Holiday Season Risks: Chargebacks

Chargebacks are one of the primary risks to digital sellers, and not just during the holidays. And, with the increase in eCommerce transaction volumes expected this holiday season, high volumes in untested channels can mean more chargebacks. Successfully managing fraud and preventing chargebacks in this environment means keeping a higher percentage of sales without allowing slow and costly manual reviews to bog down operations, or worse, false positives that turn away good customers.

What Happens in Payments Fraud:

Stolen credit card numbers are used to fraudulently obtain physical goods, digital goods, or services. This type of fraud is increasing twice as quickly as eCommerce sales and accounts for approximately two out of three chargebacks.

Kount’s dueling pianos survey of businesses and consumers reveals: 

  • 40% of businesses have noticed an increase in chargebacks since January of 2020.
  • 51% say they expect to experience an increase in chargebacks this holiday season.
  • When asked to rank their largest concerns around chargebacks and the holiday season, businesses, on average, ranked the “cost of chargebacks” as their top concern. “Negative customer experience” came in second.

What Happens in Friendly Fraud:

A consumer makes a legitimate purchase with their credit card and then enters a dispute with the issuing bank rather than requesting exchanges or refunds from the business. It can be malicious but more often arises from a misunderstanding.

89% of consumers would not first contact the company that their purchase came from if they saw a charge they did not recognize on their card. Instead, 56% would contact their credit card company or bank first about the unrecognized charge.

Friendly Fraud can include returns and policy abuse:

  • 42% of respondent say that their organization or business allows customers to abuse promotions (e.g. customers buy extra items to reach the free shipping threshold and return some items later while keeping only one)
  • But, 40% say they use tools to prevent this behavior

The Damage:

Every type of payment- related fraud can result in a chargeback. The direct and hidden costs of chargebacks are extensive, from financial losses to operational costs to brand damage.

14 Direct and Hidden Costs of Chargebacks 

Learn more about the 14 Direct and Hidden Costs of Chargebacks

Kount recommends businesses:

Identify & Reduce Fraud-related Chargebacks

  • Implement tools to identify and stop high-risk transactions in advance.
  • Manage chargebacks in flight to prevent, stop, or deflect chargebacks and avoid monitoring.
  • Use data and analytics to fine-tune protection and to identify and stop repeat abusers.
  • Use chargeback alerts and automated tools to resolve open disputes in real time before they become chargebacks.

Identify & Prevent Friendly Fraud

  • Integrate real-time fraud prevention and chargeback management tools to identify friendly fraud, such as policy abuse, shared card fraud, and more.
  • Use data and analytics to identify repeat abusers and refine policies to prevent repeat losses and chargebacks.

Prepare for Dispute Resolution & Management

  • Deploy real-time alerts and tools to identify and manage disputes.
  • Communicate purchase data to issuers and customers in real time to save the sale and recover revenue.
  • Automate or manually issue refunds for legitimate disputes to reduce chargebacks and customer insult.

Kount’s Fraud Prevention & Identity Trust platform stops both criminal and friendly fraud chargebacks. With AI trained on both supervised and unsupervised ML, a customizable policy engine, and reporting, it’s the most sophisticated solution for mid and enterprise companies to stop both standard fraud and identify and prevent sophisticated fraud. The customizable policy engine also allows businesses to fine-tune protection against hard-to-detect and emerging types of fraud.

In addition, Kount’s platform and partnerships with Verifi enables companies to identify and stop friendly fraud that results in chargebacks.

The Five Risks of eCommerce This Holiday Season

Protecting new and emerging digital channels is an important factor this holiday season, and the second risk in our Holiday Risks and Opportunities Series. Just like St. Nick, eCommerce companies need to make their list and check it twice. Get Kount’s latest eBook to learn the risks to monitor this holiday season, and get the checklist of effective fraud prevention to ensure you are prepared.

Get the Checklist

 

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