• Monica Eaton, Founder and CEO at Chargebacks911 and Fi911


• 04.01.2024 10:15 am
#chargeback #creditcard #consumers #fraud

As we go through this year's Golden Quarter—the peak holiday shopping season from Black Friday to Christmas—we’re already seeing a huge surge in activity. Shopper turnout across websites and stores hit an all-time high of 200.4 million people over the five-day weekend beginning with Thanksgiving, according to the National Retail Federation (NRF).

As customers continue flocking to high street stores and online retailers in search of the best deals, B2C companies must make the most of this commercial opportunity. However, the Golden Quarter also presents significant challenges, including the subsequent surge in returns, chargebacks, and friendly fraud, which can cast a shadow over their year-end profits. It’s important, therefore, to understand what can be done to mitigate this unfortunate year-end trend and understand why this year’s holiday shopping season could be significantly different from previous years.

Tackling the ‘chargeback hangover’ during the Golden Quarter

After the holiday season, many businesses have to deal with the annual "chargeback hangover”—a period during the new year when many shoppers file for chargebacks months after a purchase made during the end-of-year shopping rush. The increase in chargebacks during this period can significantly impact businesses’ profits in the first quarter.

The chargeback process is an important consumer protection mechanism that provides shoppers with a way to dispute transactions for a myriad of reasons, including unauthorized purchases, faulty or inaccurate products, or if merchants do not fulfill an order. While some consumers file legitimate chargeback claims with their bank, an alarming majority (up to 75% according to Visa) of chargeback claims are made mistakenly or by consumers with ulterior motives.

Sometimes when a customer is unhappy with a purchase, they will attempt to secure a refund directly from their bank rather than contacting the retailer. This could be due to the retailer being unresponsive, or customers simply not wanting to deal with a brand’s tedious returns process. Alternatively, customers might contact their issuing bank rather than the retailer out of panic, as they don’t recognize a billing descriptor on their credit card statement.

In some cases, chargeback claims are deliberately fraudulent: individuals who purposefully purchase products then file a chargeback afterward to recoup their money while keeping the merchandise. This deceptive tactic, known as first-party fraud or cyber shoplifting, is a pervasive problem that can spread rapidly through word-of-mouth or social media, creating a nightmare for businesses.

Whatever the reason may be for a consumer filing an illegitimate chargeback, the results can be deeply damaging if companies don’t do anything to prevent the surge in chargebacks in the new year.

How could this season be different?

Economic and cultural factors could make the 2023 Golden Quarter different from those that have come before. Disposable income for the average citizen has not fully recovered, with inflation and fuel prices continuing to skyrocket, despite economists predicting that consumer spending habits would return to pre-pandemic levels.

For example, roughly a quarter of U.S. customers feel anxious about their employment situation and their purchasing intentions ‘signal weakened spending confidence,’ according to a survey by Deloitte. However, the situation has improved significantly from 2022 and even earlier this year (2023): Deloitte’s financial well-being index was 98.3 in August 2023, up from 95.9 in July and significantly improved from a record low of 77.4 in June of 2022. Over in the UK, the Office for National Statistics (ONS) reported seven in 10 adults are spending less on non-essentials because of cost-of-living increases, but that there were small monthly increases from July to August, indicating an increase in retail spending during tough economic times.

Consequently, consumers will stretch their spending as they navigate around the unstable economic environment, especially during the holiday season. As a result, there may be a minority section of consumers who request chargebacks to resolve transaction disputes with a brand or to reclaim their money while holding onto the products they purchased.

Do brands contribute to their challenges?

In addition to external economic factors, businesses must also assess their processes and practices which may be inadvertently contributing to their chargeback rates. For example, many online businesses underestimate the high levels of traffic they'll experience as transaction disputes pile up. The backlog caused by traffic can irritate customers, prompting more of them to resort to chargebacks rather than attempting to resolve the issue directly with the brand.

Moreover, if customers buy products and find out the item does not align with what was advertised on the company's website, they are more likely to seek refunds through chargebacks. Complex or time-consuming return processes can further discourage customers from engaging with the brand directly, causing them to turn to their banks for chargebacks, incurring additional admin fees for the business.

Therefore, businesses must ensure they take proactive steps such as implementing a multi-layered, omnichannel strategy to protect themselves during the surge of chargebacks in the post-golden quarter period. 

The four steps to effective chargeback management

Prevention

To prevent chargebacks from happening in the first place, companies must ensure that customers are satisfied by keeping on top of customer service inquiries and maintaining open communication. Chargeback alert programs—such as Ethoca and Verifi provided through Mastercard and Visa, respectively—can be used to notify brands when disputes are filed, allowing for quick resolution.

Identification

Businesses should examine how merchant error, criminal fraud, or friendly fraud can impact the codes and additional transaction data around chargebacks. With a multi-layered fraud prevention strategy and data analysis, companies can also uncover internal issues contributing to chargebacks.

Challenge

Businesses may see chargebacks as an inevitable consequence of the holiday season. However, responding proactively and timely to claims will maximize revenue recovery and help prevent future abuse and repeat errors. Engaging in the re-presentment process—where companies can present evidence to prove a contested transaction is valid—can ensure no fraudulent activity is tolerated.

Adaptation

To manage chargebacks effectively, businesses should adapt to digitization by effectively reviewing and storing transaction data. This makes it easier to compile evidence and prove whether first-party misuse has occurred. Detailed transaction records, including card numbers, CVVs, IP addresses, and delivery signatures, can be invaluable during the dispute process.

The time to act is now

While the 2023 Golden Quarter will give businesses a huge opportunity to boost their profits, they must prepare for the incoming threat of chargebacks and fraud. Though daunting, feasible steps can be taken to ensure stability for B2C businesses. There are many customizable fraud mitigation solutions available on the market, which allow merchants to serve customers while expanding their business during the critical holiday season.