The Business Playbook for Dealing with Chargebacks During COVID-19

Shannon Walcott

The COVID-19 pandemic has created a lot of cancelations, restrictions, and many, many closures. But not all industries are slowing down. In the e-commerce sector, people are making larger and more frequent purchases. For concrete and construction, most contractors report that work is continuing as planned, and some are busier than ever!  All that combined with the volatile state of the economy and increasing unemployment has created an environment ripe for consumer disputes and chargebacks. Here are some common reasons for chargebacks during the COVID-19 pandemic, and industry updates designed to address them.

Common COVID-19 Chargeback Situations

These common scenarios might result in a chargeback. But do you know when a cardholder is allowed to dispute a charge vs. when they’re not?

Legitimate chargeback

  • Goods or services are canceled by the merchant
  • Event is rescheduled
  • Merchandise is not received
  • Merchandise cannot be returned due to store closure
  • A voucher, gift card, store credit, etc. was issued but cannot be redeemed

Illegitimate chargeback

  • Missed reservations due to travel restrictions (only if the merchant was still available to fulfill the reservation)
  • Additional purchases due to fulfillment issues
  • Fulfillment because of government probation (i.e., if you cannot fulfill an order due to a government mandate or restriction)
  • As is always the rule with chargebacks, keep records, receipts, and correspondence. If you need to dispute a chargeback, these will help!

COVID-19 Dispute Monitoring and Network Updates

Chargebacks aren’t a joy to deal with, even in the best of circumstances, but right now, you need to do everything in your power to protect your business and your bottom line. Thankfully, you’re not alone. Major card networks have taken steps to help merchants fight illegitimate chargebacks during these challenging times.

Visa

On April 1st, Visa introduced the Issuer Dispute Monitoring Program. This program is designed to proactively detect invalid disputes, especially in the travel and entertainment sectors. Disputes are coming in en masse, but with this program, Visa has reiterated that—no matter how many disputes they receive—each one must still adhere to Visa’s existing rules and regulations.

Under the new program, Visa has implemented a penalty for initiating invalid chargebacks. If an issuer files 50+ invalid chargebacks, they’ll be required to reverse all these disputes within 3 days. If they fail to do that or continue to file chargebacks, their dispute rights will be revoked. For issuing banks, this means it’s more important than ever to vet the legitimacy of disputes. For merchants, this means Visa is taking steps to help you protect your business.

Finally, fees related to the dispute and fraud monitoring programs have also been suspended for travel and entertainment merchants. However, if your business is not in one of those industries but can document an uptick in chargebacks caused by COVID-19, you may still qualify for these discounts. Your processor can help you initiate that process.

Mastercard

Last year, Mastercard acquired fraud and chargeback prevention tool, Ethoca Alerts. As of April 1st, this acquisition allows Mastercard to provide alerts for 100% of Mastercard chargebacks. Mastercard recommends that, upon receipt of these alerts, merchants reach out to the cardholder to address the chargeback and negotiate alternatives to the dispute of funds, including refunds, vouchers, etc.

Mastercard has also delayed the following fee assessment programs for the travel and entertainment industries:

• Excessive Fraud Merchant (EFM)
• Excessive Chargeback Program (ECP)

As with Visa, if your business is being impacted but is not listed as a qualified industry, you can appeal with your processor to be temporarily exempted from the listed fee assessments.

Discover

Discover has issued guidance for both merchants and issuing banks. Here are their recommendations:

Merchants

  • Merchants are encouraged to provide refunds, gift cards, vouchers, credit, or other accommodations for goods or services that are delayed, canceled, etc. due to COVID-19.
  • Merchants are encouraged not to charge ‘no show’ fees for cardholders.
  • Merchants are encouraged to proactively contact consumers regarding backorders, cancelations, etc.

Issuing Banks

  • Issuing banks should advise cardholders to work with the merchant prior to initiating a chargeback.
  • Issuing banks should inspect cardholder accounts for any credits or refunds applied by the merchant before initiating a chargeback.

Lastly, while Discover has not expanded their response window for disputes, they are encouraging merchants that are unable to respond to all chargebacks in a timely manner to reach out to them for assistance.

American Express

Effective through May 31st, American Express has extended their chargeback response window to 30 days, giving merchants more time to respond to any chargebacks. To further assist merchants through this difficult time and reduce physical contact at the point of sale, American Express has also raised contactless transaction thresholds from ≤$30 to ≤$250. This allows customers to tap an EMV chip card for qualified transactions, instead of dipping it in the terminal.

Final Thoughts

Chargebacks are complicated, even more so during the COVID-19 pandemic. For more tips to fight chargebacks now and in the future, read Your Guide to Chargebacks and How to Shield Your Business from Them or call BASYS Processing today!

Shannon Walcott is a Senior Sales Executive at BASYS Processing. She has partnered with businesses in the concrete industry on their credit card processing since 2012, and her expertise allows her to consistently reduce clients’ processing expenses. For more information, please reach out to Shannon directly at (913) 214-5021 or swalcott@basyspro.com

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