The coronavirus pandemic boosted e-commerce dramatically in the first half of 2020. The U.S. Census Bureau reports that e-commerce grew 30.1 percent over the same period last year, from $266.84 billion in 2019 to $347.26 in 2020. An unfortunate side effect of e-commerce growth, however, is that as the number of online transactions increase, so do online chargebacks.
Pandemic Chargeback Trends
Independent software vendors (ISVs) and value-added resellers (VARs) are all too familiar with the problem of chargebacks related to card-present transactions, especially during the EMV transition. If a consumer contacted the card-issuing bank to say that a charge was made fraudulently, the merchant would receive a chargeback that reversed the transaction. And, if the merchant didn’t have EMV-compliant technology and instead ran a magstripe transaction, the merchant would be responsible for the amount.
Chargebacks can occur for any reason, however, not just if a consumer sees a charge on a statement that they didn’t make – or say they didn’t make. In the case of chargebacks initiated during the pandemic, “friendly fraud” ranks behind chargebacks due to service complaints, which now make up the majority of chargebacks, according to PaymentsSource. This increased the number of chargebacks overall. Chargebacks911’s research shows a 23 percent increase in chargebacks since the pandemic began.
Reasons Why People Don’t Want to Pay
Online chargebacks can occur for a variety of reasons. E-commerce purchases are basically sight unseen. There is usually a description of a product and an image, but when the item arrives, the consumer may not be satisfied with the purchase. It’s also possible that careless packing or picking errors created a problem when a parcel arrived. If a return for a refund isn’t feasible, such as with perishable items, the consumer may initiate a chargeback instead.
During the early days of the pandemic when there were massive delivery bottlenecks and delays, many consumers received late packages or deliveries – for which they may have paid additional charges. Some may have decided to take action to get their money back.
The Problem with Chargebacks from the Merchant’s Perspective
Chargebacks aren’t the financial equivalent of issuing a refund. Each time a merchant receives a chargeback, they are charged a fee, often from $20 to $100 per transaction. That’s on top of the amount of the transaction that’s deducted from the merchant’s account. Also, with a return, the customer returns the item, which may be able to be resold, but that’s not the case with a chargeback. There is also a chargeback threshold that businesses need to be mindful of; if the merchant goes beyond that number, they’ll receive additional fines, and in worse case scenarios, the merchant’s account could be terminated.
Merchants do have recourse. They can take time to find supporting documentation that proves they legitimately made the charge. This, however, adds the costs of labor to the issues and takes time away from other activities.
How Trusted POS Solution Providers Can Help Merchants
ISVs and VARs can provide their clients with added value by helping them minimize card-present and online chargebacks. Some ideas that may help include:
- Enhancing supply chain visibility: Encourage your clients to implement solutions or use features of their current management systems that give them insight into the availability of merchandise or stock and shipping schedules. They may also benefit from data analytics solutions that help them more accurately forecast demand.
- Improving communications: Provide solutions that accurately estimate shipment times and communicate that to their customers, even offering updates throughout the process.
- Innovation: Discuss how adding new services or delivery methods, such as curbside pickup, could help them get orders to their customers on time and help them implement solutions to support them.
- Staying on top of card brand updates: Visa and Mastercard have instituted new dispute monitoring programs during the pandemic. Stay informed of these and other policy changes that could influence whether new solutions are needed.
As you work through the pandemic with your clients, you’ll build your knowledge of how to help your clients operate in a manner that minimizes both card-present and online chargebacks. Share your increasing expertise to help their businesses through this time of change.