While cardholders file chargebacks year-round, the practice is still subject to a seasonal ebb and flow. Every year, there’s an uptick in chargeback issuances occurring between January and March; a kind of post-holiday “chargeback season.”
This trend may be more pronounced than ever this year due to the lingering effects of Covid-19. As one survey noted, one-third of respondents in the US in 2020 committed friendly fraud by falsely claiming an order never made it to their home, or that a product was unsatisfactory. Consider this alongside the fact that roughly 40% of cardholders who commit friendly fraud will repeat the behavior within 60 days.
It’s true that the holidays are still months away. However, now is the time for professionals at every stage in the payments process to start considering this matter and determining the best way to proceed.
Why the seasonal pattern?
Chargebacks tend to operate on a 45- to 60-day cycle. Thus, many of the gifts, food, and decorations purchased in November and December could translate to chargebacks in January and February.
There are multiple reasons why cardholders file more chargebacks in the first quarter of the year. One is buyer’s remorse. Consumers tend to splurge during the holidays, then panic when that first bank statement of the year turns up and they have to confront how much they spent. In response, many buyers will turn to friendly fraud.
In other cases, buyers may lose track of some of the purchases they made. They may misidentify a legitimate purchase as an unauthorized charge, then file a chargeback.
Of course, there could be additional pressures given the context of Covid-19. For instance, many businesses remain on uncertain ground regarding their mid- to long-term prospects. Cardholders could find themselves out of work suddenly, and file chargebacks to recoup their funds. There is also a shift in purchasing patterns underway which could affect consumer behavior. Buyers are more open to click-and-collect and other digital purchasing channels, which carry more inherent risk tied to chargebacks than conventional brick-and-mortar commerce.
Opportunities abound, but are contingent on risk management
There is tremendous opportunity to be found in the eCommerce market this holiday season.
Holiday retail sales grew by 8.3% in 2020. That’s impressive on its own, but eCommerce sales represent an outsized share of that total, having increased 24% compared to 2019. Based on consumer impressions, this may prove to be a lasting trend, as consumers say that they’ve enjoyed the convenience offered by remote channels.
As noted above, though, remote commerce inherently carries a greater chargeback risk. The merchant is never in physical proximity to the buyer, so they can’t verify customers’ identities with as much certainty. Furthermore, the distance allows for greater emotional detachment on the cardholder’s part. They never actually meet the merchant, so it’s easier to think of friendly fraud as a “victimless crime.”
Many risk management professionals make the mistake of trying to address this problem as it happens. By the time the holidays are in full swing, though, it’s likely already too late. Given that 2021 may prove to be the biggest year yet for the eCommerce space, it’s vital that businesses take steps now to guard against those chargebacks that may arrive once the year is through.
The holiday chargeback checklist
A thorough understanding of one’s business, covering every shopping channel at every stage of a transaction, will be the key to chargeback management this holiday season. This includes customer touchpoints, as well as backend processes conducted before, during, and after a sale.
Below is a checklist of questions which merchants should ask to ensure that their operations are prepared for what’s to come:
- Do you communicate constructively with customers?
- Is your messaging responsive to buyers’ interests and concerns in the context of Covid-19?
- Can customers easily navigate your platform?
- Can buyers find the products they’re looking for, and are you guiding them through the transaction process?
- Are you keeping an accurate tally of stock levels?
- Can your supply chain and inventory management system keep pace with a sudden uptick in the volume of transactions?
- Do you have the infrastructure necessary to withstand unprecedented site traffic without crashing or providing an inconsistent customer experience?
- Did you perform research to have a clear understanding of your customers’ buying preferences?
- Can customers reach you easily to get help or ask questions when needed?
- Do you provide live service as many hours a day as possible (round-the-clock, ideally)?
- Do you check communication channels (phone, email, social media) constantly for new inquiries?
- Do you deploy a multilayer fraud management strategy, incorporating complimentary fraud tools backed by fraud scoring?
- Are you proactive about fraud threats by keeping defenses up-to-date with new fraud tactics?
- Can customers easily return or exchange merchandise when necessary?
- Do you carry out post-transaction inquiries to learn why customers return merchandise?
- Are you applying lessons from past returns, complaints, and chargebacks to improve the customer experience?
- Are you enrolled in card scheme inquiry systems like Visa Order Insight and Mastercard Consumer Clarity?
Resolving all these questions will not guarantee against chargebacks. The list items will merely optimize merchant defenses to prevent chargebacks wherever possible.
Merchants should also bear in mind that this is not an exhaustive list; rule sets and external forces can change quickly, which will impact chargeback risk. Plus, there’s no way to effectively defend against cardholders determined to abuse the chargeback process. While these cases may be a minority, so-called “cyber shoplifting” is still prominent enough to cost merchants billions of dollars each holiday season.
We may still be in the “dog days” of summer as I write this. However, professionals responsible for merchant risk management must start preparing for what’s ahead now. Otherwise, they may find themselves with an unexpected—and unwanted—surprise headed their way after the beginning of the new year.
