by Monica Eaton, Founder of Chargebacks911 and Fi911. Chief Information Officer of Global Risk Technologies.
The way many people find love has changed over the last few years, with digital tools and dating channels becoming an increasingly popular way for people to meet their significant other.
More romantics choosing to scour the internet in search of their other half also means big business for dating apps, websites and social platforms.
According to recent data, revenue in the online dating industry is projected to reach over $3 billion in 2023, with 440 million people predicted to use online dating sites and apps by 2027 – 100 million more than the population of the US and double the population of Brazil.
This rise in popularity of dating sites and apps means it’s a fruitful time to be involved in this industry, with strong opportunities for new players to provide a virtual venue for romance and cater for more specific niches and segments of the population.
However, with great opportunity comes new challenges for online businesses vending love this time of year, including a fast-growing problem within the dating space and E-commerce in general: chargebacks.
What are the sources of chargebacks?
Chargebacks are the primary tool issuing banks use to resolve credit card payment disputes for their customers.
When a consumer did not authorize a charge, or is unhappy with a product or service, they can challenge the charge with their financial institution. If the bank feels the consumer’s claim is valid, they will initiate a chargeback to reverse the payment from the merchant back to the consumer.
A simple concept, right? However, when digging a little deeper, chargebacks are very complex and create issues for merchants operating in the dating space and beyond.
For example, there are dozens of potential chargeback triggers that could occur at different stages in a transaction. Many of these triggers have an assigned “reason code,” which are connected to each chargeback case in an attempt to explain what caused the problem.
In many cases, triggers that may not qualify for a legitimate chargeback are filed under a similar but unrelated reason code, initiating a chargeback for an illegitimate reason.
There are three main causes of chargebacks:
• Merchant Error: seemingly minor policy and procedure oversights by the merchant.
• Criminal Fraud: criminals (bad actors, scammers, fraudsters) seeking to deliberately steal from consumers.
• First-party fraud or misuse (previously friendly fraud): buyers who appear legitimate, but later file unjustified chargebacks either unknowingly or maliciously.
Regardless of what triggered the chargeback, a dating merchant suffering from illegitimate chargebacks is still liable to lose revenue while also having to pay costly fees for each dispute, increasing overhead costs that may end up being passed on to the consumer. If the situation gets out of control, a merchant may lose the ability to process card transactions entirely.
Why do dating apps and sites experience so many chargebacks?
First-party misuse is a fast-growing threat for many online merchants across practically all industries and verticals. Recent data quantifies it as a $50 billion cost for businesses this year alone.
Each product category has unique triggers, but the underlying problem remains the same.
There are a few reasons why a dating site or app might receive a chargeback. Customer might pay for the service, find a match, then file a chargeback to recover the money spent – effectively abusing the chargebacks system and cyber– shoplifting from the merchant.
However, not every chargeback is a clear-cut case of abuse.
For example, some might sign up for service, then decide the platform isn’t what they’re looking for, and experience “buyer’s remorse.”
Others might sign up for a free trial, then forget to cancel before being charged for service. The buyers are still not entitled to chargebacks in either of these scenarios, but there’s more nuance to the situation than outright fraud, resulting in unnecessary chargebacks being filed.
How to mitigate chargebacks?
The first step to mitigate chargebacks is to make it easy to cancel the subscription or account. Clearly, no business wants to lose customers, but a cancellation of services is far better than a chargeback.
Companies should make sure they are sending users alerts of upcoming charges, and that their cancellation policies and procedures are fair, straightforward, and easy-to-locate from any point on their site or app.
The cancellation process should be streamlined, and customers should be provided with clear confirmation that they won’t be billed in the future.
Next, billing descriptors should clearly identify the merchant on their customers’ bank statements. If customers can’t recognize a charge based on the descriptor, they may suspect fraud and request a chargeback.
That’s why a merchant’s descriptor should clearly identify the brand by the company name or URL, along with any other relevant descriptive information.
Thirdly, attentive customer service can be one of the best methods of both preventing chargebacks and retaining subscribers. While this may seem obvious, this point cannot be stressed enough.
Many of us have been in a position where we need to speak with a business but cannot get a response by phone, email, etc.
By offering responsive customer service across multiple channels, including phone, email, and social media, it will reinforce consumer confidence that they can resolve a transaction dispute or issue with the merchant rather than their bank.
Finally, be aware of the signs of criminal fraud.
Changing account details, such as location, age, or photos right after making a new account is considered suspicious activity. Similarly, criminals also use the tactic of sending a lot of messages to try making fast connections with users.
Merchants should be on the lookout for users who send a high velocity of messages with spam-style content. By staying on top of this, it will prevent fraudulent transactions and thus eliminate the need for customers to file a chargeback.
All love and no loss
Online technology is constantly evolving, and new chargeback threats appear daily for businesses across all verticals.
While there are times when it’s impossible to prevent a chargeback, employing an effective chargeback management strategy that is flexible enough to identify new trends and techniques, counteract new technology, and adapt on the fly to a shifting landscape will provide the best opportunity for success.
