‘Tis the season for holiday shopping and that also means the season for holiday chargeback fraud and returns is fast approaching. Sometimes returns can result in chargebacks, so it’s especially careful to pay close attention to them. Fortunately, you can reduce both chargebacks and returns during and after the holidays. And even if some returns are inevitable, you can reduce chargebacks and other costs associated with them.
Chargebacks are an especially grave risk for merchants as you’ll not only lose revenue from the sale but you’ll also be hit with chargeback fees, which typically cost between $20 to $100. Worse yet, if your chargeback ratio gets too high, you may be forced to pay higher processing fees on all transactions. All the while, you’ll divert time and labor trying to manage and fight chargebacks and processing refunds.
While November and December make up the holiday shopping season, the most important month for many merchants is January. You can think of January as “chargeback and return” season because it’s quite likely that you’ll face abnormally high chargeback fraud and returns.
Let’s dig into how returns, chargebacks, and other issues can impact your business. We’ll also cover strategies for managing disputes and protecting your revenues.
Returns Are Inevitable But You Can Reduce Them
To some extent, chargeback and return season is unavoidable. Some people are going to get gifts they simply don’t like. They might also get duplicate gifts and need to return one or more of the duplicates. In these cases, the merchant isn’t at fault. They may have done everything right but still end up hit with returns.
Data from the 2021 holiday season shows that returns surged by more than 40 percent, compared to a year prior. Many customers, and especially younger shoppers, now view ordering goods online as more of a rental. Someone might order some shoes, try them on, and walk around in the house for a few days to make sure that they like them. If for whatever reason the customer decides they don’t like the shoes, they may return them.
Fortunately, there are steps you can take to mitigate both chargeback fraud and returns. Let’s take a look.
Offering a Balanced Return Policy
Getting your return policy right can be a bit tricky and may require some trial and error. If your return policy is too “easy” and too “friendly” you may become a favorite target for fraudsters. Customers looking to try before they buy also tend to shop on websites with easy, breezy return policies.
On the other hand, if you make your return process too difficult, you’ll increase your risk of getting hit with chargebacks. Some customers will turn to their bank rather than the retailer to get refunds. Banks can “refund” money by approving chargebacks and clawing funds back from the merchant. And if bank employees discover that your return policy is cumbersome, they’ll be more likely to approve the chargeback.
Often, it’s best to adopt a balanced approach. You should issue refunds and the return process should be rather straightforward. However, you may not want to aggressively advertise your relaxed return process. You’ll also want to put measures in place that discourage fraudsters, including:
- Only refunding payments to the original payment method.
- Require the customer to pay for return shipping.
- Ask for IDs when processing in-store returns.
Putting together the right approach to refunds and returns is a great first step. That said, there are many other tools you can implement to fight chargebacks and fraud.
Automatically Identifying Holiday Crime and Fraud
Unfortunately, returns aren’t the only risk you’ll face during and after the holidays. Fraudulent transactions are a major threat and quite common. Many criminals consider the holidays to be an ideal scamming season. Quite simply, with many retailers tied up fulfilling holiday orders and so much money splashing around, it’s easier for many fraudsters to go unnoticed in the volume.
Now, automated tools can be used to flag and even stop suspicious transactions. These tools can greatly reduce the time and labor needed to fight fraud. As a result, your team can focus on other business processes, like processing orders.
Reviewing every potentially fraudulent transaction can be difficult, especially during the holidays as orders flood in. If you and your team are facing a crunch, it’s tempting to simply approve every order received. However, fraudulent transactions will cost you revenue and merchandise. If the transactions result in chargebacks (and they often will), you’ll also pay fees and your chargeback ratio will rise.
What potential red flags should you look to filter out? Some of the most common signs of fraud include never before used shipping addresses, atypically large orders, repetitive orders, and multiple orders from multiple different people all destined for the same address.
The Holiday Crush Can Produce Legitimate Chargebacks
Many merchants will adopt an all-hands-on-deck approach during the holidays. With orders flooding in, employees will need to move quickly to keep up with demand. Among other things, products need to be picked, packed, and shipped. While your inventory and processing departments may hum most of the year, it’s easy for your team to get overloaded during the holidays. This may result in misprinted shipping labels, packing the wrong products, and various other issues.
If customers never receive their shipment or get the wrong stuff, they’ll likely demand either a refund or an exchange. Otherwise, they may turn to chargebacks and banks will almost certainly approve the chargeback if the problem was on your end. In these cases, the best move is often to refund the customer as quickly as possible.
Hiring seasonal staff during the holiday season is a wise idea. By reducing workloads, you may be able to reduce mishaps. The seasonal staff can handle much of the basic work, say packing products. Some of your regular staff, meanwhile, can handle shipping and communication.Fighting Crime and Fraud During The Holidays Before You’re Hit With It
Merchants should be proactive when confronting fraud. If you take a lax approach to combating criminal activity, you may gain a reputation among fraudsters as being an easy target. Fact is, criminals tend to focus on businesses that are seen as “easy picking.” Thus, fighting crime may not only save you money and inventory right now but also in the future.
First, consider setting up pre-authorization fraud programs that can flag suspicious activity. These tools often use filters that will examine individual transactions and then alert you to suspicious activity. For example, if an account is suddenly using a new shipping address or the user is coming from a different IP address, the purchase can be declined or paused until you verify whether it’s legitimate.
You also want to develop a reputation among fraudsters as being vigilant when fighting fraud. For example, one way fraudsters scam businesses is by using a stolen credit card to make a purchase, then filing for a return but asking you to refund the money to a different account or card. This way, they can move money from a legitimate cardholder’s account to an account they control. Simply by establishing a policy of only sending refunds to the original payment method, you may deter those trying to scam your business.
Also, make sure you don’t overlook the human factor. Many people, including employees and business owners, assume that fraud won’t impact them. And even if they do get hit with fraud, it’s just a bit of bad luck, right? Unfortunately, that’s often not the case and you may see fraud rise if you don’t take steps to mitigate it.
One effective way to reduce fraud is to teach your employees what to watch out for. This way, if any red flags pop up, they can draw attention to the issue.
Prevent and Refute Holiday Chargebacks
Unfortunately, even if you implement the above steps, you’ll still likely get hit with some fraud and chargebacks. Yet while chargebacks may be unavoidable, there are steps you can take to reduce them.
Chargeback Alerts Are Becoming A Must
One option to mitigate chargebacks is to use chargeback alerts. A bank will inform you of a pending chargeback before they file it. This buys you time to work with the customer and resolve the issue. Often, this means issuing a refund. Of course, returns and refunds aren’t ideal, but if you’re likely to lose the chargeback dispute, issuing a refund is more cost effective.
With a chargeback, you’ll not only lose the revenue from the sale, but you’ll also have to pay chargeback fees. Likewise, your chargeback ratio will rise and that could result in increased processing fees for all your orders. Payment processors typically charge “high-risk” merchants higher fees.
Disputing Fraudulent Chargebacks During the Holidays
If you believe you’ve been defrauded, you could refute the chargeback claim. You’ll draft a chargeback dispute letter, in which you’ll make an argument that the purchase was legitimate and that you fulfilled all your obligations. You might also note (if true) that the customer could have used your store’s return process. You can present evidence, including IP addresses, communications with the customer, signed shipping receipts, and whatever else that supports your claim.
Fighting chargeback disputes can be a bit difficult, especially if you’re doing everything manually. Gathering evidence takes time and there are many important deadlines you must watch out for. If you miss these deadlines, you’re more likely to lose the dispute. Fortunately, with a dispute management platform, you can automate evidence collection and track deadlines.
Chargeback Fraud and Returns Will Still Present Some Risks
Unfortunately, even if you win disputes, you’ll still be on the hook for chargeback fees and your chargeback ratio will rise. That’s why it’s important to put together a holistic approach to preventing and eliminating chargebacks. From reshaping company policies and increasing employee training, to setting up chargeback alerts and using dispute management platforms, you can mitigate risks.
Ideally, you’ll establish a great reputation among legitimate customers. If a problem emerges, say the retailer mispacked an order, it should be easy for the customer to contact your team. Likewise, you should work to resolve the issue quickly and fairly. At the same time, any fraudsters looking to defraud you should know that you’re a tough target. Do this and many fraudsters will skip targeting your business and instead look for easier marks.