The coronavirus pandemic drastically changed life as we know it for merchants and customers alike, closing stores and restaurants and turning many people to online shopping. It also caused a massive spike in chargebacks as customers fought to get their money back for travel bookings they could no longer keep and purchases they could no longer afford.
Unfortunately, fraudsters never let a good crisis go to waste, and a number of new coronavirus-related schemes and scams have popped up to try to separate people from their money.
While the availability of vaccines in wealthy countries means the lockdowns have ended, the combination of vaccine hesitancy and the delta variant means the virus itself is far from finished. Don't expect the fraudsters exploiting it to go away anytime soon either.
COVID-19 has been a constant presence in our lives for over a year now, including during the 2020 holiday season. In the first several months of 2021, we saw a significant uptick in chargebacks for purchases made over the holidays.
While that spike has now settled down, most merchants are still seeing more chargebacks than they would expect in an ordinary year, and there are no indications that this trend will change anytime soon.
Why is COVID-19 such a force for chargebacks?
The U.S. Department of Justice has reported a variety of pandemic-related fraud schemes that criminals are using to try to separate people from their money.
One of the most common threats is phishing. While phishing has been around for a long time, COVID-19 has offered new pretenses fraudsters can use to try to convince people to download malware or give up personal or payment information.
Some phishing emails claim to be from the World Health Organization or some other respected public health agency, asking recipients to click a link to see (for example) information about COVID-19 infections in their area. In reality, the link is a malware download.
Others ask people to enter personal information in order to schedule a vaccine appointment, or pretend to be the IRS and threaten legal consequences if the victim doesn't return part of the stimulus payment they received.
Some fraudsters are also using the information from vaccination cards people have posted photos of on social media to commit identity theft, since many of these cards include the person's name, date of birth, and social security number.
There have also been reported cases of fraudulent websites claiming to sell masks, hand sanitizer, coronavirus tests, or other pandemic-related goods. When a customer enters their payment information to make a purchase, the fraudster gets both the money and valid payment credentials they can use to make other fraudulent purchases.
Regardless of your industry, make absolutely certain that your customers receive a copy of your return policy and your terms & conditions at the time of transaction. Now would also be a good time to invest in more effective fraud prevention tools.
For merchants who strive to build consumer confidence in eCommerce by being trustworthy and providing quality products and excellent customer service, it can be frustrating to see cyber-criminals undermine all that work and sow distrust in online shopping by running scams like these — especially when that damaged trust leads to things like “friendly fraud” chargebacks.
Many customers, once burned by a scammer, are a lot less likely to give legitimate merchants the benefit of the doubt when dealing with a mistake or misunderstanding.
It’s better to miss out on a sale than to over-promise, fail to deliver, and end up with a chargeback on your hands. Plus, the more customers get used to seeing merchants practice transparency and disclosure, the easier it is to draw a contrast with the shady fraudulent merchants and recognize their false promises for what they are.
If you’re getting new customers or seeing increased business as a result of the pandemic, this is a good time to update and publicize your terms and conditions, make sure your merchant descriptor is clear and accurate, and to be lenient and generous with your return and refund policy.
Merchants can also help to educate their customers about known fraud schemes they are likely to encounter, and remind them that no reputable business will ask their customers for passwords or personal information over email. But of course, merchants aren’t really in the position to serve as the first line of defense against online fraud — so what about the institutions that are?
Visa's main coronavirus-related efforts have focused on providing guidance to merchants and increasing their monitoring of the dispute process. Near the beginning of the pandemic, Visa made a public statement about managing disputes during the pandemic. An excerpt from this statement reads as follows:
"Visa expects our clients to act in good faith and make every effort to be flexible when resolving disputed transactions involving cardholders and merchants. Our expectation is that cardholders work directly with the merchant to resolve their issue, ahead of initiating a dispute with their issuer. "
— Visa Business News
Visa also implemented the Coronavirus Chargeback Dispute Monitoring Program beginning in April of 2020 to help maintain the integrity of the dispute process by reducing invalid disputes initiated into the system.
The program will monitor daily dispute volumes with a focus on customer disputes, and will flag any practices that may be inconsistent with current Visa dispute rules.
If necessary, Visa will require issuers to reverse invalid disputes. A summary of the program is as follows:
Visa also issued a brief list of frequently asked questions to provide additional information to merchants.
American Express has been very proactive about this and thoughtfully provided us with some information about how they’ve adjusted their merchant policies during this time:
American Express has also been encouraging its members to patronize small and local businesses that were disproportionately impacted by the lockdowns.
They assured us that they are monitoring the coronavirus chargeback situation and will continue to assess potential policy changes as needed. We fully expect that other card networks are engaged in the same processes and will provide guidance for their merchants and customers in the days ahead.
Mastercard's main change to their dispute processing rules was previously scheduled, and not a response to the pandemic. According to the new rule, Issuers will now pay $15 for initiating a pre-arbitration and the acquirer will be billed $50 for receiving a pre-arbitration, which will be passed to the merchant.
Mastercard did however launch their Digital Doors initiative, which offers help to small businesses looking to enter the world of eCommerce for the first time.
Nobody can say for certain at this point how long our lives will be shaped by the need to avoid COVID-19 or what the ultimate social and economic impact will be. In the meantime, we must all do what we can to protect ourselves, our loved ones, and the communities we live in.
That means being vigilant about fraud, educating others on how to avoid it, and making our best effort to support both the small businesses and the everyday customers all around us. Crime and fraud don’t pause themselves for pandemics and other global catastrophes — quite the opposite, in fact. It’s still as important as ever to fight fraud and illegitimate chargebacks so that customers have financially healthy merchants and a thriving eCommerce ecosystem to look forward to when all this is over.
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