When the coronavirus fades, chargebacks will still be a threat

As the states gradually reopen their economies, many businesses are finding themselves facing a “new normal,” as people have taken to describing it.

Merchants working to reopen right now will face a very different retail environment compared to the one they knew just a few months ago. Of course, there are the obvious differences like social distancing and face masks. However, many of the more impactful, long-term changes may not be immediately visible.

In just the last few weeks, we’ve seen retail institutions like J.C. Penney, J. Crew, and Neiman Marcus file for bankruptcy. These companies were, of course, facing major problems before the COVID-19 outbreak. And, given we’ve seen a 21.6% YoY decline in retail sales so far this year, the situation was just untenable for these troubled brands. Even more, consumers don’t necessarily seem like they’re in a big hurry to rush back into stores and resume business as normal.

But, while many legacy brands and other sellers reliant on brick-and-mortar channels are hurting, digital-first merchants are seeing business boom as consumers remain trapped at home. Many have seen massive gains since the lockdown began.

Verticals like online grocery sales are expected to show 40% growth this year. Food-by-subscription, online ordering and curbside pickup also saw rapid adoption. That’s great news in isolation; with more digital purchases, though, merchants are likely to face new problems.

Many new threats and business risks have develop in the last few weeks as a direct result of the shift in consumer behavior. For instance, we’ve seen chargebacks based on service complaints overtake friendly fraud chargebacks, which typically represent between 60% to 80% of all issuances. Many of these chargebacks are being submitted by consumers who are new to e-commerce, and may be impatient with crisis-related delays.

Businesses could face supply chain disruptions, backups in customer service, and shipping delays, just to name a few logistical challenges. Fortunately, the card schemes have taken notice.

Visa has adopted a series of policies meant to address the most heavily impacted verticals like travel and entertainment, as well as waive some fees associated with chargebacks for all merchants. Mastercard took similar steps, issuing a document that outlines when a cardholder may and may not request a chargeback.

These are positive developments, to be certain, but they still can’t mitigate the risk entirely. As a result, merchants will need to adopt practices that can curtail the surge in chargeback activity and protect their businesses, even after the worst of the COVID-19 outbreak is over.

Merchants should, first and foremost, emphasize clarity in their customer relations. They need to be plainly worded, concise, and consistent with customers about expectations. This means communicating effectively about potential delays or other issues, and being accessible at all hours across all channels of interaction (email, phone, social media, etc.).

At the same time, merchants need to adopt practices to mitigate risk wherever possible. This means optimizing practices to prevent avoidable delays and other errors, as well as using tools to screen transactions effectively and stop fraud.

Lastly, don’t forget to identify and leverage new opportunities. As mentioned above, e-commerce is booming. The merchants who are going to be most successful are those who are willing to innovate and embrace new practices, like adopting contactless payments and “buy online, pick up in-store” options.

The post-COVID marketplace is going to be substantively different from what we knew just a few months ago. There is a lot of risk involved, to be certain. However, there are opportunities to leverage these changes and grow, if managed tactfully.