The Chargebacks That Stole Christmas for Retail Merchants

The peak holiday season usually brings a welcome boost in sales and festive cheer for merchants. Known shopping events such as Black Friday, Cyber Monday, Thanksgiving, and Christmas pique consumer interest and lead to increased customer traffic. But while you might support year-end customer activities with festive purchase options, there's a potential threat to all the holiday magic: chargebacks, and specifically how retailers face a heightened risk of managing holiday season chargebacks.

A chargeback often occurs when a customer disputes a transaction on their credit card. It's a helpful system that protects consumers from the financial fallout of fraud or errors. If there is an issue (e.g., identity theft), the credit card holder can reverse the charge and receive their money back.

For merchants, chargebacks pose a significant threat to their holiday revenues. Implementing effective holiday fraud prevention strategies can significantly reduce the incidence of these disputes. Not only do you pay several fees and possible penalties, but the revenue earned from legitimate transactions also reverses. Additionally, many times the sale value of the product is lost due to damage, lost packages and other factors.

Chargebacks take an even greater toll during the holidays because the loss of an item during peak sales traffic introduces an opportunity cost. The majority of consumers file holiday-related chargebacks in January — after the season ends. The post-Christmas blues create conditions ripe for chargebacks, as everyone forgets to return items, loses track of gifts, or feels dissatisfaction during the holiday hustle and bustle. But that means a product you could have sold during peak sales season is no longer available. And even if you get the item back, the sales season is over.

In addition, most fraudsters are well aware of the overwhelm connected to the season. They use the chaos to enact their schemes, leading to a greater volume of chargebacks. To combat this, robust holiday retail fraud prevention measures are essential. This includes employing advanced monitoring tools, adopting secure payment methods, and educating staff and customers about potential fraud risks during the holiday season.

So, how can retailers effectively combat chargeback fraud during this critical season? In the following sections, I'll outline five key strategies to enhance holiday chargeback management and protect your business.

1. Implement transactional security best practices.

Prevention is the best defense. You want to stop suspicious transactions that could become future chargebacks before they occur. To limit any risky activity, adopt good verification practices:

• Chargeback Management: Implement chargeback management solutions to mitigate risks and protect revenues.
• Fraud Detection Tools: Implement advanced monitoring tools to block fraudulent transactions in real time.
• 3D Secure: Adopt 3DS technology for additional authentications that help limit possible suspicious activity.
• Authentication Techniques: Use address verification services (AVS), credit verification value (CVV) codes, and IP/address matching to confirm the legitimacy of the cardholder.

2. Provide visible after-sales support.

Several holiday chargebacks occur due to consumer mistakes. For example, parents might be unaware of seasonal gift purchases made by children on video games. Others forget about the gifts they bought, received or gave away, especially when mixing in the use of gift cards or loyalty member bonuses. And plenty of rushed shoppers forget about last-minute purchases made before Christmas.

You can limit these types of false disputes with after-sales support. Service reps can resolve common holiday issues related to coupons, delayed shipments or damaged products. Simple refund policies drive returns rather than disputes. And post-purchase follow-ups help limit disputes related to forgetfulness or buyer's remorse.

In short, customers who can easily access support are far less likely to file a chargeback. Create easy-to-read refund policies, invest in customer service teams, and place strong emphasis on customer satisfaction.

3. Be transparent about fulfillment.

As most merchants know, supply chain woes can increase during the holiday season. The jump in consumer expectations and time-sensitive demands stress shipments. Unfortunately, “Item Not Received” is still a common chargeback reason code.

Luckily, you can defend against this type of chargeback with order fulfillment transparency. A consumer with clarity about product delivery is far less likely to dispute a charge. To that end, offer the following information to consumers:

• Order confirmation data (i.e., quantities, prices, shipping details, etc.)
• Delivery tracking options
• Delivery notifications (i.e., shipping status, location, expected delivery date, etc.)
• Shipping policies
• Delivery confirmation and receipt of consumer signature.

4. Describe your product clearly.

A significant amount of holiday purchases occur online. While such convenience drives consumer satisfaction, it also leads to “Product Not As Described” chargebacks. The product doesn't meet consumer expectations and leads to a dispute.

You can defend against such chargebacks with adequate product descriptions. Be sure to include on all product pages details such as size, dimensions, weight, color, and materials used. Also, mention additional features, functionalities or accessories. For odd-sized items, include package contents and dimensions. Lastly, note realistic use cases and performance metrics when possible.

5. Communicate effectively with visuals.

To help support your product descriptions, you can also utilize high-quality images. Images are crucial for meeting customer demands — any accurate product portrayal can limit chargebacks due to dissatisfaction.

To that end, use images with multiple angles to describe your product. Include variations such as color, size and style. For some products like shoes or clothing, offer sizing charts or infographics. For high-value items, interactive features such as 360-degree views or zoom allow consumers to explore with greater detail. Lastly, organic content can show the product in use by fellow consumers, offering better descriptions of scale, use, fit, etc.

Conclusion

Navigating the challenges of chargebacks during the holiday season doesn't have to overshadow the joy and profitability of this crucial time for retailers. By implementing robust fraud prevention measures, focusing on preventing chargebacks, and embracing proactive dispute resolution strategies, businesses can effectively mitigate the risks associated with chargebacks. These steps go beyond safeguarding revenues; they play a vital role in enhancing customer trust and overall satisfaction.

Proactive management of potential issues before they escalate into disputes, including preventing chargebacks through vigilant monitoring and customer engagement, is key. With a strategic approach that encompasses both prevention and efficient resolution, retailers are better positioned to focus on what truly matters — creating a delightful and satisfying shopping experience for their customers. The holiday season, with the right preparatory measures including preventative strategies against chargebacks, can remain a time of celebration and success, both for merchants and consumers, highlighting the significance of comprehensive chargeback management in the retail industry.

Ariel Chen is the CEO and co-founder of Chargeflow, the world's first fully automated chargeback management solution, designed for e-commerce merchants by e-commerce entrepreneurs.