Why the Holiday Shopping Season Will Be Different This Year
The highly anticipated Golden Quarter is the peak season of holiday shopping that starts Black Friday and runs through Christmas. This has always been a vital revenue generation period for retailers, as consumers flock to stores and online in search of their chosen gifts and bargain deals in time for the holidays.
However, the Golden Quarter isn't without its challenges. History indicates that businesses face pressing concerns and challenges in the form of product returns, chargebacks and friendly fraud — all of which can cast a shadow over their year-end profits.
Therefore, it's important to explore the dynamics of chargebacks and friendly fraud during this time and why this year’s holiday shopping season promises to be different due to economic and cultural factors. Finally, I’ll look to provide essential tips on how retailers can best prepare themselves for what lies ahead.
The Impact of Chargebacks
Many business owners will be aware of the annual "chargeback hangover" — the three months following the Golden Quarter shopping season when consumers file chargebacks on purchases, often in record numbers and in many cases fraudulently or mistakenly. This peak surge in chargebacks hits brands’ profits extremely hard as they start the new year.
A chargeback occurs when a customer disputes a transaction and requests a refund from their bank or credit card issuer, rather than the brand they’ve purchased from. While the chargeback process is a key consumer protection mechanism, a growing majority of the chargebacks filed (up to 75 percent according to Visa) are initiated mistakenly or by consumers with less-than-honorable intentions. The first scenario can result from a consumer not recognizing a billing descriptor on their bank or credit card statement, or not wanting to navigate the brand’s customer service process, prompting them to contact their issuing bank possibly out of convenience. In the second scenario, the consumer purchases products during the holiday season with the full intention of later filing a chargeback to recoup the money while keeping the goods. 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.
Why Are We in for a ‘Different’ Holiday Shopping Season This Year?
Put simply, there are economic and cultural factors that are conspiring to make this year unlike any other in recent memory. Many economists had initially predicted that 2022 would be the year when consumer spending habits returned to pre-pandemic levels. The reality, however, has been rather different mainly due to the fact that disposable incomes for the average citizen haven't fully rebounded, and the nation is dealing with higher inflation and rising fuel prices.
Studies by Deloitte cite one in four U.S. citizens feeling anxious about their employment situation, and their purchasing intentions "signal weakened spending confidence." These economic challenges have created an environment where consumers are more inclined to seek ways to make their money go further, especially during the holiday season. Purchasing luxuries may seem less justifiable when everyday expenses are on the rise. As a result, some individuals turn to chargebacks as a means to resolve transaction disputes with a merchant, or to reclaim their money while holding onto the products they purchased. The unfortunate trend of chargeback fraud and misuse can be tempting, particularly in times of financial strain.
The Role That Businesses Can Play
External factors aside, businesses can also acknowledge their internal processes and practices that may inadvertently contribute to their chargeback rates. During the holiday season, many online merchants underestimate the volume of traffic to their sites which can lead to transaction disputes piling up. The backlog can frustrate customers and prompt these to become chargebacks.
Therefore, here are my proactive chargeback management tips to businesses this holiday shopping season:
- Prevention: The first line of defense against chargebacks is keeping customers satisfied. Promptly addressing customer service inquiries and maintaining open communication can prevent misunderstandings that might lead to chargebacks. Additionally, consider utilizing chargeback alert programs, such as Ethoca and Verifi (provided through Mastercard and Visa), which notify merchants when a dispute is filed, allowing for quick resolution before chargebacks occur.
- Identification: Businesses should carefully analyze the reason codes and additional transaction data accompanying chargebacks. Identifying whether the chargeback is due to merchant error, criminal fraud or first-party misuse is crucial. Employing a multilayered fraud prevention strategy and utilizing data analysis can help pinpoint internal issues contributing to chargebacks.
- Challenge: While it may be tempting to accept chargebacks as an inevitable cost of doing business, responding proactively and in a timely manner to claims will maximize revenue recovery and help prevent future abuse and repeat errors. Engaging in the representment process, where merchants provide evidence of the validity of a contested transaction, sends a message that fraudulent behavior will not be tolerated.
- Adaptation: In an era of increasing digitization, chargebacks are expected to continue rising. Businesses should adapt by effectively managing and storing data from the payment process, making it easier to prove whether first-party misuse has occurred. Detailed transaction records, including card numbers, CVVs and delivery signatures, can be invaluable during disputes.
While the threat of chargebacks and fraud looms large, proactive measures can help businesses navigate these treacherous waters effectively. It’s also important for retailers to note that they don’t have to face this alone. There's technology on the market today that offers customizable fraud mitigation solutions, allowing them to focus on serving their customers and growing their business during a critical period. A robust chargeback management strategy and staying adaptable enables brands to emerge stronger.
Monica Eaton is the founder and CEO of Chargebacks911 and Fi911, as well as chief information officer of Global Risk Technologies. She has worked tirelessly to educate merchants and financial institutions about hidden threats in the rapidly changing payment fraud landscape.
Monica Eaton is the Founder and CEO of Chargebacks911 and Fi911, as well as Chief Information Officer of Global Risk Technologies. Monica has worked tirelessly to educate merchants and financial institutions about hidden threats in the rapidly changing payment fraud landscape. Leading Chargebacks911, was founded in Tampa Bay, Florida, expanding internationally also to become Europe’s first chargeback remediation specialist to tackle the chargeback fraud problem. In ten years, Chargebacks911 has successfully protected more than 10 billion online transactions and has recovered over $1 billion in chargeback fraud.
Recognizing that the impact of chargebacks goes beyond merchants, Fi911 provides unrivaled support to financial institutions with innovative back-office management technologies. Fi911’s pioneering DisputeLab™ tool streamlines chargeback management for acquirers, automating legacy processes and standardizing methods that simplify and speed the end-to-end workflow, improving the customer experience and accountability for all stakeholders.
Monica is a passionate diversity advocate committed to developing and sharing innovative solutions that empower the global fintech space. She has earned numerous awards, distinctions and special recognitions, including the Retail Systems Awards, where she received the ‘Outstanding Individual Achievement Award’ and was named ‘Global Leader of the Year’ at the Women in IT Awards.