03/08/2015

By Monica Eaton-Cardone, CIO and Founder of Global Risk Technologies

The Office of National Statistics has just published new figures showing 11.4% growth in online sales in the UK, compared to June 2014. Meanwhile, research carried out by RetailMeNot with the Centre for Retail Research predicted that ecommerce is expected to be worth a staggering £156.67bn in 2015 by the end of this year.

Ecommerce has been shaped by the multichannel era, with consumers now choosing to shop via more convenient digital platforms including desktop, mobile and tablet devices. This boom in multichannel sales inevitably presents challenges – including, critically, rising levels of chargebacks.

The problem is that too many companies accept chargebacks as a cost of doing business – they needn’t be and they needn’t be a costly burden for businesses.

A chargeback is simply the return of funds to a consumer who has queried an item on his or her bank statement, or encountered a problem receiving an item they have ordered from a merchant. In almost every chargeback case the card issuer will always rule in favour of the consumer, hitting the retail business with the cost. Raising prices to compensate for this loss only serves to deter future sales.

Often, businesses are not aware of the source of a chargeback and consequently how to prevent them. Chargebacks can derive from three primary sources including consumer or bank error, merchant error, or credit card fraud. Perhaps the most unknown and damaging form of a chargeback, ‘friendly fraud’ occurs when ordinary consumers deliberately dispute a genuine transaction, falsely claiming not to have received an item which they have ordered.

The worry for many businesses is that they often do not know about the problem until they get hit with a chargeback. But by preparing best practice in advance, they can reduce the risk of chargebacks happening in the first place, while ensuring that when they do occur, they can take decisive steps to minimise the risk.

The most common mistakes made by businesses with a chargeback problem are:

1. Poor customer service

Only 14% of customers contact the seller before they instruct their bank to reclaim their money.

2. Out-of-office hours

If customers cannot contact the merchant at any time, they may well contact their bank instead and instigate a chargeback.

3. System and process fails

Chargebacks can happen when technology systems and payment processes fail.

4. Fraudulent transactions

When payment cards or card details are stolen, the criminal transactions are charged back and the merchant becomes responsible for the cost.

5. Poor logistics

If the customer does not receive the product they ordered, the merchant loses the item they’ve sent out as well as the refund and chargeback cost.

6. Clear terms and conditions

Consumers should not have difficulty finding the merchant’s return policy or refund protocol. If a customer is dissatisfied with a product or service and understood the terms and conditions associated with its transaction, most of them would not default to contacting their bank, which often ends in a chargeback.

Bottom line, the goal for a merchant is to position themselves through best practice tactics and methods, in order to become and remain the first point of contact.

Businesses falling victim to these pitfalls can incur significant costs including a refund and chargeback fee, the lost value of the product, lost value in shipping costs, as well as considerable staff time invested in attempting to resolve the issue. Over time the costs attributed to chargebacks can cripple a business, so it’s vital that strategies are implemented to prevent the threat.

Visa recently put a figure to the loss of revenue from chargebacks at £7.5bn, which is nearly five times the £1.4bn losses attributed to ID fraud. With this revenue up for grabs across the sector, retail businesses are clearly missing out on an easy way to bolster profits.

The good news is that chargebacks do not need to be accepted as a cost of doing business and there are effective tools out there to fight and prevent them. The key is education, so businesses can understand what to do when payments are returned and implement simple ‘plays’ to help combat threats successfully.

To find out more about the winning tactics to help mitigate the chargeback risk, visit http://bit.ly/grt-cp to download a full, free playbook guide.