I once received a 25 lb bag of dry dog food from Amazon, even though I had canceled the subscription. The food came because it had already been shipped. I dreaded having to ship it back, but Amazon told me to keep it because it was perishable and they would reimburse me anyway. I effectively had a free bag of dog food.
Another time, I ordered four jars of Marmite (a British delicacy). When the package arrived, one of the jars was damaged. Amazon didn’t just send me one replacement jar, they sent four. I have ordered Marmite and dog food from them ever since.
Amazon is a billion-dollar—sorry, trillion-dollar— operation. So, if a few bags of dog food and jars of Marmite are collateral damage in the fight for e-commerce supremacy, so be it. While other, smaller e-commerce merchants cannot be so blasé, Amazon’s actions illustrate a critical point—the right approach to chargebacks and returns has a dramatic impact on brand reputation and customer loyalty.
The Cost of Chargebacks
Credit card chargebacks are a growing concern for business owners. Chargebacks occur when a consumer requests reimbursement for a purchase or when a bank identifies a possible fraud. Merchants can avoid some chargebacks by granting refunds when a customer requests them, but doing so habitually is costly. What’s more, friendly fraud—when a customer purchases an item with a credit card and then contacts the credit issuer for a refund— is a growing trend, spurred on by the convenience of online shopping and mobile banking.
Fundamentally, the true cost of a chargeback is way more than expected. This is without considering the damage to a company’s reputation from negative word-of-mouth and online reviews posted by an inconvenienced and dissatisfied customer.
According to the U.S. Chamber of Commerce, a chargeback fee can range between $20 and $100. Then, there is the cost of the item or service that was originally provided. The merchant is also responsible for returning the money initially charged for the purchase, and in addition to the bank chargeback fees, the merchant may face a transaction fee that is about 4 percent of the transaction value.
There are also operational costs like packing, shipping, and delivery costs. These typically range from 15 percent to 20 percent of the merchant’s revenue. Thirty percent of marketing costs are wasted if a sale results in chargebacks.
Chargebacks are not new, they began close to 50 years ago, but the amount of chargebacks has grown rapidly in recent years for several reasons. Sophisticated friendly fraud is one of them. 80 percent of merchants saw an increase in friendly fraud during the pandemic, and 94 percent consider it a serious problem for their business.
Merchants don’t have to be a trillion-dollar company to build resilience to chargebacks, but they do have to address the problem to stay competitive. Moreover, there is an approach to returns and chargebacks that can boost brand recognition and customer loyalty rather than let them eat into the bottom line. That approach is to fight technology with technology.
Push-Button Chargebacks Are One Reason for the Surge in Chargebacks
We can blame technology to some extent for the increase in chargebacks. E-commerce sites are mobile-enabled and make shopping easy for consumers. At the same time, mobile banking apps are super easy to access and can be used to file chargebacks with little hassle to the consumer.
It also is very easy for consumers to fraudulently claim a chargeback and avoid detection. For example, they might purchase items from a merchant using different accounts and different credit cards, such as American Express, Master Card, or Visa.
So, while a merchant is bound to face inevitable returns and chargebacks, an effective strategy is to manage returns and chargebacks through better customer relationship management (CRM).
A New Approach to Chargeback Management—Leveraging the Advantages of Data and Digital
CRM is a business strategy for growth that focuses on the relationship with the customer. New digital solutions combined with data analytics are making CRM easy and practical and critical for strategy and decisions.
A good example is a metric derived from CRM data that e-commerce providers rely on, the Net Promoter Score (NPS). NPS reflects a company’s standing as a brand and shows how loyal its customers are.
The Net Promoter Score (NPS)
The NPS is an indicator of customer loyalty. The concept emerged in the early 2000s after being trademarked by Satmetrix and developed in conjunction with Fred Reichheld of Bain & Company.
According to advocates of the NPS, the best key performance indicator for growth is the likelihood of a consumer recommending a business to a friend. The NPS reveals just that.
To determine a company’s NPS, customers are asked how likely they are to recommend the company or its products or services to others. Depending on the response, the respondent is considered either a “promoter,” a “passive,” or a “detractor” of the firm.
A “promoter” is extremely likely to recommend the company to someone else. A “passive” is a satisfied customer, but not loyal, and they might buy from a competitor. A “detractor” is an unhappy customer, likely to damage a merchant’s reputation with a negative posting on social media and by telling their friends and family about their less-than-stellar customer experience.
The goal for the company is to have as many promoters as they can and maximize their NPS to boost customer satisfaction and loyalty.
The Link Between NPS, CRM, and Chargeback Management
A paper by Retently suggested ways a company could improve its NPS and fuel growth. The paper recommends showing appreciation to supporters of its brand. For example, sending a thank you email and perhaps a free gift to promoters.
But the paper also recommends focusing on passives and detractors. Customers who request returns or initiate disputes are likely to fall into one of these two groups. Passives especially can be converted to loyal supporters if they consistently have a quality customer experience.
Retently suggests offering passives special offers, discounts, or upgrades. These are great ideas, but improving the process for returns and disputes could have an even greater effect.
According to a survey by Power Reviews, consumer interest in free shipping and returns is higher than it has ever been. Ninety-six percent of consumers said that free shipping is an important consideration for them when shopping online, and ninety-six percent cited free returns as an important consideration.
Roughly translated, re-thinking your return and chargeback processes can boost your brand and your customer loyalty. A chargeback strategy to fuel growth then should use the data and technology available to match the technology available to consumers. Merchants should monitor their NPS score and focus on CRM initiatives to improve the customer experience, such as making returns easy and stress-free.
Fighting Push-Button Chargebacks With Prescient Solutions
Leveraging return and chargeback data, monitoring your NPS score, and offering easy returns are all ways to ensure returns and chargebacks to improve customer relations. But there are also new low-cost solutions that merchants can incorporate into their e-commerce and payments technology that will have a significant impact.
Two such solutions are Verifi by Visa and Ethoca by Mastercard.
These solutions act like digital gatekeepers for merchants. They warn the merchant of potential disputes before the chargeback process is even initiated. The merchant receives an automatic alert, and can take pre-emptive action by reaching out to customers and refunding disputed transactions.
This avoids costly chargebacks and builds a stronger customer relationship. Verifi or Ethoca automatically perform the refund if the merchant decides to refund the customer. Cartis Payments can provide you an integrated pricing structure that includes the cost of your credit card processing along with the Verifi and Ethoca solution fees.
The Verifi and Ethoca Effect
Verifi and Ethoca help a merchant to resolve potential disputes with customers before the acquiring bank is made aware of them. Merchants want to stop the dispute prior to it developing into a chargeback. The chargeback is where all the costs begin to escalate for the merchant. By intervening early, a merchant solves a problem for the customer and positively influences their loyalty to your brand.
In fact, the impact of this approach to returns and disputes means that a broken jar or a disputed order of perishables becomes an actual revenue stream, improving the customer experience and boosting the bottom line.
To find out more about how Ethoca or Verifi can boost your brand and your customer loyalty, partner with Cartis Payments. Cartis is a merchant services provider of streamlined digital payment gateways, fraud protection, and chargeback prevention tools.