The COVID-19 pandemic has hit many merchants hard. The pandemic has slowed down the economy, closed down businesses, and prevented international travel leading to a reduction in sales. Some industries such as travel, entertainment, accommodation, events, and retail have ground to a halt with some businesses filing for bankruptcy or even closing down.

COVID-19 closuresBut in addition to these challenges, these shutdowns have led to a sharp increase in customer-initiated chargebacks and refund requests. Merchants are unable to fulfill services such as international flights, event tickets, and hotel accommodations because of government regulations – and customers want their money back. 

On top of facing significant revenue losses and even bankruptcy, merchants have to deal with unfair chargeback policies from card brands.

Let’s look at these chargeback policies, how these policies affect merchants, and how NMA can help merchants in these uncertain times.

Unfair chargeback policies

Most chargeback policies favor cardholders and this comes at the expense of merchants. This favoritism continues even now when merchants are unable to fulfill their obligations because of a situation that is completely out of their control. For instance, MasterCard’s chargeback policies allow customers to file a chargeback if a merchant is unable to fulfill services such as flights or accommodation because of COVID-19 related government regulations. In this case, the merchant is compelled to either give a refund or face a chargeback.

In cases where a merchant offers to fulfill the service, for example a concert or a flight, on another date because they could not fulfill on the pre-agreed date due to COVID-19 restrictions, cardholders still have a right to file a chargeback. 

Even in situations where a merchant has offered a cardholder a reasonable alternative to the canceled service but the cardholder declines the alternative service, the cardholder still has a right to file a chargeback. MasterCard argues that the merchant cannot impose an alternative service on a cardholder. Yet this unfortunate COVID-19 situation has also been imposed on the merchant.

It’s not only merchants in the travel and entertainment industries that have been affected by the surge of COVID-19 related chargebacks. If a merchant sells goods by delivery and the goods do not arrive on the mutually agreed delivery date because of quarantine or other COVID-19 related supply chain problems, the cardholder has a right to file a chargeback.

In all the aforementioned scenarios, merchants are forced to take responsibility for the unpredictable COVID-19 pandemic.The only other solution that merchants are being given by card brands is trying to solve the dispute with the cardholder before they file a chargeback. Unfortunately, often the only viable solution is to offer a refund, which still leads to financial losses.

What does this mean for merchants and agents?

Merchants are at a high risk of financial loss or even bankruptcy because of chargebacks and COVID. Here are the challenges merchants are likely to face:

  • Financial losses: For merchants who refund clients or have to pay chargebacks, they suffer direct financial losses. Merchants who deliver physical goods suffer the double loss of chargebacks and loss of inventory. This also applies to agents who are losing out on commissions because of refunds and chargebacks.
  • High chargeback fees: On top of refunding customers’ money, merchants also have to pay high chargeback fees to their acquiring banks. The higher the number of chargebacks, the higher the chargeback fees.
  • Merchant stressBeing put on dispute monitoring programs: Merchants who have a high rate of chargebacks may be put on dispute monitoring programs such as Visa Dispute Monitoring Program (VDMP) or MasterCard’s Excessive Chargeback Program (ECP). Even though these programs have been suspended for merchants in the transport and entertainment industries, other merchants are at risk of being fined by card networks or even having their Merchant IDs terminated.

NMA Merchant advocacy

We are a membership group that works to influence card brands and legislators on behalf of merchants, especially during challenging times. There’s often a lot of performative anti-business posturing that goes on during bad economic conditions, under the guise of “protecting consumers.” But, few people speak up for merchants, especially small entrepreneurs, who can be hit hard by thoughtless regulation. We’re here to fight for them.

NMA is the only association that represents merchant interests in the US Congress to do away with the unnecessary costs that merchants have to pay if they take credit cards.

How can NMA help businesses move forward?

At NMA, we believe that merchants should concentrate on growing their businesses while we take care of payments. We have the expertise to help merchants navigate the chargebacks that come with COVID-19. Most processors simply don’t have the experience and knowledge to be effective here. We Work For You® through our partnership with Fraud Wrangler and our merchant advocacy programs.

NMA and our Fraud Wrangler Partnership

Chargeback fraud preventionNMA has partnered with Fraud Wrangler to help merchants predict, control, and prevent chargebacks. Fraud Wrangler reduces the hassle for merchants through frictionless 3DS, risk factor alerts, chargeback interception, representment, and post-termination refunds. This tool gives merchants the peace of mind to focus on their business as NMA and our partners work for them.

Fraud Wrangler’s interactive dashboard helps with chargeback control by providing merchants with information about the status of their merchant account and chargeback standing through email alerts and mobile notifications. Fraud Wrangler observes trends and forecasts future chargebacks, helping protect the merchant’s account. What makes Fraud Wrangler unique is that unlike other chargeback management platforms, it also integrates directly with payment gateways, increasing the speed of chargeback prevention.

The Takeaway

Unfair chargeback policies harm merchants, especially with COVID-19. To prevent and control chargebacks, merchants need to partner with payment processors who advocate for them. Visit our website to learn more about the benefits of partnering with NMA.