chargebacks in retail

The pandemic has considerably impacted the retail industry in that there have been many changes in consumer behaviour and buying. Customers now expect and demand contactless payment options for in-store purchases. This was due to social distancing and health and safety measures as well as fears over handling cash. Today, there are more businesses that continue to refuse cash payments than ever before.

Another development is an increased demand to accept a wider variety of card types, in addition to traditional providers such as Visa and Mastercard. These can include JCB, AliPay, UnionPay, WeChat Pay, particularly as international travel begins to pick up.

However, more card transaction options also mean more potential chargeback issues for merchants to deal with. There is a tendency for professionals within the retail industry to “sweep it under the carpet” for a number of reasons, such as for instance a perceived lack of support from acquirers when it comes to chargebacks. This article will argue that this approach is not best suited to retailers and will potentially negatively impact them.

Onus Is On The Merchant

Consumers who are unhappy with their purchases are generally entitled to initiate a chargeback by filing a retrieval request provided they present their card issuer with a valid reason to do so, this in turn is processed by the card issuer for said transaction. What tends to happen is that the burden then shifts to the merchant. Indeed, the chargeback process is governed by the card issuer and consumers may raise a chargeback within 120 days of goods and services being provided. Whereas the merchant only has 30 days to formally contest the chargeback from the time it’s raised by the card issuer on behalf of the consumer and because the onus is on the merchant to ensure goods and services are as ordered and undamaged, it is also their responsibility to provide the rationale to justify any refusal on their part.

Merchants shouldn’t ignore a chargeback request– although many do – as this leads to the chargeback being upheld by default, like a parking ticket. As a result, the card issuer then takes the disputed amount of money from the merchant’s account and adds it to the consumer’s account. It is worth mentioning that chargebacks are designed not only to recover the cost of erroneous goods for the consumer but also the rectification and consequential costs. If the consumer can reasonably demonstrate the latter as part of the chargeback process, the claim will be upheld.

This is quite contentious because although many consumers fall victim to online fraud, not all cases are legitimate. Not to mention, in some cases, it’s hard to either prove or disprove abuse.

More Chargebacks As Online Shopping Increases

The volume of chargebacks is constantly increasing as consumers shift further towards online and this trend is likely to continue, particularly within the retail sector. This also means that retailers should be particularly aware of fraudulent claims or at the very least, disingenuous consumers.

It is worth pointing out, however, that the likelihood of a fraudster attempting a chargeback will depend on whether it is worth their time and effort. If the potential return is minimal it is unlikely they will attempt it. However, for higher priced items which come with a greater chargeback value, this is more appealing and enticing to the fraudster.

From a merchant’s perspective, the issue becomes what they can do to safeguard against it. As mentioned, if a merchant does nothing, the chargeback will be upheld. Some merchants simply don’t understand the process, others won’t challenge the claim under the assumption that the time required to do so is not economically viable. But there are simple solutions available to merchants; the most obvious step to prevent or at least minimise risk of chargeback is for retailers to be very thorough with goods purchased prior to distribution. Another option is to mandate consumers sign a form upon delivery to confirm the items received are undamaged, or “as sold”. This provides the merchant with some evidence which could be used to challenge a claim. However, this can be difficult to implement, depending on the nature of the goods purchased. What happens for example if the customer purchases a large number of tiles?


One thing is clear – the value and volume of chargebacks is growing as customers increasingly switch to online shopping. This trend is likely to continue as the world settles into a post-pandemic ‘new normal’ and makes it even more important for retail professionals to take the issue of chargebacks as seriously as possible. Given the responsibility to demonstrate that purchased items have been delivered in good condition relies heavily on their shoulders, it is more important than ever for retailers to do everything possible to address the issue, adopting a “prevention rather than cure” philosophy in the process.

Retailers should look into solutions to reduce the impact of chargebacks. Whenever possible, merchants should ask their acquirer for advice and assistance. Acquirers often have specialist teams in place who can advise merchants on how to navigate the process and prevent difficulties which may, in turn, help prevent or pre-empt such issues.