Here’s a thought. Chargebacks and revenues have a symbiotic relationship. As much as chargebacks detract from revenues, with proper management, merchants can leverage them to boost the bottom line. How? By using them as an opportunity to improve the customer experience.
Today’s e-commerce providers know that chargebacks are a burgeoning problem, but why is that? Technology is largely to blame because along with online shopping, rapid checkouts, streamlined digital payments, and tempting buy-now-pay-later (BNPL) financing come the ability for customers to return items or claim they never ordered them in the first place. Thanks to digital payment solution providers and compliant banking services, it’s easy for customers to initiate chargebacks. That’s costly for merchants.
But chargebacks don’t have to detract from merchants’ revenues. I’d like to argue that with proper management of chargebacks, they can actually create revenue. There is a way to counteract the damage done by chargebacks and even leverage them. Here’s how.
The Surge in E-commerce
During the recent pandemic, consumer behavior changed suddenly and irrevocably. As people hunkered down at home hiding from a deadly virus, they turned to online sources for many of their daily needs and for anything else that COVID-19 forced them to forgo—social contact, the joy of shopping at their local mall, enjoying a meal in a restaurant.
The result was that online business and e-commerce didn’t just increase, it surged. Merchants saw their revenues skyrocket. According to the 2020 Census Bureau’s Annual Retail Trade Survey (ARTS), e-commerce sales grew 43 percent in 2020, rising from $571.2 billion in 2019 to $815.4 billion in 2020.
Merchants know that the bottom line is all about the customer experience. Few customers will ditch the armchair and smartphone that brings everything from luxury watches to haute cuisine to their front door with just a few taps. Looking ahead, now that consumers have switched to online convenience, they’re not likely to reverse the trend.
The data confirms this. More recent stats from a 2022 Raydiant study find that almost 50 percent of respondents to a survey prefer to shop online than in person. That’s a 10 percent jump from 2020 and implies that consumers are still shopping more online even though the pandemic no longer constrains their spending habits.
Again, the explosion in e-commerce is excellent news for merchants, except for one thing. There has been a corresponding explosion in chargebacks.
For more on chargeback management for growth, read “Digital Chargeback Management—A Better Strategy for eCommerce Growth”
… and the Similar Surge in Disputes and Chargebacks
With more online transactions, easier payments, and convenient financing options offered by online retailers—buy-now-pay-later immediately comes to mind—there is a corresponding increase in the likelihood of costly chargebacks and disputed charges.
The news and analytics site, PYMNTS.com, reports that almost 40 percent of consumers across Australia, the United Kingdom, and the United States (around 25 million people ) admit they dispute more e-commerce transactions now than they did prior to March 2020. Only 21 percent reported disputing fewer transactions. And there is a direct correlation between increased shopping online and more disputes. Consumers surveyed admitted that the more they shop online, the more they initiate disputes.
So, what can merchants do to combat the rising cost and frequency of chargebacks and disputes? Well, let’s talk again about the customer experience.
How Disputes and Chargebacks Can Create Revenues
Consumers are spending more time on e-commerce sites searching for products and services, researching them, engaging with chatbots, and ultimately spending. That means there are many more customer touchpoints where e-commerce providers can interact with customers. These are opportunities to respond to customer needs, educate them about products, and build a stronger relationship. Doing so ultimately boosts their bottom line by converting leads into loyal patrons.
By paying more attention to customers—making sure they found what they needed and are happy with the product—merchants reduce the risk that a customer will want to return an item. If they do, a wise merchant makes a refund quick and easy to maintain good relations and avoid a chargeback fee.
If companies can build their customer base and turn visitors to their site into loyalists, the additional revenues mitigate the threat of chargebacks. Not only that, but happy customers tell their friends, family, and social media circles about what a great customer experience they have had.
As mentioned in the introduction, technology is partly to blame for the increase in chargebacks because it has made shopping and disputing charges so much easier. But new technology solutions are another defensive strategy that e-commerce providers can use to combat chargebacks. These solutions allow merchants to intervene in disputes and resolve customer issues before they ever reach the point of a chargeback. They act as an early warning system.
Preventing Chargeback Costs with Verifi and Ethoca
It’s easy for consumers to order goods online and then either send them back or claim they never ordered them at all. Perhaps they really didn’t, but someone else in their household did using the same card. Whether the situation amounts to friendly fraud or not, it’s in the merchant’s interests to prevent an unsatisfied customer from elevating a dispute to the point where the merchant is forced to pay heavy fees levied by the acquiring bank.
For more on friendly fraud, read, “Customers Are Now the Biggest Fraud Threat to Merchants—How to Fight Friendly Fraud”
Offering refunds and making returns easy and pain-free for the customer is a good route to take. A customer will usually choose a refund over initiating a chargeback if the process is straightforward. For the merchant, although not ideal, refunds are preferable to chargebacks.
But using digital solutions like Verifi from Visa or Ethoca from Mastercard are another way to stop disputes in their tracks. These solutions are a must-have option because they are cost-effective and easy to integrate with existing payments infrastructure.
How Verifi and Ethoca Circumvent Chargeback Fees
Verifi and Ethoca can improve merchants’ chargeback management so that the bottom-line numbers go up and chargeback fees go down.
All the stops need to be taken out when it comes to a chargeback management strategy because the consequences of not doing so are dire. Too many chargebacks can block a merchant from payment and card networks, preventing any business from being done at all.
Verifi and Ethoca are tools that allow merchants to resolve disputes with customers directly before the bank becomes involved. Both solutions provide chargeback alerts—an early warning system for merchants. There is a fee charged for each alert, but the alert fees far outweigh the bank fees charged in the event of a dispute that results in a chargeback.
The merchant receives an alert from Verfi or Ethoca when a cardholder attempts to file a dispute with their issuing bank. The dispute is paused at this point, and the merchant then has a brief window of opportunity to intervene and resolve the issue. If the merchant is successful—let’s say they issue a refund to the customer—the chargeback is avoided entirely.
The Symbiotic Relationship that Strengthens the Customer Relationship
Using this new technology to better manage chargebacks allows merchants to take control. They can decide how to respond to the dispute process while preserving good relations with the customer.
But better yet, these solutions turn a problem that has historically taken a big bite out of the bottom line into an opportunity to build a strong customer base and boost the bottom line.
The explosion in e-commerce has increased sales for merchants, which is a good thing, but the ease and convenience of doing business for customers have also made disputes more common. Now, merchants have a way to make this symbiosis work both for them and their customers.
Cartis Payments is a merchant services provider of streamlined digital payment gateways, fraud protection, and chargeback prevention tools. Find out how easy it is to integrate chargeback management so that although your revenues beget chargebacks, your chargebacks can beget revenues.