A Cautionary Tale of How Some Covid-19 Related Business Policies Can Lead to Chargebacks

There's no doubt that Covid-19 has greatly impacted online companies in the travel and event ticketing space. When travel plans and events started being canceled and postponed, companies in these verticals were forced to determine how they would handle refund requests. Recently, RyanAir was in the news for their policies and the repercussions of those policies, making this a great learning opportunity for all online companies, whether they are in this specific vertical or not.

Article: https://www.moneysavingexpert.com/news/2020/05/ryanair-staff-wrongly-tell-customers--chargeback-is-fraud--and-c/

The article (shared above) highlights RyanAir and the impact of their decisions on how to handle cancellations and (usually indefinite) postponements of travel. RyanAir took a strong "no refunds" policy, instead providing company credits for the ticket amounts paid, to be used for future travel. This caused many of their customers to call their credit card companies/banks to request a chargeback. The article also highlights that some customers were told by company employees 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 allowing them to travel on this airline in the future. It should be noted that the company has 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 this threat has been reported by several customers.

There's a lot to be learned from this incident, and the resulting bad press for the company. Oftentimes chargebacks are an afterthought to online companies, but they shouldn’t be. It’s important to consider the repercussions of business decisions to 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.

During the second week of most states' stay-at-home orders in the US, I was asked to facilitate a call with 20+ of the most well-known event ticketing and travel companies, to discuss chargeback prevention & response strategies. I was able to utilize my knowledge of the chargeback process and guidelines to assist in thinking about business decisions that could impact further losses for these companies.

Here are some of the best practices that companies only offering store credits (versus refunds) for canceled or postponed events/travel, most apply to other verticals as well:

• Refunds vs. Store Credits- Obviously, most consumers want a refund to their credit/debit cards when plans are canceled. But, depending on the business model and financial solvency of these companies, not all companies were/are in a position to provide refunds for all transactions in the last four months. If they're a marketplace or platform for smaller venues, hotels, etc., they may have already sent the funds for the trip or event to those fulfilling the purchase. In some cases, the 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). In order for this to result in 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 some kind of escalation process within customer service for the squeakiest "wheels", with the ability to issue refunds in these edge cases and should be prepared to respond to the chargebacks that are received with the necessary documentation & verbiage to have the chargeback found in their favor (expanded below). In addition to the companies making "all or nothing" decisions regarding store credits, one merchant made the decision to offer store credits for 120% 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. Being prepared for this push back, having scripts, and clear communication to those receiving these calls will impact your incoming chargeback volume. In performing analysis on past client chargebacks, I've been able to trace some chargebacks 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 when you can. With over 35 million people filing for unemployment in the US 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 (instead of threatening them with being considered "fraudulent").
• 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 (because it isn't tied to the credit card), 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 chargeback dispute. The biggest tip is to cite the verbiage 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. (Chargelytics Consulting does provide custom chargeback response templates for merchant clients that often result in more reversals for the company) 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. Not purposely, but it’s a common mistake with the possibility for negative customer impact. 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 to them. After 2011, this reason code became the easiest to file for an issuing bank and we as an industry have seen this reason code be used as a "catch-all". In fact, in most analysis I perform for online clients, 40-60% of their fraud chargebacks are not actually due to true fraud, as we can prove that the cardholder was involved in the transaction. It can not be assumed that a chargeback with a fraud reason code means that the credit card was stolen and in turn, that the details of the person who placed the order should be added to the negative list of a fraud system. The argument could also be made that if the customer claimed "fraud", they should be added to the company's fraud system to prevent them from taking advantage of the company again. 

However, in many 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. Or, in some cases, 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 and they should blacklist the customer. These repercussions can be time-intensive. Not only does it mean that the customer can no longer make purchases on your website, if you use a fraud service provider that provides a consortium or network data from their other clients' blacklists, you could also create a lot of hassle for the cardholder. If their name, e-mail address, phone number or device ID are marked as fraud and they try to make a purchase with any other merchant in that network, it could take a lot of time to try to figure out the root cause of the decline, assuming the customer even calls in to inquire about this. Instead, 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. 

Had RyanAir thought through their process & policies for handling credits vs. refunds, they could have been spared 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 “the powers that be” don’t understand the impact of chargebacks based on the decisions proposed, you can share the above article with them as a cautionary tale.

Chargebacks aren’t something that happen for no reason. Often, if they’re not related to true credit card fraud, they’re the cause of a policy or lack of communication from a company that causes customers to contact their bank for their money back. They can be avoided with process and policy improvements and by following the guidelines set by the card brands. 

To provide context to the above advice, my experience in the chargeback and fraud space spans over 15 years. I have operational chargeback experience as the creator of the "friendly fraud chargeback" management process for one of the largest Online Travel Agencies (OTAs) in the world. I’ve also advised and worked with hundreds of the largest online companies in the world to help them prevent fraud and chargebacks, as well as to effectively respond to chargebacks to increase a merchant's "win-rate" (the funds recovered by disputing a chargeback initiated by a customer or bank). I am also a public speaker and the co-host of the "Online FraudCast" podcast, with former cyber-criminal Brett Johnson.