How Chargebacks Impact Business Operations as a Whole
By Roenen Ben-Ami, Chief Risk Officer, Justt
Chargebacks are going beyond financial losses and pose significant operational hurdles for both brick and mortar stores and online merchants.
To understand the implications of chargebacks, it’s important to understand their purpose.
Understanding chargebacks and their purpose
Chargebacks serve as a consumer protection mechanism, allowing cardholders to dispute transactions and receive refunds. This protection is offered mostly in an attempt to combat transaction fraud but can sometimes be abused by consumers in situations where they feel bold enough to claim fraud in legitimate purchases.
The process isn’t quick either, most issuers have teams dedicated to manually reviewing and combing through transaction evidence.
While they offer a safety net for customers, chargebacks can, and often do, result in operational dysfunction in addition to the revenue lost.
When a chargeback is initiated, the merchant not only loses the revenue from the original transaction but also incurs additional fees and expenses.These fees include chargeback fees, processing fees, and administrative costs. Currently, it’s considered that for every $100 in chargebacks, a merchant actually loses $240 in total associated revenue when reviewing the opportunity cost of that time compared to spending it on progress.
Operational challenges posed by chargebacks
One of the most significant challenges that businesses face is the amount of time and resources required to manage them. The chargeback process can be lengthy and complex, and it often requires businesses to provide extensive documentation and evidence to support their case.
Staff time and resources dedicated to chargeback management
Merchants must decide whether to handle the dispute in-house or outsource to a third-party provider, and both options require training and expertise.
Managing them in-house requires staff, training, expertise and sometimes software tools. Staff members responsible for chargeback management need to understand the intricacies of the chargeback process, gather relevant documentation, and respond promptly to inquiries from banks or payment processors. Allocating resources and training staff specifically for chargeback management diverts attention and resources away from other critical operational tasks, or growing your business.
Outsourcing can be attractive but still results in additional business costs and data security risks.
Customer service and dispute resolution
Chargebacks can also have a ripple effect on customer service and dispute resolution.
Unresolved chargebacks can result in negative reviews and loss of goodwill, which can harm a business's reputation.
A strain on customer service departments is created when they are responsible for handling increasingly negative customer inquiries and resolving disputes. Dealing with chargeback-related issues requires additional communication and support to address customer concerns and provide necessary information during the dispute process. This can increase the workload for teams, affecting their ability to provide timely and satisfactory resolutions for other customer inquiries and support needs.
The potential for employee burnout when consistently being faced with negative disputes can’t be ignored.
Chargebacks distort sales metrics and analytics when left unmanaged. A high volume of chargebacks affects key performance indicators, such as revenue, conversion rates, and customer lifetime value.
Other growth indicators like Return on Advertising Spend (ROAS), Average Order Value (AOV) and Net Promoter Scores (NPS) become compromised by failing to account for the entire disruption of a chargeback.
Distorted metrics make it challenging to assess the effectiveness of marketing campaigns, optimize product offerings, make informed business decisions and undermine the ability to measure and business performance effectively.
Vendor and Partner Relationships
By now it might be obvious that strained relationships with suppliers and business partners becomes a possibility.
When chargebacks occur, merchants often need to recoup the lost funds from a supplier or even absorb the financial loss themselves. This can lead to disputes, and potential disruptions in the supply chain, affecting the merchant's ability to source products or services efficiently.
Can you ensure the item is returned?
Inventory management can be compromised when the sold products are returned or deemed invalid due to the chargeback.
Do you stock physical inventory?
Merchants need to account for the potential loss of inventory due to chargebacks when forecasting demand, replenishing stock, and managing reorder points. Why risk a stockout or overstock situation?
Who’s responsible for managing the logistics?
Coordinating the restocking process and managing reverse logistics can be complex. Merchants will need to establish efficient systems and processes to handle returned items, inspect their condition, update records, and determine whether the products can be resold or need to be refurbished.
Being aware is the key
Chargebacks are a reality of doing business, but merchants can take steps to mitigate their operational impact. By being aware of the potential operational issues, you can be proactive about eliminating future problems that need solving.
To gain a clearer understanding of the business costs associated with chargebacks and these operations, continue reading more about how chargebacks impact business financials as a whole.
Over half of digital consumers transact on their mobile phones at least once a week. These behaviors span multiple industries, impacting how consumers engage with retail stores, order their morning coffees, arrange transportation and plan their next vacations.
While this change in consumer behavior has led to an increase in revenue through online and mobile channels, it has also come with a sinister partner: an increase in digital fraud losses.
In an increasingly anonymous purchasing environment, businesses and platforms need to take precautions to reduce risk while avoiding placing undue friction on good, low-risk customers. The key is connecting consumers’ digital information to their devices, understanding device risk and identifying signals of fraudulent behavior.
- How the current state of eCommerce and Marketplaces has changed and what it means for digital fraud
- Why account takeover, loyalty fraud and other forms of fraud are rising and the impact to merchants and platforms
- A new, unique solution for improving digital fraud capture without negatively impacting good customers
- How one merchant uses device and digital insights to deliver smooth, efficient digital experiences
Asia-based online marketplaces expanding to Europe and North and South America face complex compliance challenges. Join this webinar to discover how to comply with DAC7 and INFORM Consumers Act regulations. See practical examples of KYB and KYC identity verification workflows that can help you meet those regulatory requirements.
Fast-track your global expansion with a look at key nuances to verify sellers, including registered businesses, beneficial owners and sole proprietors. Learn how to balance the levers of verification rates, response times and transaction costs to optimize the cost of onboarding ideal sellers.
This webinar features a special guest from a leading Asian marketplace.
- Practical steps to build a compliant verification workflow that leverages biometrics, ID documents and data providers
- Key differences between verifying entities versus individuals.
- What the DAC7 and INFORM Consumers Act regulations mean for marketplaces doing business in the EU and U.S.
Consumer spending patterns are predictable based on seasonality, industry, or payment type; but what a customer does after spending is unpredictable. When a consumer is dissatisfied with a product or service, how a merchant handles the post-purchase experience is critical to customer retention and dispute prevention. Merchants need to protect their business from losing revenue due to both true fraud and friendly fraud. Many advancements have been made in the payments industry to help the overall ecosystem reduce unnecessary disputes and combat friendly fraud. Our session will discuss consumer trends, network level dispute performance, new strategies to combat first-party misuse, and the evolution of compelling evidence. We’ll also have a European merchant share details about how they manage their post-purchase experience, both internally and for their customers. With this evolution of compelling evidence, merchants can now provide issuers with historical transaction details to confirm the legitimacy of a transaction and block illegitimate fraud claims by the consumer. This session will also cover how merchants can leverage this rule change in both the pre-dispute path (deflecting the dispute prior to formal processing) and post-dispute path (providing the qualified CE3.0 data in pre-arbitration) for Visa transactions.
Collaboration is an important part of modern eCommerce, but it’s not always prioritized across industries and verticals the way it should be.
This presentation explores the results of a positive collaboration between a card network, issuer, and merchant, and details how it impacted approval rates by more than 10 p.p. This, in turn, directly reflected in sales and better Customer Experience, aligning with all stakeholder’s goals.
It’s critical to have solid key performance indicators when it comes to dispute management, as dispute timelines, cycles, and requirements vary by card brands.
A "one size fits all" dashboard approach does not work in comprehensive chargeback management.
This presentation from Priceline covers real time dashboards including, but not limited to- quick glance KPIs, threshold alerts, dispute receipt forecasting, acceptance percentages, analyst performance, reason code trending, reclassification of dispute reason codes (where applicable) and others.
The presentation also cites several critical data elements to provide 'at a glance' dispute performance metrics to instantly highlight concerning trends and/or validate process stability.
The dispute and chargeback process has been profoundly disrupted in the past two years. Stakeholders are seeing increased efficiency, reduced cost, and a greatly improved customer experience.
Consumers are expecting exceptional service, but sometimes transactions still aren’t smooth. Fraud and first-party misuse lead to unnecessary disputes in the ecosystem and increased burden on all stakeholders.
In some instances, the problem can be solved at the pre-dispute stage, avoiding a chargeback. By utilizing technology at each stage of the transaction life cycle, data can be collected to strengthen prevention and resolution methods. Utilizing transaction data transparency and automated resolution can have a significant impact on the dispute process, and positively impact the cardholder with immediate decision on the inquiry.
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There are dozens of different tools designed to prevent chargebacks. In theory, multiple options should make it easier than ever to keep risk in check. But sometimes, new additions just add to the noise of an already complicated situation.
To help remove the complexities, the Midigator team will give a simplified, easy-to-understand explanation of each of the different tools on the market today.
- Identity verification (AVS, 3D Secure, card security code)
- Prevention alerts (Ethoca alerts, Verifi CDRN)
- Order validation (Visa Order Insight, Mastercard Consumer Clarity)
- Acquirer refunds (Visa RDR, Mastercard Collaboration)
With a detailed understanding of the pros and cons of each technique, you’ll be able to create a strategy that is just right for your business.
- Learn how each of the different prevention solutions work
- Consider pros and cons of each technique
- Understand most relevant KPIs
- Review cases studies for ROI
Financial experts are predicting a recession in the near future. For merchants, that could mean a substantial loss of revenue. That’s why Chargeback Gurus has put together advice from industry leaders and subject-matter experts to help you weather the oncoming storm. Learn how Fortune 500 companies have built recession-proof businesses and how you can use effective transaction management to do the same.
- How to grow your customer base during a recession using insights gained from transactions.
- How to improve customer retention by unlocking hidden sources of customer satisfaction data.
- How to protect your business from the spike in fraud and chargebacks that accompanies any economic downturn.
Chargebacks are evolving, but is the situation getting better? What’s changed for merchants over the last few months? And what new threats are they seeing just over the horizon?
Based on the upcoming Chargeback Field Report 2022, this free webinar offers a realistic look at the current state of chargebacks. See what merchants across all industries are saying about the problems they’re dealing with now, and what they’re doing to protect their future revenue.
Topics covered will include:
- Rising fraud threats: Where and how merchants are getting hit
- Ongoing shifts in consumer shopping behaviors
- How technology is changing fraud and fraud-fighting
- Proactively dealing with the surging threat of friendly fraud
After attending this webinar, attendants will have a better understanding of how chargebacks are affecting the industry and how to utilize this information to protect their business.
How iGaming Industry Growth and Fraud Correlate:
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At SEON Technologies we have released new information on the collection countries that are most and least at risk of cyberattacks. We have also taken a close look at the most common types of cybercrime occurring in the US.
Dubbed the Global Cybercrime Report, the report explains how several countries are the safest in the world from fraud and other cybercrime. and why others are not. Our methodology for this research was based on how companies and public infrastructure are all being fairly well protected through both legislation and technology at their disposal.
In this brief paper, PerimeterX provides examples of good bots and bad bots, then examines seven telltale ways in which businesses can help spot whether they are being hit by traffic from bad bots. Seven capabilities to detect and mitigate bad bots are presented next, with a brief look at PerimeterX's Bot Defender solution rounding out the document.