Transaction Trends

By Greg Leos, SVP, Corporate Enterprise Payments, Fiserv
Member of the ETA Risk, Fraud & Security Committee

When it comes to doing business in today’s socially distanced COVID-19 world, just about every merchant has had to rapidly adopt new strategies. As consumers have overwhelmingly shifted to online shopping, contactless digital payments, delivery and curbside pickup options, many merchants have had to scramble to ensure they can meet these new consumer preferences. In many cases, this has literally become a survival strategy as in-person, in-store services have been greatly diminished.

While contactless payments have proven to be a very safe and convenient method for consumer purchases, they have also introduced new challenges for merchants. One of these challenges is chargebacks. For example, in the quick service restaurant (QSR) industry, digital chargebacks were a rarity in the pre-COVID days. But now that many consumers are relying extensively on delivery, including third-party delivery services, incidents of lost orders and/or incorrect orders has created an increased need for chargebacks. In fact, a recent report found that overall chargebacks have increased by 23 percent.

These chargebacks are just another hardship that QSRs must overcome in this frustrating business environment where success and failure hinge on ensuring the best customer experience.

Understanding ETA Guidelines and their Impact on Chargebacks
Dealing with chargebacks may be a fairly new experience for many QSRs, who are not be familiar with the guidelines that govern how banks and card processors manage such payment returns. The Electronic Transaction Association (ETA), which provides its members with recommended tools to help mitigate merchant risk in the U.S. card acceptance ecosystem, recently released the fourth edition of the ETA Guidelines on Merchant and ISO Underwriting and Risk Monitoring.

While these ETA Underwriting Guidelines aren’t specifically for merchants themselves –  but rather govern how payment processors and merchant advisory groups evaluate risk – it is worthwhile understanding how they indirectly impact the merchant.

The ETA Underwriting Guidelines call for refund monitoring and recommends that members define a threshold ratio for expected chargeback activity. Chargebacks and dispute resolution statistics for merchants with chargeback activity above the threshold calls for further review and documented reasons for acceptability. Merchants would be well advised to be aware of how chargebacks are viewed by card processors and what criteria are being used to evaluate them. In this way, the merchants can ensure they are staying within acceptable thresholds.

Ultimately, QSRs, as well as nearly any merchant, should engage in a conversation with their bank or payment processor to gain specific guidance on issues like chargebacks. This will help to ensure that issues around liability don’t arise.

Understanding Merchant Challenges is Also Key to a Stronger Ecosystem
On the other hand, banks, payment processors and Merchant Advisory Groups should take into consideration the new challenges that merchants, are grappling with in today’s dynamic and complex marketplace. For example, the ETA Underwriting Guidelines state “Higher chargeback ratios may be acceptable in certain merchant verticals so long as the reasons for the chargebacks are unrelated to potential consumer deception or unfair marketing practices. Each ETA Member should document its established thresholds to provide analysts with guidelines that should be followed. Merchant records should also be noted when activity exceeding established thresholds will continue to be allowed, including the degree of exception approved and the reasons why.”

Merchants, processors, and advisory groups can all benefit from an open dialogue around the ETA Underwriting Guidelines. The more merchants understand how banks and processors view chargebacks and the rules governing them, and the more providers and advisors take into consideration the challenges presented by the skyrocketing popularity of contactless practices, the better off the marketplace will be. The preferences we are seeing today in consumer payments are not likely to change in the near future, so it behooves all stakeholders to understand their respective roles and challenges in order to best support commerce in these most unusual times.

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