Across the US, peak holiday shopping is in full swing. Thousands of merchants are so busy they scarcely have time to breathe, let alone worry about supply chain issues, inventory breakdowns, or customer service snafus.
Yet… here we are.
It’s the 2022 holiday season, and we’re still experiencing residual supply chain woes leftover from the pandemic, and will be for a while to come. With these lingering pitfalls seemingly built into this holiday season, should merchants expect chargebacks as just another cost of doing business?
Let’s talk about it.
Friendly Fraud is Here to Stay
First of all, it’s important for merchants to understand that chargebacks aren’t going anywhere. They’re a protected consumer right, and when used correctly, can be a useful tool to help protect consumers against fraud. This is not a bad thing; it’s a necessary consumer protection. However, when chargebacks aren’t used correctly, they can be a real problem for merchants, particularly in the eCommerce space.
Despite our best efforts, chargebacks are still a leading source of revenue loss for eCommerce merchants. 75% of merchants saw an increase in fraud attempts in 2021, according to the 2022 Chargeback Field Report. Many of these will be first-party fraud, or “friendly” fraud, as it’s often known.
Friendly fraud covers a pretty broad range of chargeback triggers. 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, it could be a misread payment date or a misunderstood return policy.
Friendly fraud is often tied to an issue like:
- Buyer’s remorse
- Shipping delays
- The customer failing to recognize a legitimate transaction
- Products failing to meet customers’ expectations
Whatever is causing your chargeback problem, the result is essentially the same: you’ll lose sales revenue and merchandise, and you’ll 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 set by the card networks.
Post-Holiday Chargeback Threats
Chargebacks are a year-round problem. However, they generally get worse in the weeks following the holiday rush.
Inflation, plus those lingering supply chain woes mentioned above are coming back to bite everyone in a big way. According to one study, consumers will return an average of 18% of all the items they purchased over the holiday season. If you don’t make it incredibly easy for people to return items that are the wrong size, color, or shape, you could be facing a serious round of post-holiday chargebacks.
Remember: 81% of consumers freely admit that they’ve filed a friendly fraud chargeback simply because they considered it a faster or more convenient method than working through the merchant’s channels. The takeaway here is that consumers aren’t going to jump through too many hoops to get a return. If they consider you uncooperative, they’ll get their money back one way or the other.
Since consumers tend to file chargebacks on a 45- to 60-day cycle following their initial purchase, it stands to reason you can expect a significant chunk of your annual chargebacks over the next three months. While this should really come as no surprise for experienced eCommerce merchants, the amount of chargebacks will likely be high compared to previous years.
Tackle Post-Holiday Disputes Beforehand
You should be prepared to prevent and fight chargebacks all year long rather than prepping last minute for a basket post-holiday chargeback surprises. The earlier you can start working to prevent disputes, the better positioned you’ll be.
Aside from this, making the investment in a comprehensive chargeback management strategy — one that works alongside your existing fraud technologies — will continue to pay off long after the holidays are done.
Effective chargeback management calls for a multi-tiered strategy that can address as many chargeback triggers at once as possible, as well as help you prevent fraud and other headaches that pop up along the way. As always, your year-round chargeback prevention 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.
- 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.
Of all chargeback-related issues, friendly fraud is probably going to be your biggest challenge.
It’s very difficult to identify and remedy a threat you can’t see. Beyond that, you can’t even be sure you’re seeing when you see it… unless you know what to look for and are prepared to fight back when necessary. So, the real question here isn’t “How prepared are you to respond to chargebacks.” Rather, it is “Do you know what friendly fraud looks like, and how prepared are you to fight back?”
