COVID-19 Pandemic Likely to Include a Surge in Chargeback Activity

Article by Monica Eaton, COO Chargebacks911®

World leaders, health professionals, and countless ordinary people around the world are working tirelessly to curb the spread of COVID-19, more commonly known as the Coronavirus. Of course, everyone can acknowledge that aggressive action to fight the pandemic is important. However, the economic woes caused by the disease and the containment methods deployed are hard to stomach.

"The pandemic will include a surge in payment disputes as well as other hidden costs for merchants. Preparation now will help to blunt some of the long-term impacts."
Monica Eaton

Travel companies including airlines, OTAs, hotels, and more are facing substantial losses due to the coronavirus. When struggling British carrier Flybe collapsed on March 5, pundits cited the coronavirus outbreak as the proverbial nail in the coffin. Between international travel bans and consumer fears, demand for air travel has simply vanished. In some instances, news outlets are advising passengers to file chargebacks against travel companies to reclaim money already invested in upcoming travel plans.

How much do you anticipate the COVID-19 pandemic will impact online businesses?

— Chargebacks911 (@Chargebacks911) March 13, 2020

But, while merchants in the travel and entertainment industries might face the brunt of the impact, they’re not alone. Expect COVID-19 to impact online merchants in just about every vertical, both directly and indirectly.

Every sector of the economy is going to be affected by this outbreak in one way or another. In this article, we’ll examine the wide-ranging effects of the coronavirus pandemic, and what you can do to insulate your business against unnecessary losses.

The Coronavirus “Ripple Effect”

The secondhand effects of the coronavirus are just beginning to ripple through the market as of this writing. While not every business will be immediately impacted, the disease will ultimately translate to losses in just about every sector of the economy.

First, there’s the potential collapse of consumer demand. Buyers see uncertain economic times on the horizon due to the virus, and may be more hesitant to spend as a result. This is compounded by bad actors taking advantage of the situation: in the last month, consumers in the UK lost more than $1 million (£800,000) to fake products, counterfeits, and other scams playing on consumers’ virus-related fears.

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The outbreak will have other serious systemwide consequences, though, as it agitates existing vulnerabilities. As a direct result, we expect to see a wave of chargebacks flooding the market for months even after the pandemic subsides.

Each of the following is a potential chargeback trigger aggravated by the virus outbreak:

Interrupted Supply Chains

Although the situation is now described as “contained” in China, weeks of disruption have caused serious delays in supply chains. One recent report asserts the disease disrupted the supply chains of nearly 75% of all US companies.

An unreliable supply chain translates to limited inventory and canceled orders. Not only does this limit your earning potential, it could potentially anger your otherwise loyal customers. While some may understand, given the circumstances, others will likely be less forgiving.

Labor Crunch

What happens if a substantial number of your employees are forced to stay home due to possible exposure to the virus? You may be able to absorb the impact of a few absences, but what happens when 10% of your workforce is out of commission? Or 20%? Or 30%?

A labor shortage of those proportions will make it impossible to conduct basic operations. Critical functions like customer service and order fulfillment may only operate at a fraction of their regular capacity.

Customer Service Delays

With widespread concerns about delayed or canceled orders, you could very quickly find yourself experiencing backups with your customer service lines and call centers. That’s a problem, as customer service operators are your first line of defense against chargebacks. The situation could be further compounded by the labor shortage mentioned above.

Customers call your service line because they’re experiencing some issue with your product or service. Being unable to get help within a reasonable time frame only adds to that frustration, making customers much more likely to file chargebacks to recover their money.

Delivery Delays

Even if you still manage to get orders out on time, that doesn’t mean they’ll arrive in the same manner. With virus-related restrictions on movement impacting much of the world at this point, shipping delays are already becoming common—and that’s before factoring in the likelihood of labor shortages with the US Postal Service and private shipping firms.

Most people will forgive a one- or two-day delay. If delivery interruptions stretch beyond that timeframe, however, customers could start to lose patience.

Market Volatility

The virus is creating conditions unlike anything we’ve seen in living memory. Governments and businesses are taking drastic action in response to this, from canceling major events and shuttering large gatherings, to quarantining entire populations. While these actions may help contain the spread, they’re already having a negative effect on the market at large.

Even the most agile businesses thrive on predictability. If you can’t forecast the shape of the market just a few weeks in the future, it’s impossible to allocate resources effectively. Merchants can’t make meaningful plans for how to invest and scale, potentially impacting operations even long after the outbreak subsides.

Trouble Scaling

Here’s a unique problem: too much business. But, with more and more individuals opting to self-quarantine, certain businesses involved in delivery and fulfillment could see a sudden surge in usership for which they’re not prepared.

Food delivery services, for instance, might experience overwhelming traffic from consumers stuck at home. The potential for site crashes would compound the other issues already mentioned, like longer wait times and a shortage of delivery drivers. The result could be angry customers who are unable to use the service in question when they feel they need it most.

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Could Coronavirus Lead to a Spike in Chargebacks?

The short answer: yes, definitely.

We touched on how travel companies are feeling the impact on their bottom line, with consumers being encouraged to file chargebacks to recover funds. The chargeback threat isn’t limited to travel, though: by the time the pandemic finally ends, most merchants will experience lost revenue due to the vulnerabilities mentioned above.

Since the beginning of the outbreak, we've already recorded a 23% increase in chargeback issuances. And, as time passes and disruptions drag on, the number of disputes filed by customers will grow.

It’s a dangerous situation; everyone is scrambling to adjust to the new policies and business parameters that are affecting them. You’re facing decreased business (and simultaneous higher costs), while cancellations and postponements are leading consumers to contact merchants en masse for refunds. The result: long hold times, frustrated customers, and ultimately, higher chargeback rates.

Consumers often forgo contacting merchants even under the best of circumstances, instead going directly to the bank to file chargebacks on delayed or cancelled items (a practice called friendly fraud). The added pressures resulting from coronavirus will only amplify this problem. Thus, we anticipate a spike in chargeback filings in the comings weeks and months as the disease progresses.

You need to be ready for the increased chargeback risk. More chargebacks mean lost revenue, additional fees and fines, and poor customer satisfaction. If the situation gets out of hand, you could face possible loss of your card processing privileges altogether.

Chargeback management is a delicate process, though; the wrong strategy could actually exacerbate the problem, potentially placing even more revenue at risk. And, with a lag in chargeback reporting due to long chargeback timeframes, this situation will go on for months after the pandemic officially ends.

Preventing Coronavirus Chargebacks

Coronavirus presents numerous unique challenges for your business. That said, proper chargeback management can alleviate a good portion of these problems.

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It’s critical that you implement a strategy for avoiding, reducing, and disputing chargebacks. This will help you recover disputed revenue and prevent future chargebacks, making a winning chargeback strategy an investment that will continue to pay off long after things return to normal. To that end, we have some tips that will help you mitigate risk and recover your hard-earned cash:

Use Multilayer Fraud Detection

All chargebacks are tied to one of three sources: criminal fraud, friendly fraud, and merchant error. Identifying the latter two sources is contingent on first eliminating the possibility of criminal fraud, which calls for a multilayer, dynamic strategy. Luckily, there are multiple complementary fraud detection tools you can employ, including Address Verification Service (AVS), CVV verification, 3-D Secure, and geolocation, just to name a few.

You want customers to contact you before calling the bank. Thus, you need to make your customer service information easy to find and navigate. You should include your phone number, email address, and social media information on every page of your website. Make the information easy to identify, even for casual browsers.

Optimize Your Response

Be sure to remove barriers between yourself and your customers wherever possible. Providing excellent customer service means round-the-clock, fast (less than one hour) responses to all email, social media, and SMS queries, and answering all phone calls in less than three rings. If you can’t provide this level of service on your own, consider contracting a third-party answering service to provide overflow support.

Deploy Smarter Chatbots

Chatbots can help offload simple queries that don’t require live responses. They’re a great asset for customer service, but be careful how you design them to work. Chatbots should fill two key functions: to answer very simple questions that don’t require human interaction, and to quickly and efficiently direct more complicated questions to the proper service channel.

Adhere to Best Practices

Always follow the rules and regulations set forth by payment networks. In addition, it’s best to abide by certain key best practices. For instance, you should submit copy requests in a timely manner, ensure sales receipts are legible, settle payment batches promptly, and never attempt multiple authorizations after receiving a decline.

Make Cancellations Easy

If the customer asks to discontinue a service or refund a purchase, you should grant the refund or cancelation quickly. Make it a simple and no-strings-attached process. Also, be sure to inform the customer once you make the cancelation or issue credit.

Notify Customers of Delays

If an item is backordered, let the customer know. Give the customer the opportunity to cancel rather than wait for a delayed arrival. Likewise, if you discontinue an item, notify the customer immediately. You can offer suggestions for similar items, but don’t make the substitution without the customer’s approval.

Deploy VMPI

The Visa Merchant Purchase Inquiry is a plugin provided by Visa. VMPI allows banks to automatically recall transaction information in the event of a customer dispute, potentially resolving many issues before they ever progress to the chargeback stage. By working with a facilitator, you can deploy VMPI and prevent many chargebacks from happening.

It’s critical that you deploy services as quickly as possible to protect revenue and prevent future loss. However, managing chargeback risk is difficult under the best circumstances. With fear and anxiety about the coronavirus outbreak running high, it’s more critical than ever that you be proactive and take steps to prevent and fight disputes. The question: how?

Seek Outside Help

No matter whether outsourcing was part of your plan or not, it's an idea very worth considering. And, if there ever was a time to outsource, it's now.

Performance-based tools such as VMPI, chargeback management services, and other outsourced solutions offer quick setup to protect revenue. Relieving pressure from non-core activities enables you to focus on what's most important during these trying times: serving your customers and keeping your brand stable.

We at Chargebacks911 are the industry’s leading experts in chargeback management. Our unique combination of machine learning and human expertise offers unparalleled chargeback reduction, all backed by a 100% ROI guarantee. With fast implementation for short-term crisis support or long-term strategy, Chargebacks911 offers you the opportunity to recover revenue, reduce costs, reallocate FTE resources, and increase net income.

Coronavirus Chargebacks

COVID-19 Pandemic Likely to Include a Surge in Chargeback Activity