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GUEST COMMENT Which industries are hit hardest by chargebacks and what can be done?
by Monica Eaton-Cardone
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During 2015, UK online retailers took over £114bn in sales, a figure expected to rise to £126bn by the end of 2016. Convenience to pay and shop almost anywhere and anytime is fuelling unprecedented levels of online spending.
But beneath the rose-tinted façade of such huge growth, what is happening to internet retailers behind the scenes?
It’s well known that fraudsters are attracted to opportunity, and with billions to play for, it’s no surprise that internet retailing has become one of the most attractive areas to target.
The threat of chargebacks: who is in danger?
According to JP Morgan Chase, retailers saw 7% transaction growth last year, but chargebacks increased by a massive 20%. Aité Group reports that this results in more than £30 billion in losses for the retail industry and banking sector.
However, chargebacks affect each merchant differently. Rates can fluctuate based on a business’s policies and operations, as well as the products or services being offered. Despite overall trends, when it comes to individual industries, there is still a distinct pattern.
At Chargebacks911, we’ve analysed our global data across industries, enabling us to decipher the problem areas in UK retail when it comes to chargebacks.
Digital goods: Following global trends, the digital goods sector is the hardest hit in the UK. Our data revealed that as much as 24% of all UK digital purchases over the final three months of 2015 were hit by chargebacks.
Diet and nutrition: Chargebacks affected over 13% of purchases in the diet and nutrition product sector in the same period.
Beauty: In the beauty industry, 12.1% of purchases resulted in a chargeback.
These statistics are alarming. Considering card networks take punitive action when chargeback rates exceed a mere 1% of total sales, retailers in these industries can quickly breach allotted thresholds. This means that merchants will not only lose significant amounts of revenue, they’ll also pay excessive fees and suffer other processing restrictions.
It is imperative for merchants to understand the causes for chargebacks and create a customised mitigation plan.
Mitigating chargebacks and maintaining revenue
Effective chargeback management requires both long-term and short-term aims.
To achieve industry-wide results, retailers and other industry members must work together to modify current consumer behaviours. Abuse of the chargeback process through the use of illegitimate transaction disputes is a growing concern for retailers around the globe. Half of all cardholders who succeed in securing an illegitimate chargeback will seek another within 90 days.
By disputing these illegitimate chargebacks, merchants challenge the faulty consumer behaviour and reduce future risks for everyone involved.
In the short-term though, merchants can address chargeback threats on an individual level; it is possible to make simple yet effective process changes that demonstrably help to reduce unnecessary chargeback losses.
Adhere to business best practices: it may sound obvious, but it is important to always adhere to business best practices. This involves everything from ensuring the customer receives the correct product to answering emails in a timely fashion.
Learn from your experience: stay informed on the reasons behind chargebacks so that you can challenge them when appropriate. Learn from each experience to prevent future risk and respond more effectively.
Be available at all times: ecommerce is a 24-hours-a-day business. If customers cannot contact you when they want, they will contact their bank instead—which often is far easier.
Honour cancellation and refund requests promptly: returns may be a costly and time-consuming process, but they are actually superior in many ways to chargebacks. Prominently display your refund policies and contact information to help reduce the risk of chargebacks. Then, act in accordance with your policy and refund qualified transactions quickly to avoid unnecessary chargebacks.
Make your case with the banks: keep detailed records up-to-date, from the order to the delivery confirmation. Provide necessary information to the bank promptly if a chargeback claim is initiated.
Clearly outline terms of service: it is especially important for merchants who process recurring payments to outline all billing information prior to completing the sale.
Communicate to maintain loyalty: in today’s age of instant gratification, consumers are often more loyal to convenience than they are to actual brands. Loyalty programs, special offers, and even regular communications help maintain satisfaction and prevent chargebacks.
Create a dynamic mitigation strategy: card network rules are constantly changing and a lack of standardisation means processes vary among banks. Meanwhile, consumer behaviours evolve over time too. If you are using an automated management tool or submit one-size-fits-all disputes, it is imperative that you devise a more dynamic approach that takes advantage of agile solutions. Otherwise, you’ll be left using static, incomplete data to address the wrong problems – which will obviously produce below-par results. Effective and comprehensive strategies are available to liberate in-house resources.
The mindset of “chargebacks are just a cost of doing business” is no longer true. Taking such an approach in the online world could be the death knell for any retailer.
No matter what industry you are in, it is possible to benefit from increased transaction volumes as ecommerce continues to boom. Chargebacks needn’t be a deterrent any longer.
Monica Eaton-Cardone is co-founder of Chargebacks911 and its parent company, Global Risk Technologies
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