Dear Agony Aunt,
I’m in a pickle with my best customer of four years and his issuing bank of 15 years. Without trying to talk to me first, my customer went directly to his issuer to dispute a transaction and initiate a chargeback. It was a genuine purchase!
I feel that I’m about to lose my best customer and the issuer is neglecting me in order to appease him. We’re now stuck in a long chargeback process which is draining huge resources from my business.
How do I fix this?
— Hapless Merchant
The Global Chargeback Problem
When it comes to the growing chargeback problem, there simply must be a fix for the entire payments industry.
For merchants, having to deal with this common issue can be energy-sapping, time-consuming, and a stress on any one’s bottom line. Chargebacks are a huge problem for merchants and issuers worldwide, illustrated by the fact that chargeback fraud in the US cost more than $31 billion in 2017. With vast numbers of retailers selling more products and services online to buyers all over the world, indeed, chargeback fraud has become the fastest growing problem in global e-commerce.
Merchants suffer huge losses from chargeback fraud, which occurs when consumers claim a refund for purchased items without returning them, typically on the basis of unfounded reasons such as “items not delivered” or “transaction unauthorised”.
Currently, consumers can contact their banks to exploit a credit card protection policy that allows them to reverse charges if they are not satisfied with the ordered items. There is a genuine need to protect merchants from fraudulent chargebacks, as merchants and their acquirers/processors have been pressuring financial institutions to reduce lengthy chargeback periods.
In the current evolved state of the dispute process, merchants, issuers, and consumers’ expectations, experiences, and pursuit of satisfaction have grown in complexity, too often resulting in a tremendous financial burden for merchants. Each party to a disputed transaction has its own set of considerations, and individual interests invariably lead to conflict. Generally, nobody emerges from this exchange very happy.
“The Chargeback Triangle”
To examine the near- and long-term effects that chargebacks have on each party to a retail transaction, along with the opportunities that exist to streamline the chargeback process or even avoid chargebacks altogether, Verifi sponsored an independently produced report by Javelin Strategy & Research, entitled The Chargeback Triangle. The study takes a deep dive into the chargeback problem in the US, identifying preferences and behaviours prevalent there, which can be seen as reflecting in international markets as well. These insights can help in the UK to understand the essential factors that are shaping industry trends and affecting markets worldwide.
This original research offers a unique view of the experiences and perspectives of consumers, issuers, and merchants as they relate to chargebacks, citing short deadlines that challenge merchants’ ability to gather documentation and assess the best disputes to fight. Issuers face pressure to give credence to all cardholder disputes or risk running afoul of regulators. For both parties, alienating consumers by making them jump through hoops or saddling them with the cost of a disputed transaction can jeopardize future business. On top of these challenges, merchants and issuers must balance the need to please their customers with minimising the risk of “friendly fraud” – disputes fraudulently filed by the individual who actually made the purchase.
The report concludes that the challenge of chargebacks requires coordinated effort among the three principal parties in the dispute – merchant, issuer, and customer, creating the chargeback triangle. Ultimately, greater collaboration between issuers and merchants can help pre-empt chargebacks and eliminate the burden of a formal dispute process. Success is measured not only by avoiding financial liability for the transaction but also by securing the relationship with the consumer who disputes the transaction.
Finally, understanding where consumers, issuers, and merchants might have motivations or perceptions that could create tension is critical to optimising positive results from the chargeback process for all. By recognising areas of disagreement, issuers and merchants can adjust their strategies — and even partner together –– to better align their procedures, reduce unnecessary processes and subsequent financial losses, and improve experiences for consumers.
At Verifi, we don’t just give advice, we provide real-world, practical help. Our experts can help you put solutions in place to prevent chargebacks and support customer service efforts to protect your revenue and your profits, and extend brand loyalty. Contact us today.