The growth and demand of online shopping over the past five years has retailers and brands scurrying to gain market share and capture more of the consumer’s wallet.
And as billions are spent on developing omnichannel retailing, which includes putting the shopper at the center of the retail model, the power of the consumer has shifted. Free and quick delivery is a must while so-called “hassle-free” returns are a given.
But these changes in consumer behavior and the retail industry overall include a staggering increase in chargebacks. Here Monica Eaton-Cardone, cofounder of Chargebacks911, which offers “both response and resolution services for chargebacks and cardholder disputes,” shares insights into these trends in the market as well as how companies can mitigate risks associated with chargebacks.
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WWD: There seems to be a growing volume of chargebacks. What’s driving it? How are companies impacted?
Monica Eaton-Cardone: With chargebacks rising at a rate of 20 percent per year, and friendly fraud boasting an increase of 41 percent over the last two; it’s no wonder retailers are complaining about this growing expense.
Unlike the saying, “What you don’t know can’t hurt you” — when it comes to chargebacks, the reverse is true.
Why are chargebacks growing? Simply stated, chargebacks are growing in a direction that remains largely “unidentified” — a type of chargeback commonly known as friendly fraud, which is better described as an “accidental chargeback.” I say “accidental” because it never should have happened in the first place. The majority of friendly fraud today happens due to ignorance or lacking education, either on behalf of the bank or the consumer.
Statistics prove that 50 percent of the cardholders who file a friendly fraud chargeback and get away with it, will do it again within 90 days. With the vast majority of merchants lacking the wherewithal to defend themselves or properly identify these fraudulently filed cases, the equation morphs quickly into an exponential dilemma. Simply stated, every friendly fraud chargeback is worth not one, but 1.5 chargebacks.
Merchants that are affected most are those who sell through online stores or apps, those who sell primarily to women (clothing and high-end merchandise remains to be a primary target), and those who sell products that are easily resold or translated into cash. Women are not only responsible for the highest percentage of online shopping, they also reign over 80 percent of all originated chargebacks.
WWD: What exactly is “consumer entitlement” and what role does is play in chargebacks?
M.E-C.: It is the chicken vs. the egg theory when it comes to tackling the subject of consumer behavior. An example would be whether our technology is training the way consumers behave, or are consumers the architects of our evolving technology?
Either way, there is no doubt that our world is changing and when it comes to the online marketplace — consumer acquisition is king. Consumer entitlement describes the outcome that results from an imbalance of standards that are being bent around consumers’ demands — even past what is logical or fair for the merchant. With so many merchants competing on a equal playing field online; brand loyalty competes with today’s savvy consumer.
We are confronting an age where instant gratification, immediate satisfaction, zero percent liability, and friction-less checkout methods are contenders in a merchants’ ability to create the ultimate buying experience. Yesterday’s consumer would never think of complaining about taking a few extra seconds in the checkout aisle, not being able to return a product that was used or worn, or considering that their bank needed to resolve a transaction issue because the retailer was not open to take their call at 2 a.m. on a Sunday.
Not only are online stores competing in more channels as technology evolves, they are also confronted with growing demands that threaten their margins and introduce new barriers to growth; namely chargebacks — through the evolution of consumer entitlement.
Our previous exchange between buyers and sellers was built upon the mantra, “The customer is always right.” Yet today’s world is very different, with digital transactions turning this cornerstone philosophy into a potential liability — underpinning online retailers by providing savvy consumers with opportunities to exploit new loopholes never before anticipated. It is an age where not just the buyer, but the seller also, must be more aware (“seller beware”).
WWD: How does “friendly fraud” work exactly, and how is it affecting brands and retailers?
M.E-C.: Friendly fraud happens when an illegitimate chargeback is filed. A consumer generally contacts their bank to obtain an unauthorized refund usually under the pretense of fraud — often keeping the merchandise but receiving a forced refund from the merchant. Every time friendly fraud happens, the merchant is charged a fee plus a penalty with estimated costs being about $300 for every $100.
WWD: What can be done to mitigate the impact of chargebacks?
M.E-C.: Make sure online retailers operate customer service 24/7. Being closed for customer service may mean your customer will be inclined to turn to their bank. When a merchant sells online, they are open for business 24/7/365, and should be prepared to service their customers during these times as well.
Another way is to engage in more communications with your customers, not less. This helps create a human connection. If your customer feels they are transacting with a computer, not a merchant — a chargeback is more likely to occur.
It’s also important to track product and service deliveries. Make sure your customers get what they ordered, on time and when promised. Also monitor your chargeback transactions, and pay close attention to any increase in numbers. Do not dismiss the fact that more information can be learned from errors you may have made — use these transactions as opportunity to improve, not just an expense.
And companies can hire experts. Retailers are best served doing what they do best: focusing on growing their customer base and improving their products and services. Consider outsourcing your chargeback management to a third-party who is well equipped to intelligently handle this part of your business and work together to not only grow, but also improve.