Battling back against chargebacks

Communication with customers matters

Not all claims have been fraudulent, of course. There was a spike in genuine chargebacks at the start of the pandemic, as tourism, events and other hard-hit sectors refunded their customers. Then there’s the consequence of volume; the more that’s sold, the more chance of defective products getting through, deliveries going missing, or customers simply changing their minds. “During the pandemic, for example, the supply chain strain impacted deliveries - retailers involved in electronics with microchips for example saw extreme delays,” explains Riss.

Moreover, the online world has attracted a brand new cohort of shoppers over the last 18 months, and unfamiliarity breeds mistakes. “It ends up with disgruntled consumers, and disgruntled consumers a lot of times go to chargebacks as a way of voicing that complaint,” says Sanders.

But they can be avoided. Aside from the structural aspects of scaling, it’s communication that matters. Customers who know where their package is in transit feel reassured. Being able to report and return faulty products easily is likely to buy a retailer time to make amends. Even delays can be forgiven, if customers know the reason why. 

An inclination for customer service is not enough; it’s merchants’ capacity to communicate that really counts. Adding resources and new systems is often required. So too ensuring their fulfillment partners are on the same page.  “Merchants that were ready for scale have been better able to defend themselves,” says Sanders.

Delve into data

Technology is the answer, in particular software built to analyze chargebacks, not simply to process them. With more structured data, merchants can work out what is really going on with their chargebacks, such as how much is friendly fraud versus criminal fraud. 

Technology also helps merchants to automate chargeback disputes, by sourcing all the evidence they need to defend a transaction. For many merchants, that evidence gathering remains a manual, slow and expensive process. And the more they sell, the more it hurts. Often it makes more sense to simply give-in. 

Combine this chargeback understanding and automated dispute handling, and you’re able to use structured data to perform predictive analysis. By knowing the likelihood of chargebacks by product lines, markets, payment methods, and other segments, you are able to take proactive measures with your front-end fraud engine to reduce claims being made in the first place.

“The sky’s the limit for merchants that upgrade this part of their payments stack to be tech oriented, so they can leverage structured data on chargebacks,” says Sanders. “When you bring technology into a non-technology space, you can see absurd returns. One customer we’ve been working with on chargebacks has achieved 45x ROI.”

Balancing CX and fraud prevention

Fraud prevention and customer experience are often a trade-off. The former requires additional security measures that interrupt the transaction flow and frustrates customers. While, in this zero-sum game, if speed and convenience are prioritized, fraud is left to prosper.

Merchants need to decide where their particular sweet spot is. There is no industry standard to follow. Your appetite for risk, and what you’re willing to give away to achieve it, is a question of culture, liquidity, and growth objectives, amongst others. 

What is changing post-pandemic is the type of systems needed to execute your strategy. The volume of transactions today makes effective manual fraud prevention impossible. Automation is the name of the game. Systems that continually learn and then apply those insights to prevent fraud are what’s needed. Better still if you can apply specific fraud rules to different customers and product lines, instead of the blanket approach that characterizes many retailers’ fraud strategies. 

This is no longer a ‘nice to have’ for merchants. Ecommerce markets are too congested, and marginal gains matter. What’s more, the benefits of decreasing fraud compounds over time. “If you’re not getting those feedback loops and hypothesis testing, someone else is, and their margins are going to outgrow you,” says Sanders. 

The future is unpredictable

The ecommerce genie is out of the bottle. We will continue to see a rapid acceleration of online commerce, and new payment schemes such as Buy Now Pay Later and instalment payments. This volume and innovation will also exacerbate new kinds of fraud. Exactly what, when, and how is less certain.

But that’s not an invitation for merchants to be passive. For example, new customer authentication and fraud prevention schemes — such as 3DS2 in Europe, Verified by Visa and Mastercard SecureCode — are not silver bullets. In other words, merchants should not simply adopt these new initiatives, and then turn their focus to something else. 

For starters, implementation has implications for friction. Some consumers won’t mind; others will. Likewise some merchants will reluctantly comply, while others will want to enhance their posture with more fraud tools. Things become more complex when selling into multiple markets, where customers’ risk profiles and other cultural nuances can vary greatly. 

Preparedness should be a holistic consideration. The whole payments stack matters, and merchants must be able to build out from it to solve new problems as they arise. Data and automation are also key. Challenges that can be predicted earlier can be addressed sooner and faster. “Merchants that can do this will become the defining merchants for the next 20 years or so,” says Sanders.

To find the right payments partner, though, the question merchants need to ask is not simply “Can you do it?” but “How did you build it?” That matters, because the architecture behind a fraud solution speaks to how quickly it can be deployed to new markets, if it can be tailored for different customers and products, how scalable it is, and what other solutions it can integrate with.