As digital commerce grows, chargebacks have become a greater and common pain point for merchants. While chargebacks were designed to protect consumers from fraud, the psychology behind why customers file chargebacks rather than asking the merchant for a refund is multifaceted.
Cognitive Dissonance Between Expectations and Experience
At the heart of why customers chargeback are psychological triggers, including cognitive dissonance and panic. One of the primary psychological factors at play is the principle of cognitive dissonance. This occurs when a customer's experience does not match their expectations, leading to discomfort and panic. The disparity could result from various factors, including product quality, advertising misrepresentation, or billing discrepancies. Ultimately, as the consumer seeks to end the cognitive dissonance as quickly as possible, they reach for their phone and file a chargeback. Understanding these triggers is essential for merchants aiming to minimize chargebacks and foster positive customer relationships.
Protection Against the Evolving Complexities of Fraud
Another psychological trigger is the perception of risk and the desire for protection. With generative AI, fraud and security breaches have become more complex and powerful. Customers hear news stories about fraud and security breaches, which have become more and more prevalent. As such, customers are taking more drastic measures, such as chargebacks, to fight this digital threat, which we call fraud. In these cases, customers view issuers as a greater authority on fraud than the merchant, so they charge back rather than ask for a refund. This reflex is often an immediate response to perceived threats, underscoring the importance of transparent and secure user experiences.
Chargeback as Quickly as a Click
The growing ease of charging back also plays a role in the consumer’s psyche. The days of dialling your credit card company to request a chargeback are over; nowadays, many issuers allow customers to click a button to initiate a chargeback. This has driven the occurrence of “friendly fraud,” when a customer files a chargeback, not for a legitimate reason, but because they know they can get away with it and end up with a free product or subscription. This behavior is motivated by the perceived anonymity and lack of oversight during a chargeback process. With “friendly fraud” spread as “life hacks” across social media, more customers are encouraged to exploit the system, leaving the merchant with only headaches and a refund.
Luckily, there are tools and strategies to mitigate the problem of chargebacks and the psychological triggers behind them. Merchants can make sure important billing terms are obviously positioned for the customers to read because few actually read the full terms of service on a company’s website. Detailed product descriptions and clear return policies can bring expectations and experience closer together to protect against cognitive dissonance experienced by customers. Merchants can also set up 24/7 customer support with sub-1-minute response times to reduce the customer’s motivation to click the dispute button on their issuers’ mobile apps.
Finally, merchants with business models that naturally result in dispute rates of 1% or above can use pre-dispute alerts from Chargeblast. Simply, merchants are notified at the point of customer chargeback before their processor and have 48 - 72 hours to address the situation. If the customer is refunded, then the issuer will never open a dispute following the interaction with the customer.
In conclusion, the psychology of chargebacks is rooted in consumer behavior and triggers like cognitive dissonance, perceived fraud risk, and the ease of disputing charges. By understanding these underlying factors, merchants can develop strategies and leverage pre-dispute alerts to prevent chargebacks, enhance customer satisfaction, and protect revenue.
