BEING HELD HOSTAGE: THE DETRIMENTAL IMPACT OF SLOW REFUNDS ON CONSUMERS

By William McMullan, Director of eCommerce at Trustly

 

Refunds are becoming a bigger problem for both brands and their consumers.

Because of the pandemic and lockdowns experienced at various stages throughout much of 2020, online retail sales for the year were up 36% on 2019 – the highest annual growth seen since the early days of ecommerce back in 2007.

This has an obvious implication for returns and refunds. Even before the pandemic, UK returns rates averaged around 22% across all parcel types, well up on the 14% recorded in 2010.

And the legacy from COVID-19 is a more widespread adoption of a “buy, try, return” culture. According to a study by market research firm Mintel, almost half of UK online shoppers had sent a product back in the past year, rising to 60% for those between the ages of 16 and 34.

Whether faulty or damaged, poor quality or not as described, or a case of changing one’s mind, there are many reasons why consumers send goods back and ask for refunds, a process which can cause headaches for retailers.

 

Putting a financial burden on consumers

There is another problem alongside the growing volume of online sales and returns – one of speed.

Indeed, brands are receiving more and more emails, calls and chat messages to customer service teams with questions such as “Where is my refund?” and “Why is it taking so long?”

Such questions cause stress and frustration to consumers and brands alike.

The pandemic has certainly exacerbated this problem, the events and holidays space being a prime example. Here, consumers who spent money on tickets, hotels and flights have justifiably sought their money back for services they were no longer able to use.

Put simply, refunds are too slow to pass from merchants back into their customers bank accounts. This is because traditional finance systems do not operate at the same pace as ecommerce shoppers expect them to. The instantaneous, often 24-hour process between buying and receiving a product is not replicated when the transaction is reversed.

According to a recent Trustly survey looking into the financial implications of slow refunds, more than £3.5 billion of UK shoppers’ money has been held hostage in online refunds over the past year, with four in 10 having to wait between three and five days for their money to be returned.

Worryingly, these delays are having an adverse effect on people’s personal finances.

The Trustly study found that 45% of consumers who had requested a refund have been financially impacted by delays in seeing the money returned to them. This is hampering their ability to make financial plans, which means they are more likely to resort to taking out loans and paying interest on debts.

Meanwhile, more than a quarter of respondents (28%) said that their capacity to pay bills, rent and mortgage contributions has been directly impacted as a result of having money tied up in online refunds.

 

An opportunity to boost brand loyalty

Refund delays, as well as placing a burden on consumers, are also causing problems for brands.

When they make consumers wait for refunds, it puts a strain on the B2C relationship, which ultimately hurts their reputation and could result in a loss of business.

However, what these brands should realise is that there is a tremendous opportunity to win over more consumers by transforming the way refunds are processed. From repeat customers to rave reviews and a boosting public image, the business case for doing so is compelling.

Indeed, there are many sectors and businesses that stand to gain brand loyalty by offering faster (ideally instant) and more flexible refunds.

Our research found that the major sources of refunds fell into three broad retail categories, namely clothes and accessories (50% of refund requests), technology (20%), and home and garden (19%).

Drilling down into the research further, businesses with a younger consumer base have an even greater opportunity to boost brand loyalty.

Nearly one in three consumers aged 18 to 24 admitted that money being trapped in drawn out refund processes is hampering their ability to pay for essentials like food, whereas only 5% of those aged 55 or over reported the same issue. By transitioning to instant refund processes and systems that act as slickly as ecommerce platforms, brands can win over a hugely influential cohort of young customers.

Indeed, according to another study, just 11% of shoppers are very satisfied with returns. The main reason for dissatisfaction being delays in refunds, which was cited by 25% of respondents and represents a larger gripe than having to pay for returns.

Trustly’s survey backs these findings up. Some 63% of the 2,500-plus consumers we canvassed said that they were more likely to spend money with the same ecommerce retailer if they received a refund quickly. Meanwhile, 92% of customers who receive a good returns experience make repeat purchases, with the top 5% of returners generally being 30% more valuable in terms of average basket value.

A large majority (71%) of UK consumers also prefer to pay for things via debit as opposed to credit. This means that shoppers are seeking reassurance that their choice of payment method isn’t going to land them in debt, making the issue of delayed refunds an even greater problem.

Relying on legacy systems and age-old refund processes will ultimately see merchants being left behind. Faster refunds get shoppers back online sooner and more often and this is a dynamic that is both good for shoppers and good for retailers.

 

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