A Cautionary Tale: How Covid-19 Policies Can Lead to Chargebacks

A Cautionary Tale: How Covid-19 Policies Can Lead to Chargebacks

June 4, 2020

By Karisse Hendrick, Principal, Chargelytics Consulting

There's no doubt that Covid-19 has greatly impacted online companies in the travel and event ticketing space. When consumers started canceling travel plans and stopped attending events, companies in these verticals were forced to determine how they would handle refund requests. Recently, RyanAir was in the news for its policies and the repercussions of those policies. It’s a great learning opportunity for all online companies, not just travel.

RyanAir took a strong "no refunds" policy, instead providing credits in the amount paid, to be used for future travel. This caused many of their customers to call their credit card companies or issuing bank to request a chargeback. According to reports, the airline told some customers that if they filed a chargeback with their bank, the company would consider it fraud and they would be placed on their blacklist/negative list, no longer able to travel on this RyanAir in the future. The company said this is not their "official" policy, and it's unconfirmed if this is actually happening regularly or was used as a threat by a handful of "rogue" customer service agents. But it has been reported by several customers.

Chargebacks often are an afterthought to online companies, but they shouldn’t be. It’s important to consider how business decisions affect your bottom line, whether through chargebacks, refunds, or reputation. In this case, the company should have expected chargebacks to go up when refunds were not issued. This doesn’t mean they should have issued refunds, but if a company is issuing store credits, there is a way to implement this policy without a high influx of losses due to chargebacks.

Here are some best practices for companies offering only store credits (versus refunds) for canceled or postponed events or travel. Most apply to other verticals as well.

Refunds vs. store credits

Obviously, most consumers want a refund when plans are canceled. But, depending on the business model and financial solvency of these companies, not all were/are in a position to provide them. Marketplaces or platforms for smaller venues, hotels, etc., may have already sent the funds for the trip or event to those fulfilling the purchase. In some cases, companies couldn't afford to refund all canceled orders and remain in business. For this reason, they chose to provide company credits for the value of the original purchase (in most cases).

To cause as few chargebacks as possible, companies need to clearly communicate these policies on their website and via direct communication with their customers. They should also have an escalation process within customer service for the “squeakiest wheels,” with the ability to issue refunds in these edge cases. Companies should be prepared to respond to the chargebacks with the necessary documentation, making it more likely to win. In addition to the companies making "all or nothing" decisions regarding store credits, one merchant made the decision to offer 120 percent of the value of the purchase to incentivize customers to take the credit, but did offer refunds upon request. Another merchant provided a "refund window" for customers to request a refund. If customers did not request a refund by the deadline, they would be issued store credit for future use.

Consider the repercussions & be prepared

You can expect some customers to insist upon refunds. Creating a process and policies around these requests will be best for your customers and your front line customer service staff. Be prepared for this push back.

In performing analysis on past client chargebacks, I've been able to trace some back to specific customer service analysts. The way a message is delivered matters! If a customer senses uncertainty, rudeness, or a lack of knowledge around company policies, they may ask to escalate the call to management, or choose to hang up and call their bank to issue a chargeback. It's also important to have some compassion when creating these policies. With over 35 million people filing for unemployment in the U.S. alone, a lot of consumers have had their financial circumstances change almost overnight. While they may have been able to afford a trip or concert or sporting event three months ago, they may need those funds to pay for food or shelter or healthcare for their families. If your company absolutely cannot issue refunds, the customer service agent should at least be empathetic and kind and not threaten to brand them as a criminal.

Scripts for, and clear communication from, customer service reps receiving these calls will impact your incoming chargeback volume.

Know the rules

It's important to note that Visa and MasterCard have said that a chargeback is considered "invalid" if it’s for travel or an event that has been canceled but a store credit has been issued. However, because issuing banks can't tell if a store credit has been issued, it is up to the merchant to dispute these chargebacks accurately, demonstrating that a store credit was issued and citing the guidelines in their response documentation.

In this case, having the correct verbiage to respond to these chargebacks is critical to winning the dispute. The biggest tip is to quote directly from these new Covid-19 guidelines, and to have template-style responses created for each chargeback reason code, and each card brand. For responses to all card brands in these cases (store credit was issued for travel or an event), it is imperative that the merchant include screenshots of the communication of the store credit policy on their website and/or e-mail communications, any logs of direct communication with the customer (either via email, chat or notes left by a customer service agent from a phone call), and proof that the store credit has been issued.

Visa and Mastercard both have specific verbiage in their guidelines (released in March 2020) that I highly suggest using in the response documentation. These are just a few specific tips for responding to chargebacks when a store credit has been provided versus a full refund. If you aren't in travel, there are new guidelines for retailers in some situations, so they could be worth reviewing.

Create an internal process for adding chargebacks to your fraud system

This is something a lot of companies get wrong. Prior to 2011, in order for a chargeback to be filed with a "fraud" reason code, the cardholder had to sign an affidavit of fraud and get a new card issued. After 2011, this reason code became the easiest to file for an issuing bank and we as an industry have seen this reason code, for many reasons, be used as a catch-all.

Forty to 60 percent of my clients’ fraud chargebacks are not actually true fraud—we can prove the cardholder was involved in the transaction. In other cases, the cardholder doesn't select the reason code for a chargeback. Because this reason code no longer requires any follow-up from the customer in order for the issuing bank to file it with the merchant, (unlike other reason codes such as "not as described" or "services not rendered"), many customer service representatives will select this reason to ensure their call times are shorter. Sometimes, the cardholder doesn't recognize the transaction, but that doesn't necessarily mean their credit card was stolen. In other cases, the cardholder didn't understand the true reason for the term "fraud" and they select this reason because they feel like the merchant has committed fraud by not providing a refund or the service wasn't as they expected.

The point is, there are way too many variables for companies to assume that all fraud reason code chargebacks mean the credit card was stolen. It’s not a reason to automatically blacklist the customer. Every online merchant should have a process for someone with fraud analyst experience to reverse engineer a fraud chargeback to determine if the transaction was truly fraudulent. Only those chargebacks should be added to the system. 

Chargebacks aren’t something that happen for no reason. Had RyanAir thought through their process and policies for handling credits vs. refunds, they could have avoided the negative press and customer backlash. This example isn’t meant to throw anyone “under the bus,” but instead to be a learning opportunity for other online companies. Chances are, you have or will be asked by your company to set these policies and processes. If your leadership doesn’t understand the impact of chargebacks based on the decisions proposed, you can share the above article with them as a cautionary tale.

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