What if 99.5% customer satisfaction could still threaten your entire business? Payments veteran Jeff Foster reveals why the economics of chargebacks have shifted dramatically, and why the smartest merchants are giving money back faster than you'd expect.Jeff has been in payments since 1998, helped process the first CVV and Verified by Visa transactions ever, and now runs Quick Refund to help merchants navigate the tightening thresholds that Visa and MasterCard have imposed. We explore why 25% of chargebacks hit...
What if 99.5% customer satisfaction could still threaten your entire business? Payments veteran Jeff Foster reveals why the economics of chargebacks have shifted dramatically, and why the smartest merchants are giving money back faster than you'd expect.
Jeff has been in payments since 1998, helped process the first CVV and Verified by Visa transactions ever, and now runs Quick Refund to help merchants navigate the tightening thresholds that Visa and MasterCard have imposed. We explore why 25% of chargebacks hit transactions that were already refunded, how friendly fraud became behavioural rather than criminal, and what you can actually control to protect your margins.
Key Point Timestamps:
03:36 - The gap in the market Quick Refund identified
05:42 - Why payment systems haven't evolved since 2006
15:08 - Friendly fraud and why it's a behavioural issue
21:13 - The economics of refunds vs chargebacks
25:02 - Why banks don't care about merchants
30:53 - How Quick Refund actually works
43:58 - Jeff's top tip for new eCommerce operators
The Uncomfortable Economics of Chargebacks (21:13)
The threshold for acceptable chargebacks keeps dropping. It used to be 3.5%. Then it fell to 1%. Now it's heading towards 0.5%. Jeff puts the stakes in perspective with a striking comparison.
"Imagine your bank calling you up and threatening to shut your business down because only 98% of your customers were perfectly happy. Imagine if a politician had to deal with those kinds of stats. Every elected official would be gone their first week."
The cascading costs are brutal. A $25 product can generate $75 in fees and fines when disputed. A $250,000 annual problem can quickly become a million-dollar drain. And cross certain thresholds, you're not just paying fines. You're losing your ability to process cards entirely.
Friendly Fraud Isn't What You Think (15:08)
Unlike organised criminal fraud, friendly fraud is largely behavioural. Someone buys something, receives it, then decides to get their money back through the bank rather than the merchant. Jeff's data shows most of it isn't even premeditated.
"It's something that maybe is a little more expensive than you should have bought in the first place. A bill comes in that you weren't expecting. Things are a little tight. And you say, you know what? I'm just gonna call my bank and tell them I didn't get it."
The pandemic accelerated this behaviour significantly. Banks have built dispute buttons into their apps, right next to every transaction. Two taps and the money's coming back. No consequences for the consumer.
Why Banks Favour Cardholders (25:02)
Jeff shares a revealing conversation from Money 2020, the major payments conference. A premium card issuer explained their position plainly: customers spending $17,000 a month, generating premium interchange and high interest rates, are worth keeping happy. If they want to dispute $200 every other month? The bank doesn't care.
"It's definitely not my problem. It's your problem." That's the message merchants receive, whether stated explicitly or not. There's far more money in the issuing business than processing. Merchants are simply the cost of doing business.
The 25% Refund Problem (30:53)
Here's something most merchants don't realise: a refund through your processor isn't actually a refund. It's a forced deposit back to the original payment method. The bank then has to match these up. And often, they don't.
"Something like 25% of all chargebacks are transactions that have actually already been refunded. But the bank didn't match them up."
A customer requests a refund, you process it promptly, but forced deposits can take days. The customer checks their bank app, doesn't see the credit, gets frustrated, and disputes it anyway. Now you've got two refunds going out, plus fees, plus fines.
What You Can Actually Control (43:58)
Jeff's parting advice focuses on the 25-30% of disputes that are entirely preventable through better communication and fulfilment.
"The number of disputes, refunds, and things that we see on a daily basis that are based on a lack of communication from the merchant is something that every single merchant can easily solve in its entirety."
Get products out fast. Overcommunicate throughout the process. Make yourself easy to reach. Follow up after delivery. These basics, done brilliantly, eliminate the confusion and frustration that drive a significant chunk of friendly fraud.
Today's Guest
Today's guest: Jeff Foster
Company: Quick Refund
Website: getquickrefund.com
LinkedIn: Connect with Jeff on LinkedIn
Episode link: https://www.ecommerce-podcast.com/how-to-stop-chargebacks-from-destroying-your-profit-margins
