.

There’s also the 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, experience shows 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.

A chargeback isn’t the end of the customer relationship

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.

Gabe McGloin

To maintain positive consumer relations under these circumstances, communication is key. Companies should proactively reach out to consumers 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. Consumers often don’t realise the affect 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 consumer. It’s important that the merchant pursue the consumer’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, merchants need to show they care for their consumers and their business.

Collaboration beats escalation

Remaining open, transparent, and proactive with consumers 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, merchants need to pick their battles. It takes time to respond to disputes. Depending on the volume of disputes, merchants must decide which ones are worth challenging and which ones are easier to just credit.

This can be aided by greater information-sharing between merchants 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 consumer understands where they are in the resolution process, they are less likely to make unnecessary requests of customer service. Indeed, the more calls a consumer must make, the greater the chance they will take their business elsewhere in the future.

The disruption of coronavirus is far from over, and it’s not yet clear how the pandemic will transform the business landscape. Yet, merchants should prepare themselves for an oncoming chargebacklash that will strain their dispute resolution processes to the limit. Fortunately, they can weather the storm by collaborating more closely with issuers, introducing consumer-first service, and applying the payment protection systems needed to manage disputes, while still protecting customer relationships.