Commerce is expanding rapidly, especially within the retail sector. Recent data shows that overall U.S. retail sales have increased 8.8% year-on-year, with ecommerce specifically up 8.4%. However, challenges are inevitable, despite the resilient consumer spending we’ve seen earlier in the year.
For example, purchase confusion can arise (and does) when a customer sees unfamiliar names or references on bank statements. Consumers could be led to believe that these charges are a mistake or even potentially fraudulent and end up requesting their money back from their bank. These sorts of requests — known as chargebacks — are very expensive and time-consuming for all parties involved. In fact, there are roughly 615 million chargebacks happening every year and the average chargeback costs $191, which amounts to $117.46 billion per year. The issue is clear to see.
Finding the Right Solution for Chargebacks
The expense and complication caused by the chargeback process make it essential that retailers take steps to prevent them, otherwise profits will be impacted by attrition and transaction costs. It is also vital that brands pay attention to today’s evolving consumer behaviors.
The solution lies in ensuring transparency, that is, making transaction information clearer to everyone. In fact, nearly all consumers want their bank to increase clarity by providing more transaction detail, according to recent research. This can be as simple as adding a logo or digital receipts to each outgoing payment, thereby helping to jog customers’ memory and greatly reducing the odds of confusion when the bank statement arrives.
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When formal chargebacks do occur, an alert-based system can still be used to receive fraud data from issuers in real time, instead of days or weeks after it has been processed.
One leading luxury retailer was able to reduce losses, keep valuable merchandise and avoid the need for chargebacks by doing just this. Originally, the retailer was experiencing thousands of chargebacks every month. It would fulfill and ship out orders only for them to be reported weeks or months later as fraudulent, ultimately saddling this brand with both the loss of goods and chargeback fees. However, an alerts-based system enabled them to confidently identify and cancel orders as needed, thereby avoiding chargebacks and helping to improve the bottom line.
Fostering Trust and Maintaining Long-Term Customers
Even if first-party fraud was reported to the card issuer as fraud by the customer, the retailer still has the opportunity to refund the purchase earlier and avoid the time-consuming and expensive efforts associated with processing a chargeback while maintaining a positive customer experience.
There’s no doubt that preventing and streamlining chargebacks significantly benefits retailers, but companies should also consider a comprehensive strategy around collaboration and technology to reduce the risk of chargebacks, improve operations and ultimately reap dividends in the form of increased profitability and customer loyalty.
Tackling issues that affect the overall customer experience is crucial. It’s important that financial partners help retailers by continuing to enhance the customer experience, thereby helping retailers reduce chargeback transactions, lower dispute costs and increase customer retention. The ultimate result is a boost in lifetime value by creating trust with consumers and encouraging long-term relationships.
Gaurav Mittal is the EVP of Ethoca, a Mastercard company. He is focused on executing and evolving Ethoca’s global strategy to help businesses further reduce fraud and disputes and create better digital customer experiences. Mittal joined Mastercard in 2014. Prior to his role at Ethoca, he led global M&A for Mastercard. He has also held leadership positions across product development and enterprise strategy. Prior to Mastercard, Mittal worked at Booz & Company where he helped customers develop and focus on their strategic initiatives. Before Booz, he worked as an early employee and senior executive at GEP, a B2B procure-to-pay technology company, where he oversaw rapid growth of the firm. Mittal received his MBA from Columbia University and an undergraduate degree in computer science from Denison University.
