Online businesses often have unexpected problems, complaints, and returned products that will have to be packaged and sold again. However, behind each problem there are several possible reasons for the consumer, and many (often negative) consequences for the company.
In our previous post, we talk about returns. In this second part we will talk about chargebacks and their impact on stores.
The similarities that chargebacks share with returns are high, among which are the additional costs for the company and consumer dissatisfaction with the trade. One of the main differences of chargebacks vs. Returns is the authority that manages them.
When the consumer requests a return, the communication is carried directly with the store where the purchase was made. In this case, the problem is tried to resolve between both parties, without going to third parties to decide the legitimacy of the case.
However, when the consumer decides to initiate a chargeback dispute, the resolution of the case is granted to the issuing bank instead of the trade, and it will be precisely the issuer who will decide whether the transaction was legitimate or not. In other words, chargebacks are a form of consumer protection that allows users to initiate a dispute against the trade because they do not recognize a charge in their bank account.
Since in this case the resolution of the problem is taken to a third authority, the chargebacks are extremely expensive for business, and can cause much damage to the cash flow of each trade. A chargebacks ratio too high (more than 1% of all transactions) can even lead to the cancellation of the trade account if the problem is not solved in time.
It is important to clarify that there are two types of chargebacks: legitimate and fraudulent. The consumer can initiate a dispute for legitimate chargeback in case he has not received his refund or has not been able to access the return policies with ease.
However, not all chargebacks are legitimate; In recent years, the number of fraudulent chargebacks has been growing exponentially, causing monetary and non-monetary damages to the ecommerce industry. In this type of chargebacks, the consumer makes a purchase, consumes the product or service, and then disputes the transaction saying that he does not recognize it in his bank account. These types of disputes cost businesses millions of dollars each year.