With global travel bans in place and the lives of people all over the world now at a halt due to quarantines and stay-at-home directives, it is clear the Covid-19 outbreak is having a massive impact on multiple industries, particularly travel. Vacations are on hold. Business travel has been scaled back to nearly non-existent. It is unclear when the outbreak will be sufficiently contained and life will be allowed to return to normal.
Card Not Present spoke to Monica Eaton-Cardone, COO and co-founder of Chargebacks911 about why she thinks the travel industry should expect a boom in travel industry chargebacks—and how they can weather the storm.
Card Not Present: Why are you predicting a sharp rise in chargebacks for travel operators and airlines?
Monica Eaton-Cardone: The global coronavirus pandemic has already caused lasting damage to several industries, with the travel industry being hit hard.
There are travel bans in place across the globe, some of the tightest border restrictions we’ve ever seen in peacetime, and ghost flights taking off without passengers—who have either chosen to stay at home or have been forced to. This all equates to an inevitable influx of chargebacks for travel operators and airlines as consumers go through their bank to claim their money back.
How do you anticipate this will affect the travel industry?
It’s hard to say how long we’ll experience upheaval as a result of a crisis of this sort—after all, this virus is still in its early days. Overall, chargebacks across all industries could rise 20 percent, but for those industries severely impacted by coronavirus, such as travel, they could rise by 50 percent.
The problem with the travel sector is that it’s already inherently risky, with fuel prices rising, labor costs increasing and real estate becoming more expensive. As a result, businesses are already playing a balancing act when it comes to maintaining margins; they don’t need an influx of chargebacks to send them toppling over the edge of what’s manageable.
When airlines have to run empty or nearly empty flights that were previously booked up, not only do they lose sales revenue from a consumer who can no longer make the flight and files a chargeback, but they must also pay a fee to cover administration costs of handling the chargeback. In contrast, when customers request a refund directly from the airline or travel agent, this could be processed before a flight takes place so that the seat can be resold.
Something that a lot of consumers don’t understand is that the cost of chargebacks always ends up back with them. Once the pandemic is over, the airlines that survive will have to dramatically increase travel costs in order to recover from this huge financial setback.
How can merchants ensure that customers understand refund policies and processes? Why is this necessary?
Most consumers have no idea of the positive difference an ordinary refund makes in terms of cost in comparison with a chargeback. In fact, the idea of a chargeback might be more attractive to a consumer because, as far as they’re concerned, they don’t have to deal with the merchant who they may feel a sense of responsibility to. When they request a chargeback, however, by going through their issuing bank, the process can appear to be victimless. Yet, this is not the case.
By helping consumers see the impact chargebacks have on a business, and how the increased cost ultimately ends up back with them, merchants can reduce the damage that chargebacks cause.
Customers must therefore be aware and have visibility of a travel business’ refund policy—made clear on their website. In addition, merchants should provide round-the-clock live customer service, coupled with a streamlined cancellation policy and procedure, to keep chargebacks to a minimum. At the end of the day, happy customers are less likely to initiate a chargeback.
How can merchants identify chargebacks at their source—and why is it essential when managing them?
Identifying what is causing chargebacks at their source is essential for understanding how to effectively respond to them.
In the case of genuine chargebacks, which are the result of merchant error, businesses should forego an automatic refund and mend these inefficient business processes. In the case of friendly fraud—when customers abuse the chargeback system by claiming money back on a legitimate purchase they made—it’s essential that businesses dispute claims made against them. If they don’t, they’ll not only have to refund the customer anyway and lose money on goods, but they’ll also be seen as an easy target and may be repeatedly attacked.
In contrast, if a genuine chargeback is disputed, a business runs the risk of disgruntling a loyal customer and ultimately losing them.
Unfortunately, most merchants struggle when it comes to identifying chargebacks. We advise taking a holistic approach and analyzing chargeback data to understand where they are coming from. This way they can begin mending unsuitable business practices throughout the payment journey, mitigating chargebacks that stem from merchant error and can begin identifying instances of friendly fraud.
What’s more, using a multilayered fraud solution composed of both pre- and post-transaction elements will stop criminal fraud that causes genuine chargebacks and allow travel businesses to collect enough data to dispute fraudulent chargebacks.
To be effectively prepared for chargebacks that stem from the coronavirus outbreak, businesses should integrate third-party solutions that are able to efficiently identify the source of chargebacks into their business structures.
How do you predict friendly fraud could be a factor impacting travel industries during this time?
Statistics show that 40 percent of cardholders who request a chargeback will do so again within 60 days, and this is typically because the process is so easy for consumers. Banks are often eager to please their customers and so a chargeback can appear to be a quick, easy and victimless procedure with less questions involved than a typical refund. So, friendly fraud flourishes.
When there are a high number of chargebacks being filed—as there will be as a result of the coronavirus pandemic—it can be harder to discern which chargebacks are genuine and which are the result of friendly fraud. This puts greater financial pressure on the travel industry. Among the chaos, we are likely to see instances of friendly increase as fraudsters take advantage of the confusion caused by the sudden chargeback spike.