Merchants need to gird for coronavirus-related chargebacks

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The coronavirus pandemic will include a surge in payment disputes as well as other hidden costs for merchants. Preparation now will help to blunt some of the long-term impacts.

Expect COVID-19 to impact online merchants in just about every vertical, both directly and indirectly. There are many wide-ranging effects of the coronavirus pandemic, and what merchants and retailers can do to insulate their businesses against unnecessary losses.

One is the "ripple effect," the potential collapse of consumer demand. Buyers see uncertain economic times on the horizon due to the virus, and may be more hesitant to spend as a result. This is compounded by bad actors taking advantage of the situation: consumers in the UK already lost more than $1 million to fake products, counterfeits, and other scams playing on consumers’ virus-related fears.

As a direct result, I expect to see a wave of chargebacks flooding the market for months even after the pandemic subsides.

Although the situation is now described as “contained” in China, weeks of disruption have caused serious delays in supply chains. One recent report asserts the disease disrupted the supply chains of nearly 75% of all U.S. companies.

An unreliable supply chain translates to limited inventory and canceled orders, limiting earning potential, and potentially angering otherwise loyal customers. While some may understand, given the circumstances, others will likely be less forgiving.

If a substantial number of your employees are forced to stay home due to possible exposure to the virus where 10%, 20% or 30% of their workforce is out of commission, a labor shortage of those proportions will make it impossible to conduct basic operations. Critical functions like customer service and order fulfillment may only operate at a fraction of their regular capacity.

With widespread concerns about delayed or canceled orders, merchants could very quickly find themselves experiencing backups with customer service lines and call centers.

Customer service operators are the first line of defense against chargebacks. The situation could be further compounded by the labor shortage.

Customers experiencing some issue with your product or service, and being unable to get help within a reasonable time frame only adds to that frustration, making customers much more likely to file chargebacks to recover their money. Even if orders get out on time, that doesn’t mean they’ll arrive in the same manner.

With virus-related restrictions on movement impacting much of the world at this point, shipping delays are already becoming common—and that’s before factoring in the likelihood of labor shortages with the U.S. Postal Service and private shipping firms.

If delivery interruptions stretch beyond a one- or two-day delay, customers could start to lose patience.

With more individuals opting to self-quarantine, certain businesses involved in delivery and fulfillment will see a sudden surge in usership for which they’re not prepared.

Food delivery services could experience overwhelming traffic from consumers stuck at home. The potential for site crashes would compound the other issues, like longer wait times and a shortage of delivery drivers. The result could be angry customers who are unable to use the service in question when they feel they need it most.

In short, coronavirus could lead to a spike in chargebacks. It’s a dangerous situation; everyone is scrambling to adjust to the new policies and business parameters that are affecting them. Merchants facing decreased business (and simultaneous higher costs), while cancellations and postponements are leading consumers to contact merchants en masse for refunds.

The result is long hold times, frustrated customers, and ultimately, higher chargeback rates.

Consumers often forgo contacting merchants even under the best of circumstances, and the added pressures resulting from coronavirus will only amplify this problem.

Thus, I anticipate a spike in chargeback filings in the coming weeks and months as the disease progresses.

Merchants need to be ready for the increased chargeback risk. More chargebacks mean lost revenue, additional fees and fines, and poor customer satisfaction. If the situation gets out of hand, merchants could face the possible loss of card processing privileges altogether.

Chargeback management is a delicate process. The wrong strategy could actually exacerbate the problem, potentially placing even more revenue at risk.

With a lag in chargeback reporting due to long chargeback timeframes, this situation will go on for months after the pandemic officially ends.

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