By Monica Eaton Cardone
The peak of the holiday shopping season is here. As a merchant, you probably have a lot on your mind right now. Managing inventory and supply chain, handling increased order volume, optimizing sales pages, providing a seamless customer experience…these are just a few common concerns that might weigh on you. But, if you’re like most sellers, you may not give enough thought to what happens after the holiday sales are over.
The holiday shopping season isn’t only about maximizing sales; you must also retain that revenue. That can be a challenge, though, with the current state of chargebacks in the eCommerce market.
Chargebacks Are On the Rise
Chargebacks—payments that are reversed by a cardholder’s bank as a result of a dispute—are one of the leading sources of loss for online merchants. According to the Payments 2022 study released in June, chargebacks were the top concern cited by merchants when assessing their overall fraud costs. 87.2% of survey respondents took chargebacks into account. Compare that to just 62% who were concerned about cyber fraud.
Chargebacks are a fast-growing problem, too. Direct dispute losses reached $31 billion in 2017, and the number of disputes filed by cardholders keeps climbing year after year. As if to add insult to injury, most of these chargebacks are cases of so-called “friendly fraud,” in which the cardholder files a dispute without proper justification.
Friendly fraud covers a wide range of chargeback triggers. For instance, it could be deliberate cyber shoplifting, meaning the buyer completes a purchase with the intent of later filing a chargeback. More often, though, friendly fraud is the product of something fairly innocuous. For example, a friendly fraud chargeback can be triggered by:
- Buyer’s remorse
- Shipping delays
- The customer failing to recognize a legitimate transaction
- Products failing to meet customers’ expectations
Regardless of what causes the chargeback, the result is the same: you lose sales revenue and merchandise. You’ll also pay higher fees and see increased long-term costs. You may even experience threats to your business’s sustainability and potentially lose card processing privileges if you breach chargeback thresholds (0.9-1% of transactions, depending on card brand and vertical).
Post-Holiday Chargeback Threats
Chargebacks may be a year-round issue, but the problem is at its worst in the weeks following the peak holiday rush.
The average consumer will return roughly 15% of all the goods they purchase online during the holidays. Some items don’t fit, or are the wrong size or color…either way, the post-holiday returns are coming.
If you’re unable to meet consumers’ expectations, those returns could devolve into chargebacks. 81% of consumers freely admit to having filed a friendly fraud chargeback simply because they believed it would be faster or more convenient than working through the merchant’s channels. The bottom line: if consumers want their money back, they’re going to get it…one way or another.
Consumers tend to file chargebacks on a 45- to 60-day cycle following their initial purchase. Thus, it’s no surprise that nearly half of all disputes are filed between January and March. Every year, we see that same post-holiday spike in chargebacks that corresponds with the 45- to 60-day timeframe.
Given the scope of this threat, and the potential losses you could incur as a result, you can’t really afford to ignore the problem. You also can’t afford to wait until after the holidays to start planning for that wave of post-holiday chargebacks, because by that point, it will already be too late. That’s why it’s important to take the necessary steps now.
Tackle Post-Holiday Disputes Beforehand
There’s still time before those January and February chargebacks start rolling in. But, managing chargebacks effectively calls for a comprehensive strategy.
The earlier you can start working to prevent disputes, the better positioned you’ll be. Plus, making the investment in a comprehensive chargeback management strategy—one that works alongside your existing fraud technologies—will continue paying-off long after the holidays are done. Chargebacks are, after all, a year-round problem.
We can trace all chargebacks to one of three fundamental sources: criminal fraud, friendly fraud, and merchant error. Effective chargeback management calls for a strategy that can address all three of these potential sources. For example, even a basic strategy should include:
- Multiple Authentication Tools: CVV verification and 3-D Secure technology add a small amount of friction to the process. It’s useful friction, though, as it’s aimed at blocking fraudsters while only causing a small delay for legitimate buyers.
- Backend Authentication: The process of buyer authentication should be like an iceberg, in that your customers never see most of it. Backend tools like address verification (AVS), geolocation, and velocity limits create more fraud barriers, without impacting customers.
- Responsive Service: Providing round-the-clock live service across multiple channels (phone, email, and social media) can prevent transactions from devolving into chargebacks. You may be able to recover sales, and you’ll ingratiate yourself to customers.
- Strong Product Descriptions: Let customers know ahead of time exactly what they’re buying. Include high-resolution photos of merchandise from multiple angles, including detailed and accurate descriptors, color and sizing information, and anything else relevant.
- Good Policies: You want your customers to fully-understand your return policy. You should be consistent, yet flexible about return procedures and eligibility. Also, make all policies visible and easily-accessible from every page on your site.
What About Friendly Fraud?
Incorporating these tools and practices is a solid start to mitigate your chargeback risk. Of course, these are all pre-transactional tactics; they can’t really do much to address friendly fraud, which is post-transactional in nature. For friendly fraud, the only really effective strategy is tactical chargeback representment. This can be complicated and time-consuming, though, as representment demands significant data insight, research, and knowledge of complex industry regulations. The Mastercard Chargeback Guide, on its own, is more than 400 pages long!
If you feel confident that friendly fraud is behind your chargebacks, it’s usually best to seek out professional assistance. Working through a chargeback mitigation service can help minimize the impact of chargebacks, even beyond the holiday season. Of course, it’s possible to engage in the representment process on your own. The odds of success aren’t reassuring, though, given that merchants only win an average of 22% of disputes.
While the holidays can be a great time to boost sales and profits at the year’s end, it’s not without risks. Chargeback season is right around the corner, which makes now the time to act if you hope to keep all that revenue you book at the end of the year.
