Merchant Perspectives on Chargebacks: Why the Customer is Always Wrong?

After six months in a customer facing role at Justt, I just completed my 200th customer discussion about chargebacks. Based on the meeting notes, one could easily conclude that too many merchants suffer from the widespread tendency to minimize the negative and focus on the positive when it comes to chargeback management.

Naturally, that’s a comforting outlook, but not necessarily helpful to the P&L. Take a few of these findings for example and file them under, “the customer is always wrong.”

• Plenty of merchants I spoke with took the cost of chargebacks at face value. However, the true impact to companies can be 2-3x the cost of the chargeback itself. They’re far more damaging than most merchants realize. In addition to the chargeback itself, many of the folks I spoke with didn’t consider the overhead related to processing chargebacks, fees from the card schemes, the cost of goods sold, the cost of shipping and attributed costs like customer acquisition expenses. Call me sensitive, but that’s a lot of pain to overlook.

• Unless I spoke with the person or team directly responsible for managing chargebacks, decision makers and organizations in general underestimated the size of their chargeback problem (and consequently, left their chargeback problems on the back burner). In cases where we conducted a complimentary analysis, merchants even underestimated the face value of chargebacks - typically between 10-50%. The tendency to minimize the scope of the problem is so widespread, it’s worthy of a Daniel Kahneman analysis.

• To compound misperceptions, many merchants consistently overestimated their success rate fighting chargebacks. Many told me they achieved 90-100% success with representments. However, their data tells a far different story - much like my friends who gamble in Vegas and only count their winnings. This is a classic example of optimism bias run amok. Indeed, the percentage of customers who underestimated their success rate was remarkably low. Are you noticing a pattern here???
• Surprisingly, there were many merchants who assumed they had sufficient documentation, tracking and other protocols in place to dispute chargebacks effectively. Yet, almost 20% of the merchants we checked had neglected an easy opportunity to improve their win rate through simple changes to their Terms and Conditions. The good news is we’re pros at finding those holes in the bucket and we were able to point out some quick wins, all for free. It’s the Justt thing to do!

An additional insight I’ll add is that many of the merchants I spoke to were market leading enterprises with a ton of expertise in incredibly dynamic markets. So then, what’s with all these glaring oversights? I’ll submit that our merchants are simply mindful of the boundaries of their expertise. At the end of the day, chargebacks are a specialized, non-core business activity. These ‘oversights’ are simply a byproduct of the extreme focus our customers devote to the most important aspects of their companies.

My own learning from this experience is to strive for clarity on what's critical to master for yourself and when to seek assistance. That’s not a lesson to minimize. I’d call that a great practice, perhaps even a secret to success!

Are you in need of assistance or interested in talking more about chargebacks?