DirectPayNet

Category: CORONAVIRUS

  • Chargeback Rates Nearing The Dreaded 1% Mark? Here’s How To Fix It

    Chargeback Rates Nearing The Dreaded 1% Mark? Here’s How To Fix It

    Chargeback rates have become a severe problem for various online merchants over the past couple months during the COVID-19 crisis. Businesses continue to deal with the economic fall out. For example, some within the subscription, travel, sports and supplement sectors see increasing levels of chargebacks. This is particularly true for US-based merchants. And, let’s not forget e-commerce companies accepting US credit card orders.

    The reasons why these companies are struggling during the coronavirus crisis differ. For some, disrupted supply chains mean their delivery times have become unsustainable. For others, there’s been a complete lack of demand for their products or services. But, more importantly, consumers are conserving cash instead of spending their money on non-essential items.

    Does this sounds familiar? If so, how can you, as a merchant, lower the current risk associated with your business? How can you keep the ability to process payments with your merchant account? This post will offer some insight into how to survive this crisis and keep chargeback rates at acceptable levels.

     

    How COVID-19 has affected the e-commerce merchants

    The global pandemic has hit e-commerce merchants as hard as many other businesses that are struggling. Perhaps the effect has been felt more in the supply chain than in other operational aspects of the business.

    China has since got back on its feet since the initial outbreak in Wuhan. But the chaos it wreaked on production remains. Many factories had already shut down for Chinese New Year celebrations. After remaining closed as a result of the COVID-19, some factories are now working through a monumental backlog of orders. Some reports suggest that 75% of all American companies have experienced supply chain disruption. With goods taking so long to arrive and other shipping delays, chargebacks are soaring.

    Additionally, customers have waited on hold for hours to be refunded. This is the result of companies with limited staff. Many are not receiving replies to emails. Leaving them no option but to issue a chargeback.

     

    Chargeback rates have increased during lockdowns

    Many people are requesting cancellations and refunds because they want to save money for essential items. According to recent research, just under half of all adults have changed their spending habits as a direct result of COVID-19. Of that group, 35% have admitted that they’ve cut back on spending in preparation for the impact of the pandemic. Focusing their remaining discretionary income on essential items only.

    This has rendered some business verticals highly susceptible. For example, subscription-based marketing software platforms are taking a huge hit. Visits to the websites of online travel agents, airlines, and train operators have fallen off a proverbial cliff. The story is even worse for fantasy sports. Sports-related merchants have seen their only commodity temporarily halted right across the globe. But some football (soccer) leagues are beginning to start up again. Giving these merchants a glimmer of hope.

    Are you struggling with high chargeback rates? Worried about the effect it’s going to have on your payment processing abilities? Then read our two-part ultimate guide on how to lower them to acceptable levels for acquiring banks!

    A wave of refunds, fraud, and chargebacks hit the e-commerce industry

     

    A wave of refunds, fraud, and chargebacks hit the e-commerce industry

    The issues described above have understandably led to more returns and refunds in the e-commerce industry. Some of the hardest hit include businesses with sports betting and subscription merchants as mentioned prior. Also, merchants registered under high-risk merchant category codes (MCC) experienced sales slumps, as they provided non-essential products. This can be seen as more “issuing bank declines” as your customer’s bank may be rejecting or scrubbing transactions. In turn, declines increase even more.

    Merchants selling supplements, skin creams and other health products are seeing sales increase, although some are not able to keep up with demand or cannot ship in a timely fashion, which is causing more refunds and chargebacks. According to experts in the industry, friendly fraud will increase as products take longer to arrive than usual and consumers will likely experience buyer’s remorse more often when ordering luxury goods.

     

    Multiple scams raise risk for online retailers

    Friendly fraud isn’t the only problem for merchants though. Figures from the UK’s National Fraud & Cyber Crime Reporting Centre show that online fraud cases rose by 400% in the month of March alone. Reuters reports that so far, online shoppers in the UK have lost more than £800,000 to fake online goods. Driving up the acquirer risk ratings for all e-commerce merchants across the board.

    Meanwhile, the FBI has warned of an increasing number of COVID-19 scams. Attackers have been gaining access to accounts via fake CDC phishing emails. These scams are contributing to a rise in account takeover fraud. These fraudulent purchases are compounding the issues felt by all online retailers at the moment.

    But it’s not all doom and gloom for the online retail industry. Early research suggests that as many as 43% of online transactions are being undertaken by new customers. This presents an opportunity for those some merchants to increase their market share and revenue.

     

    What can e-commerce merchants do to fight back and protect their business?

    Managing increase in demand and sales is imperative, keep customers informed and communicate with them to ensure they are aware of delays on their order . Some merchants are dealing with a deluge of refund requests. No matter your situation, there are ways you can fight back to protect yourself against the devastating effects chargebacks can have on your business. Here are just some of the steps you should be taking to mitigate the threat of high chargeback rates:

    Work with your logistics company to implement for stringent delivery confirmation:

    Seemingly everything is now delivered to the doorstep of customers. Some devious customers are trying to take advantage of the increased delivery volumes by issuing chargebacks. Many claim they never received their items. In many cases they have. Therefore, ask your logistics firm to tighten up delivery confirmation to include a tracking number. During COVID-19, most customers do not want to have contact with delivery drivers, as such you can ask delivery companies to take a picture of the product when they drop it off at the customers door.

    Make it easier than ever to cancel

    Many chargebacks are the result of laziness and ease. Reduce this threat by providing hassle-free refunds and transparent cancellation policies. If consumers can cancel in a few clicks, calling their bank and going on hold for hours in their bid to issue a chargeback won’t seem as easy. Also, consider adding chat and telephone support to give your customers multiple ways of getting in touch.

    Take advantage of more relaxed chargeback dispute procedures:

    Visa has set up a specific COVID-19 Monitoring Program to help merchants better deal with chargeback disputes. American Express has followed a similar route and relaxed the number of days you have to present evidence against a chargeback claim. So don’t worry if it’s taking you longer than usual to gather evidence, you may still have time to submit. Mastercard has also pushed back changes to chargeback arbitration. Making it cheaper to contest chargebacks.

    Keep communicating with your payment processor and acquiring bank:

    Acquirers know you’re under pressure, so they’re already going to be more understanding than usual. But still keep them updated of any potential issues coming down the line. If you’ve got a good history and relationship with your bank, they will be more accommodating.

    Fight fraud with state-of-the-art anti-fraud tools

    Another advantage of being in the good graces of your acquiring bank is they may help you to set up sophisticated anti-fraud tools such as 3D-secure (3DS). With 3DS routing in place, fraud rates will decline and your conversions should remain consistent given the new 3DS protocol avoids friction with the customer. With so many different types of fraud on the rise, this could be a vital weapon in your defense.

    Implement risk management tools

    Solutions like Ethoca and Verifi help to facilitate real-time information exchange between issuers and acquirers. This helps to stop chargebacks in their tracks before they have a negative effect on your business. Similarly, you can outsource your management of chargebacks to specialist third-party teams. That way you can concentrate your efforts on fulfilling orders. They can even provide representation at chargeback arbitrations.

    Limit order sizes

    There’s nothing more damaging to a business than a chargeback for a high-value transaction. Thus, it’s a good idea to limit your cart to transactions of less than $250. That way you can prevent one chargeback from having such a devastating impact.

    Fight back against chargebacks with help from the high-risk merchant specialists

    Merchants in high-risk verticals are dealing with increases in demand. They are also managing a surge of chargeback rates and refunds that may eat up in additional profits generated during COVID. But, by taking the steps detailed above, you can continue to process payments and ensure continued cash flow for your business.

    We help merchants implement items that have big impacts on chargeback figures.

     

    Case Study

    Mark P., a merchant selling nootropics started experiencing an uptick in chargebacks in mid April. In order to mitigate this issue before Mark’s merchant account gets shut down or worse, he gets MATCH-listed, we took the following steps:

      • Velocity checks were added to limit purchases per card number and email address.
      • We helped him create and maintain a negative database to ensure “bad” customers don’t buy again.
      • Visa Merchant Purchase Inquiry (VMPI) is a tool to get alerts directly from card issuers so that consumer issues can be resolved and no chargeback is prompted. Mark added this via a third-party solution we recommended.
      • We helped Mark create a report to review statistics for his chargeback rates by affiliate. Now he can take action and terminate affiliates sending bad traffic.
      • Lastly, we conducted a test purchase and reviewed the order process. We received the order eight days later, but Mark told his customers they would receive it in five days within the US. Given supply chain issues during COVID-19, many orders were delayed. We recommended he change his shipping policy. He also sent regular emails to his customers to advise them of their order status.

    These small changes have resulted in a 20% reduction in chargeback rates in the last two weeks, likely more next month.

     

    These are unprecedented times, but here at DirectPayNet we are operating as normal. We’re more committed than ever to helping our high-risk clients secure the best possible payment processing outcomes.

    If you’re worried about the effects COVID-19 is having on your payments, talk to our expert team to discuss which options are available to you moving forward.

  • The Coronavirus Pandemic Can Affect Your Merchant Accounts

    The Coronavirus Pandemic Can Affect Your Merchant Accounts

    The Coronavirus outbreak is having an impact on the e-commerce industry and that means merchant accounts are affected too. With ongoing panic and chaos everywhere, online spending has increased as retail businesses brace for major losses. However, the idea that social distancing and staying home will boost online merchants only tells half the story.

    Online retailers are already struggling to cope with the surge in online orders. We have seen disruptions everywhere. There’s been uncertainty in the supply chain. Questionable marketing practices and unusual buyer behavior are creating issues. Compliance and fraud are suddenly vital considerations. Additionally, there are concerns over the availability of payment solutions for low and high-risk merchants, as some providers who rely on brick and mortar businesses may face financial difficulties during this crisis.

    Entrepreneurs that sell products and services online must be cautious. Now is a crucial time to safeguard your business, particularly your payment processing channels. Unfortunately, dormant merchant accounts get closed. Some industries will see decreases while others like supplements, business opportunities and survival gear will see increases in buying activity. In either case, it’s important to manage your payment options for customers. Failure to do so during these times of high volume and potentially high fraud could see you lose them altogether.

    This post will outline what the risks are for online merchants. Including how to avoid the issues associated with fulfillment worries and chargebacks. So pay attention! This could be the difference between making a success or failure during this pandemic.

     

    Coronavirus: How serious is the situation?

    As you already know, coronavirus or COVID-19 is an ongoing worldwide epidemic. It also is the reason for a major upcoming world economic crisis. The Coronavirus has now spread to over 120 countries. Countries like the US, Italy, Spain, South Korea and Iran are affected in a way never seen before.

    Amidst this crisis, fears of a global recession have increased. Travel bans and border closures have caused stock markets to plummet. The impact of the pandemic is being felt by all members of society. The economic impact is also a big concern as airlines and social venues have been forced to close by national governments.

     

    Impact on the e-commerce industry

    The coronavirus outbreak has alarmed the e-commerce industry. It’s caused disruptions to supply chains everywhere. Many companies manufacture their goods in Asia, which has been severely affected by this outbreak.

    Those who operate in high-risk verticals such as high-end electronics, or high-ticket fashion have been badly hit. This thanks to the closure of Chinese manufacturers, thus causing issues with their supply chain and fulfillment. While factories are reopening, many are still concerned about stock levels. E-commerce merchants know that if they can’t fulfill their orders, they could be on the receiving end of a wave of unwanted chargebacks.

     

    How online sellers can weather the storm

    It’s crucial at this moment to act to prevent losing your merchant account and ensure you are able to get a high enough monthly cap from your provider to respond to the increasing demand. First, keep your customers’ expectations realistic. If you are looking at a six-week wait for new products, then tell them that is the case. Offer refunds if necessary. Take out-of-stock items off the website. Do everything you can to avoid rampant chargebacks from impatient customers.

    Also, keep open lines of communication with your merchant service provider. Keep them aware of any supply chain issues you’re experiencing. Don’t operate in a bubble. If your account manager isn’t aware of any challenges, they can’t notify an acquiring bank about the problems you might be experiencing. A sudden unexplained spike in refunds or chargebacks could see your merchant account terminated. Don’t make this mistake by keeping your merchant service provider in the loop.

    For those of you with digital products such as online business opportunities, your sales are probably witnessing a nice uptick. However, beware of increased instances of friendly fraud with your sales. Now is a good time to review your cancellation policies and customer support setup in the wake of the new demand. Ensure you provide value and communicate with your customers often; if they are cash strapped and don’t feel your product is worth the spend, they are more likely to chargeback.

     

    Worried a surge in sales will increase chargebacks? Read our two-part guide on protecting your business against what is the biggest threat to your merchant account!

     

    Compliance is more important now than ever before

    Business involved in the chain of payment processing are concerned about compliance. This is because questionable opportunists are exploiting the outbreak. High-risk merchants selling herbal teas and supplements claiming to cure COVID-19 have emerged. Amazon, Walmart, eBay, and Etsy are already removing sellers involved in price gouging items that are in high demand. For example, Amazon removed over one million items that violated its advertising guidelines.

    False ads and misrepresentation of products is illegal. And, as we know from experience, spreading disinformation results in serious penalties. For example, The Federal Trade Commission (FTC) in the US often takes legal proceedings against offenders. Government agencies in other countries have been known to bring businesses making false claims to court.

    Short-term gain may be met with FTC action once the crisis is over. Merchants caught violating compliance will lose their payment processing abilities. They may even be put on the MATCH list or Terminated Merchant File (TMF).

     

    There will be penalties for non-compliant merchants

    Misleading ads on social media will result in outright bans. Facebook announced that they are banning advertisements for medical face masks. Ads with claims of “curing the virus” are also being removed. The social network is also spreading awareness regarding coronavirus. They are directing all searches to the World Health Organization’s information page.

    While it may be tempting to take advantage of a surge in demand, doing so is an unwise move. Unhappy customers have a long memory. A few good months now will mean nothing when clients stop buying from you when their situation normalizes. Furthermore, regulators and acquiring banks have zero-tolerance policies in place for price gouging or misleading claims on health benefits of a supplement.

    As a high-risk merchant, you already have to earn the trust of acquirers more than in other verticals. It makes no sense to throw away your hard-earned sales limits for a few months of inflated sales.

     

    How should high-risk merchants respond?

    Merchants must use effective strategies to navigate through these new challenges. The last thing needed is to lose a merchant account due to violating compliance or the terms of an agreement with an acquirer.

    Technology has made things simpler. Start by ramping up customer support. Implement software solutions for video conferencing, chatbots and other online communication. Ensure customer service agents work from remote areas. This can be ideal if collaboration amongst employees is key to stabilizing operations.

    Merchants who are facing inventory delays need to develop a new strategy regarding their supply chains. Look at alternative channels. Many shippers are trying to find suppliers outside of China to make up for all the delays. Your business should also be considering all available options before your inventory runs out. Give customers a discount if the shipping time is delayed.

     

    Latin America and other Asian countries as alternative markets

    Based on current trends, Latin America and other parts of Asia are becoming hot spots for alternative supply chains. It is never a good idea to rely solely on one supplier or region for products.

    Companies dealing with electrical machinery can turn to Brazil. Mexico can be a possible supplier for items such as furniture and plastics. Apparel and clothing products can be sourced from Canada. Similarly, India can be a supplier of surgical instruments or motor vehicle parts.

    It is crucial to diversify your supply chain. This protects your business during normal times so it is ready for a potential crisis such as COVID-19. Many suppliers are also taking measures to choose air freight over sea transport. Many roads and ports have been restricted in response to the crisis.

    Once again, little to no sales activity will affect merchant accounts. So talk to the account manager of your payment provider. Being transparent about these challenges early on will set the right expectations. Little to no activity in merchant accounts is never a good thing. But these are unusual times, so an acquiring bank may be more forgiving. Particularly, if you are actively trying to find solutions to save your business.

     

    Protect merchant accounts from spikes in fraud activity

    Are you enjoying increased sales in your merchant accounts? Please use state-of-the-art anti-fraud tools provided by your acquiring partners. With card-not-present transactions increasing, you need to watch chargeback ratios like a hawk. Don’t let increased sales lead to increases in fraud.

    Many customers will be cash strapped in the next few months. Help them avoid using their credit card statements as an excuse to issue chargeback because of a bad descriptor. Customers place bigger bulk purchases. So, negotiate increased sales limits. Investigate additional payment channels such as ACH, e-check, or virtual terminals to spread sales out evenly. This will reduce your reliance on credit card processing (and the chargeback risks associated with it).

    It may also be a good idea to temporarily suspend next-day delivery if you can no longer fulfill orders at that pace. Update website shipping policies to reflect those changes in demand and supply. Provide unambiguous refund, cancellation policies and send emails to your customers with updates on product shipment. This will help to avoid chargebacks spiralling out of control as you struggle to cope with demand.

     

    Don’t put your merchant accounts at risk

    Online sellers must adapt to the changing circumstances. So, you should make conscious efforts to combat this issue head-on. The outbreak may seem like it can only lead to negative aftermath for your high-risk business. But it’s worth applying some strategies to save your merchant accounts.

    Diversify your product portfolio by including in-demand products from reliable suppliers. If you sell a high-ticket business opportunity product, try selling a shorter course or one module of your course for a lower price. This will help price-conscious consumers benefit from your product.

    Ramp up support to prevent a wave of chargebacks from angry customers waiting for their physical products to arrive. Some buyers are anxious to receive their supplements during this crisis. They want to take their health in their own hands. Also, try to expand your available payment methods to reduce your exposure to the threats presented by credit card processing.

    Finally, if you’re experiencing a boom in sales, don’t take your eye off the ball when it comes to fraud. When panic strikes, opportunistic fraud increases. Work with your acquirer to install the latest machine-learning anti-fraud tools. Stopping suspicious transactions in their tracks.

    DirectPayNet is working round the clock to service our clients. We are available to answer any of your questions during the COVID crisis. Our mission is to help you manage your merchant accounts and other payment solutions in this time of need.

    For more information on how you can manage your payment processing through these difficult times, contact DirectPayNet.