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  • Four minutes read

COVID-19: Five tips to combat a chargeback spike

The actions online businesses can take to protect themselves from a spiking chargeback rate and the associated costs.

One of the most impactful consequences of government-imposed measures in the wake of COVID-19 is that merchants are seeing a significant spike in chargeback claims. This is particularly true in industries such as the travel and ticketing sectors, where flights and events are being cancelled, but the threat of chargebacks extends beyond this.

Interrupted supply chains and labour shortages may result in a delay in delivering goods; and other services such as gym access or prepaid classes have been postponed. In many cases such as these, some consumers will elect to contact their issuer rather than the merchant to resolve a disruption to their purchase. Another common scenario caused by COVID-19 is that a paid-for service or delivery of goods is still available but the customer no longer wants the purchase due to health and safety, or financial, concerns.

And this doesn’t even consider the increase in fraudulent transactions merchants can also expect to see during this period.

For many merchants that may already be struggling during this period, the threat of a rapid increase in chargebacks has the potential to derail their revenues even further. So businesses cannot afford to be reactive to the situation.

Developing a proactive chargeback strategy

So what actions can be taken to combat this threat? Here are five ways businesses can protect themselves from a spiking chargeback rate and the associated costs.

  • Ensure you’re fully protected against fraud The first line of defence against a spiking chargeback rate is minimising the volume of fraudulent transactions. This will enable you to focus your attention and resources on managing your relationship with legitimate customers as well as reducing cost of the chargebacks. Implementing industry-leading fraud prevention tools and techniques is the optimum strategy; this may include integrating 3DS2.
  • Communicate and work with your customers Much of the increased chargeback activity merchants will experience can be traced back to a lack of communication with customers. Resolving disputes directly instead of bearing the cost of defending and paying out a chargeback when a customer demands a refund from their issuer is preferable; ultimately it is better to give the customer a full refund than paying out the full sum anyway as a chargeback plus the additional associated fees.
  • Be flexible with alternative options Merchants must remain flexible with the solutions they present customers whose services are impacted or whose agreed delivery is going to be delayed. Additional credit notes and waving fees are two potential offers a merchant can make as well as offering the customer a full refund. N.B. Do ensure any new policy implementations do not contravene consumer rights or existing terms and conditions.
  • Refamiliarise yourself with the card scheme chargeback rules The card schemes have been very clear that chargeback rules have not been adjusted due to COVID-19. So for merchants, refreshing your knowledge of these rules is key to defend yourself rigorously where a refund wouldn’t be valid. An example of this would be if a service was available but the customer had safety concerns, or a customer didn’t cancel a hotel reservation in line with the cancellation policy, if the hotel was open and following government guidelines. Where a merchant wishes to refuse a refund and dispute a chargeback using a “Force Majeure” close in the merchant terms, card schemes have stated that they will honour the merchant terms if they were properly disclosed to the cardholder at the time of purchase.
  • Work with your acquirer to formulate a robust chargeback defence Although no acquirer can guarantee a defence will be successful, ultimately the best solution for merchants is to lean on the expertise and advice of their acquirer to navigate the regulations effectively. Your acquirer will not only be able to guide you as to whether offering a full refund or disputing a chargeback is the correct course of action, it can also provide assistance with other courses of action such as pre chargeback dispute resolution services.