Voice of the Industry

Financial institutions must be prepared for a new wave of chargebacks in the age of COVID-19

Thursday 9 July 2020 09:53 CET | Editor: Stefana Ivan | Voice of the industry

Monica Eaton-Cardone, the co-founder and COO of Chargebacks911 and Fi911, presents the state of chargebacks and the challenges that financial institutions encounter in the era of COVID-19

During this global crisis, it’s clear that companies are facing a dramatic increase in chargebacks and friendly fraud. Shopping online has become the ‘safest’ shopping option, driving efficiencies, reducing friction, and encouraging consumer spending from every demographic – while achieving the most ideal social distancing recommendation. Meanwhile, brick-and-mortar retailers have been driven into the world of card-not-present payments, without prior experience, and haven’t anticipated the added risk of going digital. 

With industries suffering chargeback losses ten times higher than before COVID-19, the travel industry has topped the charts with some airlines experiencing over 100 times their anticipated exposure. Due to the sheer number of travel plans cancelled, delays to refunds due to the lack of staff during lockdown, disruptions in supply chains and deliveries, and negative cashflow, customers unhappy with the services provided across all sectors during this period are seeking refunds from banks. 

Furthermore, a shift in public mentality is creating a new definition of ‘dispute’, as the chargeback mechanism is being exposed as a method to improve bank balances – even in the absence of genuine claims (this is known as ‘friendly fraud’). Additionally, the increased financial burden of furloughs and redundancies has meant that some cardholders are turning to this type of fraud to free up money where they can. 

Due to all of these factors, the once thought temporary idea of pandemic-incited friendly fraud is likely to be a trend that cannot be undone and will continue long after lockdowns are lifted.

Financial institutions feel the heat too

There’s a common misconception among consumers that the chargeback process starts and ends with the merchant – this is not the case. Most don’t see the intricate and often fragmented network of issuers, acquirers, card associations, and merchants that must manage the complexities of chargeback claims.

Therefore, no matter where an organisation is placed throughout the payments landscape, it must be prepared for chargebacks, especially as we emerge from lockdowns, when the true extent of the current chargeback problem is revealed and we may see companies going into liquidation following cashflow issues – this combination can cause real problems for financial institutions.

The industry experienced the damaging effect of this first-hand last year when Thomas Cook went into administration and didn’t have the funds, or the proper processes in place, to deal with its 600,000 impacted customers – many of whom were trying to retrieve money from cancelled travel plans. These customers then turned to their banks to do so and Thomas Cook’s acquirers were left handling the mess while the company had no money to offer grieved customers.

In these scenarios, an often unaccounted challenge is differentiating between genuine and invalid claims. To help put this in perspective, between 30% and 50% of claims made against a business after it has gone into administration are wrongfully filed or processed outside of valid rules. This results in disrupted dispute processes and longer refund times for consumers, while banks and third parties attempt to rectify the end result, which further perpetuates the issue.

In such cases, due to arduous processes and compressed timelines, all parties end up suffering. Genuine claims from honest consumers are protracted, as issuers suffer backlogs – significant resource strains and costs associated with handling the increase in chargebacks – and acquirers ultimately fit the bill, often conceding to accept a final liability by default, due to their inability and lack of data necessary to properly process and defend against chargebacks. 

A fragmented industry is causing further disruptions   

Even before COVID-19, disconnects between financial institutions and merchants presented significant obstacles in the chargeback process. Often the information received by an issuer from a consumer is diluted and altered as it moves from the issuer to the card association, then to the acquirer, perhaps to another merchant service provider or ISO, and finally to the merchant. By the time it reaches the merchant, valuable context is lost.

Furthermore, given the compressed chargeback response timeframes imposed by card schemes, many merchants struggle to even identify the original transaction, let alone respond to it. And without any merchant feedback, issuers may incorrectly assume the claim was legitimate, closing the case with a permanent refund to the cardholder. Consequently, consumers recognise a loophole in the system, which is then taken advantage of, inadvertently leading to more unnecessary chargebacks and spearheading a growing, vicious cycle.

To add another layer of complexity, more and more merchants are multi-acquired. With a lack of standards between acquirers’ chargeback processes, along with the increased challenges that cross-border payments bring, difficulties in identifying the underlying cause of a business’ chargebacks are vast and varied. From language barriers between issuers, acquirers, card schemes, and merchants, to varying rules, guidelines, and consumer behaviours, it’s not an ideal environment for defining the true cause of a chargeback.

A solution for financial institutions

To address these challenges, Chargebacks911 launched Fi911, which provides financial institutions with a suite of chargeback and merchant lifecycle management technology. It does this by using data driven technology, which optimises and removes redundancies in each step of the process. Through the platform, financial institutions can manage their entire ecosystem, helping to mend the disconnect throughout the payments industry and effectuate accountable improvement. 

These tools are accessible, implemented, and operational using APIs. The platform offers fully customisable modular components, which can be reconfigured in real-time to respond to changes in policy, extraordinary circumstances, or to adapt day-to-day business and customer needs.

Therefore, Fi911 is working closely with some of the largest companies in the payments network to help equip financial institutions with the tools they need to not only combat COVID-19 chargebacks, but also mend inefficient businesses practices.

Learn more about Fi911 at fi911.com.

About Monica Eaton-Cardone

Monica Eaton-Cardone has worked for over a decade to educate merchants and financial institutions about hidden threats in the rapidly changing payment fraud landscape. Leading Chargebacks911, she established Europe’s first chargeback remediation specialist to tackle the GBP 80 billion chargeback fraud problem. Monica is passionate about the need to educate merchants and financial institutions on risks that will only get worse if left unaddressed. She was one of the earliest and most vocal voices to warn of the hidden risks of friendly fraud, including how evolving consumer behaviour has caused a perpetual cycle of rising fraudulent actions.

About Fi911

Fi911 supports financial institutions with back-office management technologies created for the banking and payments industries. Fi911’s proprietary DisputeLab helps make resolving chargeback disputes faster and more efficient by optimising each step in the dispute cycle. The company’s unified platform also provides post transaction threat detection, reconciliation, and life-cycle-management tools, with an array of features designed for the digital age – from generating commissions and ISO pay-outs, to automating variable billing and least cost routing. Established by the dispute experts at Chargebacks911, Fi911 offers global reach and expertise, as well as customised training and support from recognised industry leaders. 


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Keywords: Monica Eaton-Cardone, Chargebacks911, Fi911, chargebacks, friendly fraud, COVID-19, online shopping, retailers, merchants, card-not-present payments, issuer, acquirer, ISO, cardholder, APIs
Categories: Payments & Commerce | Digital Identity, Security & Online Fraud
Countries: World
This article is part of category

Payments & Commerce