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Many might joke they want a refund for 2020. Jokes aside, it’s been a testing year for many businesses, consumers, and governments alike. Yet, these tests have spurred innovation and accelerated the pace of change, advancing digital transformation by at least five years in the space of six months. Many companies in the e-commerce space have been able to benefit, while others have changed their business models to cater to shifting consumer attitudes and remain agile to keep customers on side.
Throughout the turbulent year, the role of chargebacks has shifted to business critical. As consumers, we’re provided the opportunity to initiate chargebacks – aka forced payment reversals – up to four months after the date of purchase; businesses may find it increasingly hard to provision for those chargebacks when evaluating cashflow and revenues. 35% of sellers cite disputes as a top concern in their payment operations, according to a Visa product and market review. When several chargebacks happen all at the same time, it may feel like a carpet’s been pulled from under the feet of the business.
Despite these many challenges, when I think about 2021, I feel optimistic. When we count all the silver linings, such as the increased agility of companies, the appetite for innovation and the speed with which the fintech and payments sectors can make adjustment, I’m feeling hopeful.
Here is where my optimism for next year is rooted:
1. Fraud will be squashed as e-commerce reigns supreme. Strong Customer Authentication (SCA), a key element of Payment Service Directive 2 (PSD2), will force sellers and acquirers to have effective transaction monitoring mechanisms in place, to detect unauthorised or fraudulent transactions. We are likely to see even more new financial technology and fintech innovation creating entirely new tools and pathways for people to shop, pay, and run a business securely. The stage is set for rapid adoption of new digital offerings and the market is ripe to oblige. As a result, we expect to see fewer disputes and less reported fraud – and the ratio will continue to go down as e-commerce continues to grow. By reducing fraud, many businesses will be able to reduce fraud-related chargebacks.
2. The golden quarter will lose its shine. The three-month run-in to Christmas and the New Year will become less important: every day will be part of the golden quarter from now on. We can already see the changing patterns of behaviour with customers shopping from the comfort of their homes throughout the year. We’ve seen a boom in e-commerce, but we are unlikely to see a bust. People who started buying things online for the first time since the pandemic may well keep buying things online – a habit likely to become lifelong. This represents a growth opportunity for many enterprises. Chargebacks will follow a similar cycle and businesses should be ready for a steadier stream, not just a spike following the biggest sales quarter of the year.
3. Pre-dispute resolution for chargebacks will become the next best ‘insurance policy’. The pandemic has thrust chargebacks into the limelight. Automated pre-dispute resolution tools, based on rules defined by the seller, will help firms manage eventualities linked to customers not getting quite what they’ve expected. While large enterprises may be less concerned about the impact of chargebacks, as their revenue streams are more diverse, SMEs depend on few revenue streams and must keep a keen eye on their dispute-to-sales ratio. Chargebacks are likely to be more damaging to smaller businesses, but luckily the issue is surmountable with pre-dispute solutions in place next year.
4. Delegated authentication is unlikely to automatically ‘outsource’ all problems. Payment card issuers have enabled new frameworks, whereby sellers can perform two-factor authentication themselves in line with SCA rules. This puts sellers in charge of the user experience, subject to strict technical and fraud conditions. The trick is to ensure all sellers – big and small – are ready for this change and can reap customer loyalty benefits. While it’s likely to benefit bigger businesses that could be more ready to implement this solution, many sellers could consider the benefit of changing their acquiring bank to one that offers pre-dispute solutions for chargebacks.
5. Brexit could tip the scales leading to more chargebacks. The probability of chargebacks following Brexit could rise – due to delays at customs and how people consume products and services. However, we are likely to see more bargains, more choices, some positive changes in the supply chain where more products are made available and consumed locally, positively impacting user experience.
If this past year has taught us anything, it’s that unwarranted chargebacks are no trivial issue. When resources are tight, many sellers could optout from disputing friendly fraud or think they may not be able to prove chargebacks are not legitimate, meaning claimants are in pole position to win the case. The economic strains wrought by the pandemic could be encouraging these unwarranted disputes, too, as the increase in card-not-present (CNP) transactions linked to e-commerce leads to a corresponding rise in CNP fraud claims.
Fortunately, I see the technologies likely to emerge next year as being poised to provide a remedy for the possible increase in unwarranted chargebacks. The tireless pursuit of technological innovation and the commitment to building collaborative products that support continued growth in the marketplace – these are the ingredients that make me optimistic for the protection and support of businesses in the coming year and beyond.
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