Fashion Chargeback: Why are Customers Disputing Purchases?

By Monica Eaton, (pictured right) founder and CEO of Chargebacks911

Consumer chargebacks against retailers have been worryingly on the rise in recent years: the British Retail Consortium’s 2022 Payment Survey found that chargebacks increased by 29% in the UK in 2021 compared to 2019. This increase has been driven by a range of factors, including the growth in popularity of online shopping, the Covid-19 pandemic, and, most recently, the cost-of-living crisis, all of which are putting more and more people’s finances under strain and leading consumers to misuse or abuse the chargeback process. 

Chargebacks—whether legitimate or otherwise—can lead to revenue losses for retailers and erode trust in online shopping. In turn, these issues can put pressure on a business’s relationships with card schemes and issuing banks, as well as lead to higher processing fees and unnecessarily lost revenue, which some companies make up for by passing this burden on to the consumer through increased prices. There are a number of reasons the fashion retail industry is particularly susceptible to payment disputes and chargeback fraud.

What makes fashion retailers a target?

There’s an inherent challenge to shopping for fashion and accessories online: consumers are buying clothing and accessories without physically seeing, trying on, or feeling the products first. Rather than contact the retailer directly to secure a refund, many customers file a chargeback claim with their issuing bank—many times for the sake of convenience—if the item is not as described, is damaged or defective, has not arrived at all, or if they’ve been sent the wrong item. 

Substandard customer service, such as a complicated return process, refusal to accept a valid return, or unnecessary refund delays, can leave customers feeling like their concerns are being ignored or trivialised by company representatives, making chargebacks a more appealing and frictionless process for getting their money back. Because merchants’ customer service departments are competing for convenience with issuing banks, it’s important that businesses are reactive, understanding and empathetic when it comes to customer disputes. 

Chargeback claims can also be triggered by unauthorised transactions. If a customer notices a charge they didn’t authorise—possibly due to credit card theft or third-party fraud—they would typically initiate a chargeback in response. This makes it critical for merchants accepting online payments to have parameters in place to detect fraudulent activity and prevent potentially unauthorised transactions from being processed. 

Alternatively, customers themselves might have fraudulent intentions. Fashionable, hyped clothing brands are popular targets for fraudsters using stolen credit card information because they can quickly and easily resell goods for cash. 

Return fraud is another issue within the fashion industry, with some customers making a habit of buying an outfit, wearing it once, and returning it for a refund. Merchants who suspect return fraud is being committed will sometimes reject return requests. If that happens, the buyer—whether genuine or not—may escalate the dispute to a chargeback.

What happens when a customer files a chargeback?

For cardholders, chargebacks are intended to be a protection mechanism against unauthorised purchases, unsatisfactory items or service, merchant error or other transaction disputes.

If the consumer has a seemingly legitimate reason to dispute a transaction, the customer’s issuing bank will file a chargeback against the retailer. This initiates a forced refund to remove the original transaction funds from the retailer’s account and return them to the customer—oftentimes instantaneously or within a few days. Every time this happens, the retailer is charged a non-refundable chargeback fee to cover the bank’s costs associated with the chargeback.

Many retailers have high transaction volumes, which can make dealing with chargebacks more of a challenge. When a business has to process a large number of transactions, it has less time and bandwidth to devote to reviewing and scrutinising each contested purchase.

Therefore, both merchants and consumers need to communicate effectively and try to resolve disputes amicably whenever possible.

How do chargebacks impact the fashion industry?

If a retailer finds itself facing a constant barrage of chargeback claims, this can be incredibly damaging for the following reasons:

Reputational damage: Chargebacks can make a brand appear less trustworthy. Each chargeback signifies a customer’s dissatisfaction, which can tarnish the company’s image in the eyes of both customers and financial institutions. Lots of chargebacks can create the perception that a business is failing to deliver satisfactory services or honour commitments.

Increased risk scrutiny: Frequent chargebacks may attract heightened scrutiny from payment processors, financial institutions, and regulatory bodies. A company might become subject to additional risk assessments and monitoring, leading to stricter regulations, higher processing fees, or even partnerships with payment processors being terminated. This heightened scrutiny can increase operational complexities and costs.

Customer churn: Legitimate chargebacks can contribute to customer attrition or churn. Dissatisfied customers who file chargebacks are more likely to cancel services or seek other options. The loss of loyal customers also impacts revenue and erodes customer retention rates, making it more challenging to maintain a stable customer base.

Operational disruptions: Handling chargebacks means diverting resources and manpower from core business operations. The company must invest time and effort into investigating, documenting, and responding to chargeback claims. That means diverting resources from other crucial operations like customer service, fulfilment of services, or product development.

Strategies for prevention

Fashion retailers must proactively address chargeback issues. The key to mitigating chargebacks and disputes in general lies in enhanced customer satisfaction measures, such as responsive and empathetic communication with the customer throughout the entire purchasing process, and effective dispute resolution when necessary. Embracing a customer-centric approach focused on transparency and satisfaction fosters trust, prevents misunderstandings, and ensures customers make informed purchase decisions.

Communicate clearly: Ensure that all terms, requirements, and other crucial information are clearly communicated to customers. Using plain language and avoiding industry jargon that may confuse or mislead customers is crucial. 

Prioritise customers: Maintaining strong customer service is vital for addressing customer concerns and resolving issues promptly. By offering accessible communication channels, such as phone, email, or live chat, retailers can proactively assist customers, clarify uncertainties, and address complaints before they escalate to chargebacks. Timely and empathetic customer support can go a long way in preventing disputes.

Seek feedback: Regularly seeking customer feedback through surveys, satisfaction ratings, or online reviews can provide valuable insights into which improvement may be necessary. Addressing customer concerns promptly can help prevent frustrations from escalating into chargebacks and demonstrate a commitment to customer satisfaction.

Additionally, merchants can implement chargeback prevention tools—like alerts and pre-chargeback notifications. These dispute warnings from the issuing bank allow retailers to resolve a transaction issue before it is escalated to a chargeback, saving businesses from financial and reputational damage. 

Lastly, for businesses with large sales or chargeback volumes, seeking out third-party services can put chargeback issues into the hands of experts, freeing up internal resources to focus on business development, customer service, or other critical areas that may become neglected by handling chargebacks in-house. 

Combining the best practices outlined above can help create a solid framework to minimise chargebacks while also enhancing customer satisfaction to ensure a smooth and secure experience for customers throughout the sales process.

For more information, visit https://chargebacks911.com/

Intro image by Anna Shvets at Pexels.com