Chargebacks: A Method Devised to Protect Consumers is Now the Problem–Creating Imbalances in E-Commerce World
The history of chargebacks in an online shopping world detailed by former online retailer, Monica Eaton-Cardone: After years of battling card-not-present chargebacks, Cardone turned her frustration into a business where her firm works with merchants and financial institutions to help advancements in a system that has triggered asymmetry in the online shopping industry.
TAMPA BAY, Fla., May 6, 2013 /PRNewswire-iReach/ — Monica Eaton-Cardone, Founder and Owner of Chargebacks911, a company that services merchants and financial institutions, says the systems put in place to protect consumers from online retail fraud have opened Pandora’s Box. Eaton formed her company after years of frustration as a former online merchant battling chargebacks. Already making the radar of the New York Times for exposing the power tool of consumerism, Eaton’s company has set out to help merchants and financial institutions understand and revise the system, but to also educate consumers about the negative impacts of the current chargebacks system. (1)
Eaton says that not all consumers are criminals trying to swindle merchants out of goods–just as not all merchants are unethical. Ignorance regarding chargebacks is widespread and quickly becoming the crux of the problem today. “Unfortunately, that is the scenario we have now,” Eaton adds.
A History: The First Suspect
The first suspect for criminal activity when it comes to virtual transactions is the online merchant. Scammers quickly discovered ways to lure innocent cardholders where their identities were abused and their accounts robbed. However, as with any criminal activity, it was only a matter of time before an equal measure of opposing force appeared to help balance and eventually reverse the growth of the problem. Five years ago, stolen credit cards and identity theft were rampant in the Internet marketplace. This type of fraud comprised up to 30%, sometimes more, of all chargebacks. Today, however, most merchants experience less than 5% of these actual incidents.
Visa and MasterCard, along with the issuing banks and authorities, have done significant work in eliminating this behavior. As a result, the Internet marketplace is now considered to be a safe place to transact, evidenced by its dramatic growth.
The downside is that one of the most effective tools in eradicating these criminal activities has spawned a problem almost as large on the other end of the spectrum. This is where “chargebacks” come into play.
Consumers have been educated about this valuable resource tool, which was designed to prevent fraud and help keep merchants ethical (actually protecting the consumers by giving them this “last resort” weapon for defense).
Several years ago, a vast amount of cardholders had never “filed a chargeback.” The process was burdensome–cardholders had to fill out arduous forms that required signatures. Today, many banks provide an online, automated feature for filing chargebacks with just the click of a button
Unfortunately, these collective efforts to curb merchant fraud have created a growing environment of “friendly fraud.” Those who engage in “friendly fraud” realize the lack of consequences in essentially getting something for nothing and they file chargebacks for items they purchased online and received. Many online merchants live in fear of this activity and rarely fight back due to the energy, costs and additional resources required. As a result, the consumer and their banks are taught that this method of “canceling” or returning a transaction is a workable and logical solution with no negative outcome.
Times are Changing
Despite the myth that chargebacks are strictly a helpful means of protection, the system has become an unfair aspect of online sales. Initially designed to defend consumers, chargebacks have turned into a destructive weapon that is rapidly creating risks to the e-commerce industry, and ultimately lending the most damage to the party it was meant to help: the consumer.
Cardone says that education will help, but what is really needed is an understanding of the consequences.
- Merchants need to abandon their position of fear and defense and take a position of offense against unjust disputes (chargebacks). Until the situation is confronted head-on, chargebacks will continue to rise and penalize good merchants.
- Processors need to encourage their merchants to fight every justifiable chargebacks, make it financially feasible for the merchant to do so and support them in this activity.
- Issuers (banks that provide credit cards to its clients) need to weigh the cases between cardholders and merchants before assigning guilt to the merchants with instantaneous chargebacks. Issuers should recognize that illegitimate chargebacks will come with a guaranteed consequence; costing more money in customer service fees and handling.
- Consumers should realize that fees associated with chargebacks will steadily trickle straight down to their pockets–resulting in higher rates and product prices.
Ultimately, all parties working together can impose corrections that allow for much-needed stability–balance is needed on all sides to facilitate sustainable growth of the e-commerce industry. “After all,” says Eaton, “balanced policies that nurture expansion will only help to stabilize continued growth and success between merchants, consumers, and institutions.”
Chargebacks911 specializes in servicing merchants and the majority of banking institutions with chargeback solutions.
For more information about Chargebacks 911, visit www.chargebacks911.com.
Co-founder Monica Eaton-Cardone established Chargebacks911 in 2012–out of necessity–after many years as a merchant struggling to find a solution to chargeback issues. Chargebacks911 was developed specifically for merchants to offer immediate aid through proprietary technology, and provides the necessary function that gives merchants the freedom to focus on their core competency and optimize their in-house skill set. Chargebacks911 specializes in servicing internet merchants, and offers both response and resolution services for chargebacks and cardholder disputes. The company works with merchant clients to help keep dispute rates down while retaining their ability to accept credit cards. For more information, visit http://chargebacks911.com/.
“Disputing a Charge on Your Credit Card”, Ron Lieber, The New York Times, January 25, 2013.
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