American consumers have long used their buying power as a political weapon. From the free-produce movement of the early 1800s, which boycotted goods produced with slave labor, to the modern Fair Trade movement, shoppers have used their wallets to coax or coerce businesses into changing their behavior.
In today’s plugged-in and hyper-partisan climate, grievances can snowball and consumers can organize as fast as they can refresh their internet browsers. And while boycotts remain a common tactic, consumers are increasingly looking for new, more effective ways to inflict pain on companies that offend them.
One key tactic that is now emerging is the possibility of “chargeback-tivism”, in which customers dispute financial transactions to punish companies with which they’ve previously done business. To cope with this threat, companies must start looking beyond PR strategies, and putting systems in place to monitor and manage a potential flood of improper chargebacks.
Weaponizing chargebacks
Since the chargeback system was first introduced, disgruntled consumers have been venting their frustrations by disputing transactions, regardless of whether or not they’re actually entitled to a chargeback. Now, though, we’re seeing a new pattern of coordinated chargeback activity as part of online protests.
Consider, for instance, Canadian truckers’ recent protest against COVID-19 restrictions, which led to supporters donating $10 million to the demonstrators through the crowdfunding platform GoFundMe. When the platform blocked the fundraising campaign, stating that the protest violated its terms of service by promoting violence, the protest’s supporters took to social media to urge donors to initiate chargebacks for their GoFundMe donations.
That might not sound like a big deal: after all, GoFundMe was already planning to refund all the donations it had received. But chargebacks — especially coordinated chargebacks — place an enormous strain on businesses, from the cost of gathering information and processing disputes, to the direct cost of fees associated with a chargeback.
If a merchant is hit by too many chargebacks within a given period, in fact, they can lose their merchant account and be left with no ability to process transactions. That is unlikely to happen to a big player like GoFundMe, of course, but it is a reminder that organized chargeback campaigns do have the power to cause real pain to modern businesses.
From disputes to protests
In many ways, the rise of chargeback-tivism is the culmination of a trend that has been playing out since the transaction dispute system was first introduced via the Consumer Protection Act of 1968. Intended to shield credit cardholders from fraudulent transactions, the dispute system served its intended goal: cardholders can use it to dispute charges through their credit card issuer to get transactions reversed.
But as consumers have grown more aware of the chargeback system, many have also begun to employ disputes if they are simply unhappy with a purchase, or want to sidestep the perceived hassle of using a merchant’s returns process. Along with organized criminals who use the chargeback system as part of account takeovers and related fraudulent activities, such “friendly fraud” disputes are now a major expense for businesses, which lost a total of $28.58 billion to payment card fraud in 2020, according to the Nilson Report.
Since the COVID-19 pandemic began, e-commerce sales have skyrocketed as many more consumers have opted to do their shopping online while stuck at home. That has necessarily increased the proportion of purchases made using credit and debit cards, and thus merchants’ exposure to chargeback risks.
Now comes the potential for chargebacks to be used as part of collective political action, leaving companies vulnerable to potentially devastating consequences. To avoid penalties, fines, and even the possibility of losing their merchant accounts, sellers need to come up with a strategy for dealing with this new threat.
Defensive measures
To defend themselves against organized chargebacks, companies can use a variety of preventative and dispute-management measures, saving money and time in the process:
- First, streamline your refunds process. If you have a clear returns policy and put money back in customers’ hands quickly when an order is canceled or a refund request is made, you dramatically reduce the scope for chargebacks of all kinds. A chargeback alert service can help here, at least in the short term, by allowing you to intercept disputes and proactively issue refunds before customers initiate chargebacks.
- Next, ensure you have clear visibility into your chargebacks process. If you are handling chargebacks manually, it is easy to get swamped by a sudden influx of organized, politically motivated disputes. Look for a system that lets you track and stay on top of chargebacks without drowning your team in paperwork.
- Finally, put a robust — and, crucially, scalable — mitigation system in place to ensure that disputes can be managed quickly and efficiently, no matter how many come flooding in. Many in-house mitigation teams struggle in the face of their existing workload, so look for systems that can automate as much as possible of the dispute process while still giving you the customized tools and services you need to win.
The bottom line is that the mechanics of mitigating against organized chargeback campaigns is no different than mitigating against conventional “friendly fraud” disputes — but organized chargeback-tivism can lead to far more disputes being filed, overwhelming your team at a time when you have no margin for error.
But while the principles of self-defense remain the same, weaponized chargebacks constitute a major stress-test for even the best mitigation infrastructure. With the potential for extraordinarily high volumes of chargebacks over a short period of time, such protests will expose any weaknesses in your mitigation strategy, and bring new challenges — and important learning opportunities — for both merchants and issuers alike.
Don’t sleep on chargeback-tivism
Most organizations, of course, will never face a chargeback campaign on the scale of the one that recently affected GoFundMe. But the fact that such campaigns are happening at all is a reminder that consumers are increasingly viewing chargebacks simply as a standard part of their purchasing behavior.
To minimize risk and succeed in a world of ubiquitous chargebacks, organizations need a clear strategy for managing transaction disputes in a smart, scalable, and resilient way. You may never run into a chargeback-tivism campaign — but put the right infrastructure in place now, and you’ll minimize the impact of chargebacks on your business, and protect your revenues from chargeback risks of all kinds.
