COVID19 has resulted in a significant shift from high street to online retail and brings with it increased opportunity, but also increased risk if not managed properly. This is exaggerated as cardholders face greater pressure and a greater need to pursue transaction disputes or “chargebacks” due to their own personal financial challenges.
Chargebacks can occur for a number of reasons such as a challenge to the quality of goods, incorrect charges or product not being received. The number of chargeback occurrences is likely to be higher during the COVID19 pandemic as the number of online transactions increases, manufacturing pressures are increased, supply chains are stretched and in some cases, the ability to deliver the product or service is taken away, such as airline flights.
There are a number of things to consider when dealing with the increasing scale and risk of chargebacks such as the contract with the customer, Force Majeure & Unjustified Enrichment. However, ultimately it is a dialogue with the customer that is likely to yield the best outcome.
Regular best practices such as the following remain important hygiene.
According to Visa, the merchant is not automatically liable even if they cancelled the delivery of the product or service, although other dispute channels may be available to the consumer.
In addition to regular best practice, there are further considerations specifically for the context of Covid19 that are important to understand. This needs to be achieved whilst appreciating that this is a dynamic market, and the context is likely to change.
Understand the impact of Force Majeure.
It is important to understand the impact of Force Majeure in your contract alongside the obligation on the merchant to not benefit from “unjustified enrichment”.
Understand clearly how Force Majeure protects the consumer as well. For example, if a consumer cancels a flight with you because the flight was to a COVID19 restricted zone, Force Majeure could be justification for them cancelling without breaching the contract.
Understand your starting point, and have clear policy and process for managing the dispute accordingly. Amazon in particular advocate the use of a clear decision matrix highlighting decision based on circumstances and threshold.
Check whether refunds have already been issued.
Issuers are supposed to check whether refunds have been issued before applying chargebacks, but they face no risk if they get it wrong, so merchants should check themselves as the scale and risk is likely to be higher during this period.
Direct customers towards refunds rather than chargebacks.
Visa and Mastercard have stated intentions to work with the industry to address potential chargeback spikes. However, the risk still lies with the merchant. Being available to the customer, communicating and agreeing an outcome to a dispute is most likely to yield the minimum cost result to the merchant.
Alongside the cost of managing the process and loss of goods, merchants still face the risk of being placed on a dispute monitoring program in the event of a spike, until Visa and Mastercard make clear policy changes. This can lead to additional fees, assessments, risk of termination and being placed on the MATCH list if chargeback rates remain excessive.
It clearly may not be possible to refund everybody, but now more than ever a refund is likely to be preferable compared to a chargeback.
Be aware of Visa, American Express & Mastercard’s position during COVID19.
Visa has produced guidelines that can be found here https://usa.visa.com/dam/VCOM/global/support-legal/documents/apr-disputes-vbn.pdf
Of note, Visa has introduced a COVID 19 Dispute Monitoring Program particularly aimed at Airlines, entertainment, lodging, transport & travel services segments and are clear that issuers must adhere to 15-day rules before initiating disputes. Disputes will be invalid if the merchant can supply the service or product, the consumer has not made an attempt to resolve with the merchant or the issuer does not provide an explanation for the dispute. Issuers logging more than 50 invalid disputes a day will be flagged by the program.
Issuers continuing to fail to comply will be subject to further assessments and face the risk of losing the ability to raise disputes.
Visa has announced that the Visa Dispute Monitoring Program and Visa Fraud Monitoring Program will both be suspended for Travel and Entertainment segment codes for the compliance period through to July 2020. The Visa Acquirer Monitoring Program will also be suspended for this period.
However, Visa is particularly clear that their Global Brand Protection Program will not be affected and illegal or brand-damaging activity will receive no concessions.
Mastercard has made similar announcements including stating that they will continue to monitor merchants for excess fraud and expect issuers to work with merchants on a resolution. However, they are suspending assessments relating to the Excessive Fraud Management Program until November 2020.
Similarly, they have announced the suspension of the Excess Chargeback Program for Airline, Cruise Line, Passenger Railway and travel segments and will continue to monitor the need to add further segments. Merchants outside of these segments and identified by the Excessive Chargeback Program can request an extension for compliance through the acquirer.
American Express has extended dispute resolution time periods to 30 days for disputes received between 1st March and 31st May 2020.
Ultimately, good hygiene is the most important aspect of any dispute management strategy and that remains true during COVID19. However, there is an overlay of considerations that merchants need to remain aware of.
To find out how we can help you mitigate the risk contact us today