The growing threat represented by chargeback fraud falls almost exclusively on eCommerce merchants. However, the retail market has been upended this year in more ways than one.
A few months back, I reported on the fantastic gains online merchants had made since the onset of the COVID-19 pandemic, and that growth has powered on the months since. When retail giant Amazon announced revenue for its third fiscal quarter of 2020, for example, year-over-year net earnings had tripled from the same period in 2019.
This kind of runaway progress is too dramatic to go unnoticed. We’re seeing a surge in fraud, but we’re also noting ripple effects in industries which have not traditionally had a heavy presence in the eCommerce world. Case in point: home improvement.
As Long as We’re Staying at Home…
While home improvement certainly has an eCommerce footprint, it remains a primarily brick-and-mortar sector. As a result, we’ve seen a dramatic uptick in online business in this vertical since the pandemic began.
For some, home improvement has become a necessity. With so many trying to do both work and school remotely, finishing that basement office suddenly looks a whole lot less like a luxury and more like something you need now.
Others are stuck at home, and finally have the bandwidth to check off those little jobs that had been put on indefinite hold. And, it’s not just time we have a bit more of these days: between cancelled vacations, Federal stimulus programs, and low rates for financing or refinancing, some homeowners are finding themselves with a little extra cash on hand.
Having the means, time, and motivation to take on home improvements still won’t make unnecessary trips to Ace Hardware a good idea, though, as infection rates remain high. Home goods and home improvement retailers have recognized this, and have thus become some of the fastest growing categories in eCommerce.
Big-box home improvement retailers like Lowes, Menards, and Home Depot are now advertising free delivery on more products, as well as curbside pickup for online orders. This is the best of both worlds for customers: they can do all their research and ordering from the store’s app or website, then drive to the physical store and have purchases loaded into their car, with minimal social contact.
This makes sense for everyone, especially in categories like major appliances. In the online channel, merchants can offer a much wider selection without sacrificing floor space or tying up additional staff. Shoppers can look beyond what’s in stock to what’s actually available. They can compare prices and features, make a purchase, and typically save themselves the trouble of delivery and installation.
So, What’s the Bad News?
The home improvement business is growing its presence online. In doing so, though, it’s also making itself a bigger target.
Where customers see convenience, fraudsters see opportunity. Buying online makes it substantially easier to use stolen payment card data, and even creates more opportunities for account takeover and other threats.
Fraudsters can now hit home improvement merchants as easily as they would any other big-box store. The only difference is that, instead of going after jewelry from Kohl’s, or electronics from Best Buy, crooks are more likely to target something like power tools that they can easily flip for a profit.
Like electronics, power tools aren’t an everyday purchase. That means buying one here and there won’t necessarily contradict the cardholder’s buying pattern and risk triggering red flags. Many power tools also fall in the $100-$500 price range, which is a sweet spot for fraud: valuable enough to be worth the risk, but not so expensive as to set off alarms.
Fraud Is Nothing New
Fraud in the home improvement sector is not a new phenomenon. Home improvement stores have always had to deal with shoplifters and stolen payment card fraud. But, by pushing further into the eCommerce space, I fear that these merchants are ill-prepared to deal with a relatively new threat: friendly fraud.
Friendly fraud occurs when consumers file disputes with their issuing bank instead of coming to the merchant for a refund. Sometimes this happens innocently; the customer may not remember the purchase, or may think a chargeback is the same thing as a return.
In other cases, the cardholder is playing the system and attempting to get something for free. They’ll make an online purchase, then call the bank and claim the item never arrived, was not what they ordered, or was damaged.
Obviously, this would be hard to pull off for something like a washer or dryer that the merchant delivered and installed. However, a person could pick up a $200 circular saw using this con, if merchants aren’t vigilant. And those smaller dings will add up.
A Serious Threat for New Players
From the fraudster’s perspective, merchants in the home improvement sector are the new players in town. And, like any newcomer, this makes them an attractive target for abuse.
The consequences of chargebacks can blindside any merchant who isn’t prepared. We have to consider the costs of lost merchandise, plus those of forced refunds, chargeback fees, and the forfeited costs of shipping and handling. It doesn’t take long for small losses to turn into a big problem. Making matters worse, statistics show that friendly fraudsters are repeat offenders: half the people who successfully file a chargeback will try again within 90 days.
Online sales present a new, wide-open opportunity for the home improvement world. However, chargebacks are a threat merchants in this sector cannot afford to ignore.
