By now, it’s no secret that the COVID-19 pandemic has radically changed virtually every aspect of our lives, including the ways that businesses operate, and consumers shop. If you own an ecommerce or brick-and-mortar retail site, you may have made pivots in your operations to address these changes. However, one area you may not have considered is chargebacks. Let’s take a look at chargebacks and how the coronavirus has impacted them.
What is a chargeback?
Unfortunately, most business owners are all too familiar with the concept of chargebacks. In a nutshell, a chargeback is a forced reversal of funds that is initiated by the customer’s bank. In effect, it happens when a buyer disputes a charge for a purchase with their bank, without coming to you (the merchant) beforehand.
On the surface, chargebacks seem to be effective ways for consumers to be protected against unscrupulous sellers, which is undeniably true in many cases. However, behind the scenes, the funds are removed from your business account while an investigation is conducted. If the bank comes to the conclusion that the customer is in the right, you will not see that money again. Even if the claim is dismissed and the purchase amount is restored to your account, you’ll still be responsible for paying chargeback fees that can range from $20 to $100 per incident, plus administrative costs. If you experience a large number of chargebacks, your merchant services account provider may be forced to increase your pricing or fees or, in the most extreme cases, may even close your account altogether.
Chargebacks and the pandemic.
Now that we’ve established beyond a doubt that chargebacks, while inevitable to some degree, should be minimized whenever possible, let’s examine the relationship between them and our current, pandemic-ravaged economy. Even before early 2020, unscrupulous customers were using chargebacks in several shady ways, including:
- To avoid restocking fees.
- In response to buyer’s remorse.
- To get out of paying for a product that was delivered within the prescribed schedule, but too late for their needs.
- To avoid paying for an item that was returned late.
- To stop payment for products from a merchant they don’t recognize, or a purchase they were unaware of, for instance one made by a family member.
Now that the pandemic is raging, chargebacks are skyrocketing.
While all of the previous reasons for filing chargebacks still exist, additional motivators have recently arisen. For one thing, consumers are more strapped for cash. In a desperate effort to find dollars wherever they can, some are resorting to disputing past purchases that no longer seem like must-haves.
Furthermore, the health and social distancing restrictions caused by the virus have resulted in the cancelation or rescheduling of countless events such as weddings, showers, anniversary parties, and graduations. Many would-be attendees affected by these cancellations are now reacting by filing chargebacks. Meanwhile, businesses such as caterers and photographers, whose livelihoods depend on in-person gatherings, are feeling the sting.
Criminals are cashing in on the chaos that the pandemic is wreaking. Numerous sellers who have little ecommerce savvy, suddenly have had no choice but to rely on the internet as their sole revenue source. These merchants jumped into cyberspace headfirst, with little or no knowledge of the requisite payment solutions, or the sophisticated fraud tactics that bad actors are using to separate entrepreneurs from their profits.
Pending costs can also trigger chargebacks. For instance, a restaurant might take an order for food delivery while placing a temporary charge of $10 on the customer’s card. Then when the food arrives, the customer will be charged the actual cost of the dinner. If the business owner fails to remove the pending charge, it will tie up $10 in the customer’s account for up to a month. Although it would eventually disappear, a cash-strapped person might choose to dispute the actual food cost since that is the only charge they can argue.
How to minimize chargebacks during the pandemic.
Chargebacks are an annoying part of doing business; one that can never be totally eradicated. However, there are effective steps you can take to minimize the damage that forced refunds can do to your bottom line:
- Safeguard your online security. Many fraudulent transactions are perpetrated via the internet. Spot them before they can turn into chargebacks with technology such as anti-fraud messaging, authentication, and identification software. By detecting potentially criminal behavior at the time of purchase, these tools pay for themselves many times over.
- Promptly refund a customer if you need to cancel a product delivery, or service. The only time when you do not need to do so is if the cancelation occurred due to governmental prohibitions.
- Be honest and transparent when it comes to communicating with customers about pandemic-related shipping delays.
- Prominently display your refund and return policies.
- Make it easy for your customers to cancel an order before it ships.
- Keep an eye on your chargeback patterns and history. If you notice that your numbers are suddenly elevating, investigate. Look, for instance, at the Bank Identification Numbers. If several of them are issued in the United States, but are associated with foreign IP addresses, this may be an indication of fraudulent activity.
- Dispute chargebacks. Although the process can be time-consuming, it is in your best interests to fight chargebacks if you are not at fault. This is because banks tend to allow fewer chargebacks to be filed against merchants who regularly combat them.
- Practice excellent customer service. Being proactive can prevent customers from going to their bank in the first place. If a buyer expresses dissatisfaction to you in person or on social media, react instantaneously. Do your best to listen to their issues. Then, resolve them before they take further action.
- Respond to chargebacks immediately. Procrastination may be tempting, but delaying your response to a chargeback claim will never be to your advantage.
- Make sure you’re partnered with a payments provider who offers robust chargeback management.
The coronavirus may fade away in due course, but it is likely that its effects will be long lasting. Understanding chargebacks, and reducing their ramifications, can help businesses of all sizes be more profitable, even long after the pandemic is over.