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Expert opinion

Black Friday and Christmas shopping bring seasonal chargebacks

Tuesday 4 October 2016 | 08:34 AM CET

Monica Eaton-Cardone, Global Risk Technologies: Online retailers need to prepare for hidden risks on the biggest shopping days of the year

Around the world, ecommerce merchants are fast approaching the busiest time of year: Christmas shopping and excessive holiday purchasing.

In Europe, the biggest shopping days typically fall between 7-11 December, often coinciding with the last date to guarantee on-time delivery of seasonal gifts. An estimated EUR 517 million was spent online in Germany on 7 December last year, with EUR 341 million spent in France on the same day.

In the US, the Black Friday sales spree is the fourth Friday of November, following the Thanksgiving holiday. In 2015, a staggering USD 2.72 billion was spent online, with an additional USD 1.73 billion spent on Thanksgiving Day itself.

The Black Friday trend, like much US culture and influence, has recently spread to the UK; according to a Global Risk Technologies whitepaper, the holiday has grown massively since 2014. In 2015, the UK topped GBP 1 billion in Black Friday sales, and Cyber Monday — which transforms Black Friday into a weekend-long online shopping extravaganza — helped bring total sales to GBP 3.3 billion.

Yet, both Europe and the US are dwarfed by the online spending frenzy of China’s relatively new ‘Singles Day’ phenomenon. Ostensibly held on 11 November, but often extending to a week’s worth of sales, 2015 saw CNY 91.2bn (USD 14.3bn or GBP 9.4bn) worth of sales through Alibaba, China’s largest ecommerce site.

While these record-breaking sales create great headlines, huge amounts of attention from customers, and increased earning potential for merchants, statistics reveal dire consequences–in terms of chargebacks—are likely to follow.

But evidence suggests that merchants are not the only group carrying this burden. MasterCard recently took action to help reduce their own encumbrance by introducing their new Dispute Administration Fee (DAF). The DAF is a fee passed through to merchants who fall foul of customer chargebacks and fail to effectively dispute their legitimacy. Ecommerce merchants can expect to pay an additional EUR 15 fee for chargebacks they accept without filing rebuttal, and up to EUR 30 if a non-compliant response is filed. Issuers are penalized as well with the reverse incentive.

Issuers are getting increasingly serious about enforcing better governance on merchants, and ineffective or poor chargeback management is about to become even more costly. As we move towards the shopping frenzies of 2016, those merchants who lack a disciplined chargeback policy are likely to be more vulnerable than ever before.

The problem most closely associated around peak shopping days is buyer’s remorse. Customers feel pressured into buying something before it disappears, but then find a better deal elsewhere or change their mind. This regret often results in illegitimate chargebacks.

Similarly, if customers are not satisfied with the merchant’s performance, they may also initiate a chargeback. A new report from Radial 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 surfaces in the weeks following these shopping holidays--approximately 90 days after the purchase — as the costs of online fraud and chargebacks become apparent. Big purchasing events, like Black Friday, disrupt normal customer shopping behaviours, making it challenging to find and stop friendly fraud.

Although ID fraud gets more media attention, approximately 70% of chargebacks are actually attributable to friendly fraud, 20% to merchant error and 10% to criminal fraud.

Merchants need to understand chargebacks and the detrimental affect an ineffective risk mitigation system can have on the business. Beyond losing merchandise and revenue, internet retailers can face additional fees and consequences, particularly if they exceed allotted chargeback thresholds.

The ongoing goal of Global Risk Technologies and our US merchant subsidiary Chargebacks911 is to pinpoint the real cause behind chargebacks through the adoption of a multi-layered approach. Adhering to best practices reduces the risk of chargebacks, however; superior results are obtained through the use of combined methods which leverage both in-house and outside expertise.

Based on recent studies performed by Global Risk Technologies, 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.

Chargebacks needn’t be accepted as a cost of doing business. Comprehensive management strategies ensure merchants benefit from huge shopping days without sustaining enormous financial disasters.

About Monica Eaton-Cardone

Monica Eaton-Cardone is an international entrepreneur who provides sustainable revenue retention and risk reduction solutions to the ecommerce environment. She is the co-founder and COO of Chargebacks911, as well as the CIO of Europe’s Global Risk Technologies.


About Global Risk Technologies

Global Risk Technologies provides cutting edge, highly-scalable enterprise solutions and specialized consulting for chargeback compliance, risk mitigation and dispute management; serving acquirers, card issuers and large scale merchants. The company’s dynamic technologies and tactical data analysis help decrease the negative impacts of chargebacks and disputes, thereby increasing customer retention and revenues. Chargebacks911 is a Global Risk Technologies company devoted to serving merchants, offering comprehensive chargeback mitigation and management solutions.