Chargebacks and COVID-19: Answering the frequently asked questions

Tracy Cray, Director of Card Scheme Compliance, Chargebacks911, answering the most requested topics around chargebacks during the COVID-19 pandemic 

As a result of the COVID-19 pandemic, we have seen a significant spike in chargeback claims as individuals across the globe come to terms with the situation at hand and try to claim back money spent on purchases affected. 

Therefore, to help businesses navigate these claims while continuing to protect their customers, we’ve answered some of the questions we’re being asked most frequently as this situation continues to unravel.

Why are banks receiving more chargeback claims during the COVID-19 outbreak?

An increase in chargeback activity is the result of multiple converging factors. People are being forced to shop online as brick-and-mortar outlets close and quarantine guidelines instruct consumers to stay at home, while businesses are dealing with potential supply chain disruption, delivery delays and volatility, as well as labour shortages if workers are forced to quarantine themselves. Consequently, that combination of increased traffic with a reduced capacity to handle the transaction volume, will cause substantial problems with deliveries for many businesses, resulting in a greater number of chargebacks. 

In addition, it’s easier for customers to claim that there is an issue with an order if the purchase took place online – which is why we’ve seen an increase in chargebacks since ecommerce became a mainstream way of shopping. Thus, we’ll likely see a rise in friendly fraud, while customers are shrouded by their online identity.

What impact can you see this having on merchants? 

Chargebacks across all business verticals were already projected to increase by roughly 20% in 2020, compared to 2019. However, in the most impacted industries, such as travel and entertainment, the COVID-19 outbreak could drive a 50% year-on-year increase in chargeback filings. This will result in lost revenue, added fees, higher overheads, and threats to long-term business sustainability.

How are acquirers responding?

Acquirers are trying to be understanding of their merchant customers. That said, there’s a limit to what they can actually do, as a result of industry policy imposed by card networks and governing bodies. Although Visa has updated its dispute guidelines and programs to offer some temporary relief in the hardest hit verticals, acquirers are still bound by what the card network will allow.

What are issuers doing to ensure consumers are protected at this time? 

Most major card issuers are offering resources to consumers to help navigate the current landscape. American Express and Discover – who are both card issuers operating on their own network – have provided FAQ sections on their websites offering suggestions for cardholders dealing with common problems that could arise as a result of the outbreak. Like acquirers, though, most issuers are still restricted by card network and regulatory guidelines as to what they can offer customers.

How can banks protect vulnerable customers? 

Many banks already offer zero-liability in cases of fraud. Those who do not already offer this protection could consider doing so. Of course, this should also work in partnership with consumer education efforts. Otherwise, consumers could start to abuse their privileges by filing more chargebacks.

Can you explain more about the rule changes that have been announced by card schemes?

Visa has announced several major changes to its process, including flagging issuers who file excessive invalid disputes, and suspending fraud and chargeback monitoring programs. It’s important to note, however, that these changes only apply to the travel and entertainment verticals, as these are the most susceptible to chargebacks currently. As for changes that impact all merchants, Visa is allowing regional risk teams to suspend monitoring program fees. This is, of course, at the regional risk team’s discretion.

Mastercard is yet to announce process changes, but we expect to hear them soon.

What advice would you give to acquirers and issuers at this time?

Our advice is to try and be as flexible and understanding as possible, on both ends of the transaction, while remaining within the bounds established by the card brands. There’s a huge amount of uncertainty at the moment, with both consumers and merchants facing challenges. Being adaptable and responsive with your procedures will foster a positive customer image and prevent additional problems.

How can we ensure chargebacks are managed and businesses and banks are protected moving forward?

It’s too soon to comment on the long-term economic impact of the coronavirus outbreak. That said, we anticipate we’ll see much wider use of digital payments in a post-coronavirus world.

Consumers are becoming more familiar with buying online and pickup in-store (or BOPUS) models. Millions of people who may never have tried curb side pickup or grocery delivery before are now experiencing the convenience and ease of use these channels offer. But of course, more digital payments result in more chargebacks. That’s why we need to be proactive now and start re-examining and overhauling outdated chargeback practices at industry level. We need a standardised set of chargeback procedures that are fair to merchants, banks and consumers.

And, finally, can you share some hope with us? This is a challenging time, what light can we offer those dealing with the chargeback influx right now?

No one needs us to tell them that this is a difficult and unpredictable time to do business. However, we can expect that the payments space will come out of this as a much more resilient and dynamic environment.

This crisis lays bare a lot of the shortcomings in chargeback procedures that we’ve been challenging for years. Card networks such as Visa are already taking unprecedented action in response to this crisis. And with digital channels set to represent a much larger share of the payments space going forward, it will be impossible to ignore the need for change.

To find out more about how we can support your business during this time, reach out to us at: info@chargebacks911.com.

About Tracy Cray

Tracy Cray has over 35 years’ experience in the Credit, Prepaid & Debit Card Payments Industry, specialising in Chargebacks and Section 75 of the Consumer Credit Act 1974 at the Royal Bank of Scotland (RBS) before joining Chargebacks911 as Director of Card Scheme Compliance. Using her in-depth understanding of card schemes and influential relationships within the industry, Tracy leads the team to provide expert advice and assistance to issuers, acquirers and merchants in their chargeback handling. She also chairs a number of chargeback and scheme forums including the European Experts Chargebacks Group.

About Chargebacks911 

Founded in 2011, Chargebacks911 is the first global company fully dedicated to mitigating chargeback risk and eliminating chargeback fraud. As industry-leading innovators, Chargebacks911 is credited with developing the most effective strategies for helping businesses maximise revenue and reduce loss in a variety of industries and sectors within the payments space.