Monica Eaton-Cardone, Co-Founder of Chargebacks911 and Global Risk Technologies, tells how merchants can ensure they will be able to make the most of this year's seasonal shopping surge
European shopping volumes can often peak between 7-11 December, as customers reach the last date to guarantee on-time delivery of Christmas gifts. Last year in Germany, consumers spent an estimated €517 million on 7 December, with €341 million spent in France within the same 24 hour period.
In the US, Black Friday still represents the busiest online period as consumers make the most of the famous pre-Christmas sales following the Thanksgiving holiday. 2015 saw a staggering $2.72 billion spent online, following the $1.73 billion spent on Thanksgiving Day itself.
Much like a lot of US culture, Black Friday has now spread across the Atlantic to the UK and Europe. At Global Risk Technologies, we’ve witnessed this migration first hand as outlined in our recent whitepaper, with European Black Friday sales rising sharply since 2014. Last year, UK sales tipped over the £1 billion mark and Cyber Monday – which extends the Black Friday into a weekend-long retail festival – brought the total sales up to £3.3 billion.
Yet, total Black Friday and Cyber Monday sales in Europe and the US are dwarfed by ‘Singles’ Day’, China’s very own online spending frenzy. The relatively new event, held on 11 November, but often extending to a week or even a month’s worth of sales, this year saw 121bn yuan ($18bn; £14bn) worth of sales through Alibaba, China’s largest ecommerce site.
While these headline-grabbing, record-breaking sales figures generate huge levels of excitement among consumers and merchants alike, other statistics reveal a serious undertone that cannot be ignored; rising chargebacks.
Chargebacks have rippling implications amongst the industry and consumers at large. Although we often think of merchants as the principal victims, the evidence suggests that they are not the only group struggling enough to act.
Mastercard recently took steps help reduce its own encumbrance by introducing its new Dispute Administration Fee (DAF). The DAF fee is handed out to all merchants hit by customer chargebacks unless a successful dispute is processed. Ecommerce merchants can expect to pay an additional €15 fee for chargebacks they accept without filing rebuttal, and up to €30 if a non-compliant response is filed. Issuers are penalised as well with the reverse incentive.
Poor chargeback management is coming under increasing fire and better governance is becoming ever more critical in terms of saving costs. As the biggest shopping days of the year approach, those merchants who lack a disciplined chargeback policy are likely to be more vulnerable than ever before.
The greatest problem we see around the festive period is snap decisions on the side of customers and subsequent buyer’s remorse. Under pressure to buy now while stocks and sales last, customers become ‘click-happy’ before finding a better deal or product elsewhere. This surge of regret is fertile ground for chargeback fraud.
Similarly, customers who feel that merchants underperformed during this busy period are more likely to initiate a chargeback. A new report from Rodial indicated 71% of shoppers expect their online orders to arrive within five days, while 51% would stop shopping with a retailer if their order arrived later than the promised delivery date.
Merchant liability often hits in the weeks following the shopping holidays – approximately 90 days after the purchase — tripping merchants up after they’ve already calculated their seasonal profits. The biggest shopping days, such as Black Friday, disrupt normal customer shopping behaviours, making it challenging to find and stop friendly fraud.
Although ID fraud is often highlighted as the greatest threat facing merchants, the truth is, approximately 70% of chargebacks are actually attributable to friendly fraud, 20% to merchant error and 10% to criminal fraud.
It is essential that merchants understand chargebacks and the damage ineffective risk mitigation causes to revenue, relationships and reputations. Merchants not only lose the cost of the sale and the merchandise, but also the additional fees and consequences, particularly if they exceed allotted chargeback thresholds.
Adhering to best practices reduces the risk of chargebacks, however; superior results are obtained through combined methods which leverage both in-house and outside expertise. A series of studies conducted by Chargebacks911 revealed that merchants using a combination fraud management strategy experienced improved performance within every fraud detection tool and reported a gain on average of 22.4% over those who did not utilise a layered approach or combination method.
Merchants should never think of chargebacks as just a cost of doing business. With comprehensive management strategies, merchants can maximise the huge benefits of the seasonal shopping surge without incurring huge, unjustifiable costs.