Andrew Reszka, Regional Head APAC, Verifi
According to data published by Juniper Research, the global average cost of chargebacks each year is approximately 0.47% of total merchant revenue. That risk, however, is not evenly divided across the board, with a Javelin Strategy & Research study revealing that merchants front nearly two-thirds of the cost. The findings show what many merchants know to be true: chargebacks are a significant and costly issue that can have a detrimental impact to a business’s bottom line.
Who bears the brunt of the cost?
Within the chargeback process, merchants are saddled with more responsibility and a far greater logistical burden than other parties. Issuers generally do not require any evidence besides a customer’s assertion to charge back a transaction. But merchants must assess a transaction’s legitimacy in the limited time they are allocated within the chargeback dispute process before they can even determine which chargebacks they should spend time on and represent. Consequently, 60 per cent of merchants’ chargeback-related costs arise from chargeback management expenses.
This cost also comes from customers bypassing the merchant. Merchants are highly effective at engaging with customers when there are problems with the delivery of a good or service, as they recognise the impact this can have on customer experience. But if a customer does not recognise a charge on their card, 76 per cent will approach their card issuer first on fraud-related chargebacks. As a result, merchants struggle getting customers to reach out to them in cases of suspected fraud and consequently face a more lengthy, expensive chargeback process. This highlights the need for greater customer education about the chargeback process and the benefits of approaching the merchant first, as well as a desire for more collaboration between merchants and issuers.
The importance of timeliness in disputing chargebacks
Effectively managing chargeback disputes requires merchants to do a lot of legwork. They must source documentation to assess the legitimacy of the disputed transaction, including internal data on the customer and third-party information such as delivery records. Obtaining that information in a timely manner can be difficult. If you’re running a small business, you may not have the resources to collate this information quickly. However, for a large merchant, technology silos within your organisation may prevent visibility between systems, and decisions can often be made without the benefit of seeing all of the available data. Breaking down these silos and gaining access to the right information quickly is essential.
Encouraging greater cooperation with issuers
Two-thirds (67 per cent) of merchants agree that the chargeback process disproportionately prioritises the interests of issuers over the merchants. Rather than settling with this figure, this should serve as a call to improve the communication between all parties in the chargeback process. In fact, 78 per cent of merchants believe that greater cooperation between merchants, processors, issuers and card networks is the best way to successfully control chargebacks (Javelin Strategy & Research, The Chargeback Triangle). It can also greatly help bring discontented merchants back into the fold, should they have been removed by a customer or because of their previous restrictive chargeback ratio.
The current state of the chargeback system can seem to pit merchants against issuers, with each believing that their interests are being overlooked. Our blog, Reducing the Cost of Chargebacks for Issuers explores this from the issuer’s perspective. Granted, merchants are often highly successful in preventing chargebacks if a customer contacts them first, but getting them to do so is challenging. It requires time and a concerted effort to make customers comfortable with the process. It’s also made more challenging by the permeation of mobile purchases and digital goods, which are often more difficult to qualify as legitimate versus illegitimate.
Find the right tools to overcome the chargeback dilemma
There are tools that can help merchants manage a transaction dispute directly with an issuer and minimise the number of disputes that then become chargebacks. For example, Verifi’s Cardholder Dispute Resolution Network™ facilitates a closed loop network between merchants and top card-issuing banks, to enable faster transaction queries and resolve them before they become chargebacks. Reduce your risk and improve your bottom line by stamping out unnecessary chargebacks. Speak to one of our consultants to understand how this can work for your business.