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Holiday chargebacks come early in the COVID-19 era

Get “What Consumers Are Really Thinking About Holiday 2020”

Get “What Consumers Are Really Thinking About Holiday 2020”

Woman holiday shopping on device with Christmas tree background

The holiday shopping season has a certain rhythm for experienced retailers. 

Most gear up for months. Then comes Black Friday and Cyber Monday and it’s off to the races. Then a relative lull. Then another spike. Then the weekend before Christmas, which is madness.  Next, shipping cutoffs for ecommerce and more madness. 

This year, not surprisingly, the rhythm is syncopated. The calendar is out the window. All bets are off. COVID-19 has transformed retail in ways that aren’t yet entirely clear. But there is no disputing the difference.

For one thing, the holiday shopping season is here, now. The kickoff came with Amazon Prime Day, which is two days actually. So, Black Friday came on a Tuesday in the middle of October, a full six weeks before Thanksgiving. 

And while most retailers were ready for the season to be pulled forward by consumers concerned about inventory gaps and delivery delays and retailers encouraging early buying to spread out the burden on fulfillment in the time of COVID, they might not be prepared for all the consequences of Christmas in October.

Consider one of the biggest holiday buzz kills: chargebacks. Along with returns, chargebacks are part of the post-holiday hangover. Typically, chargebacks surface 30 to 60 days after the sale.

What you need to know

The 2020 holiday shopping season will start early — like now — because of consumer concerns and supply chain pressure caused by COVID-19.

A startling percentage of consumers have said in a Signifyd survey that have filed false chargebacks to get free goods.

Retailers need to prepare to avoid having to fight chargebacks in the midst of their busiest time of the year.

And so in a normal year, a portion of holiday sales would disappear due to holiday chargebacks in the first quarter of the year. 2020, however, has been anything but normal. With the holiday shopping surge already well underway, according to multiple reports, retailers can expect to see a spike in chargebacks in December — just as they are racing to meet shippers’ deadlines for getting packages out in time for Christmas delivery.

Consumer abuse is running rampant in the time of COVID-19

And there is evidence that the early spike will be even larger than the typical January spike of years past. A Signifyd poll found that a significant portion of pandemic-weary consumers have no qualms about filing false chargebacks. The survey, conducted by market researcher Upwave, found that in order to get an illegitimate refund:

  • 40% of consumers had falsely claimed that a legitimate charge on their account was actually fraudulent. 
  • 33% of consumers had falsely claimed that a package never arrived, or they falsely claimed that a package that did arrive was not as promised.

The fiscally minded among you will immediately realize the hit that the holiday season’s P&L will take with disputed charges being paid back in December. And that’s worrisome. But the fact is those losses were coming sooner or later. 

The bigger problem that the December surprise presents is disruption. With carriers setting ecommerce shipping deadlines between Dec. 15 and Dec. 23 this year, the early wave of chargebacks (those from mid- to late October) will be rolling in as ecommerce teams are scrambling to meet those deadlines. 

The holiday season presents a tremendous opportunity for retailers, given the big volume of sales that come with it. But the stakes are high. Customer expectations increase in parallel with the volume of orders. Shoppers generally have a big emotional investment in not only finding just the gift for their loved ones, but also in getting it to them in time to place under the Christmas tree.

A Samsung Galaxy S20 FE 5G wrapped under the tree on Christmas morning is pure magic. A Samsung Galaxy S20 FE 5G handed to that special someone on Dec. 30, is, well, you know, really nice of you. 

Dealing with chargebacks is not insignificant, primarily because not every chargeback is legitimate. In fact, when it comes to claims filed because an item was not received, Signifyd’s data shows that in October, 78% of the chargebacks classified as “item not received” were not legitimate. (That compares to 46% in October 2019.)

No prudent retailer can simply accept those chargebacks as losses. They need to dispute them, a potentially time consuming process. 

During the holiday season, retail risk teams are already stretched to the limit. Merchants who haven’t embraced a dynamic automated fraud and abuse solution have often brought on temporary workers to help keep up with the surge in orders. 

Fighting holiday chargebacks will take time away from filling orders

It hardly seems like the time to do the painstaking work of assembling the evidence required to dispute an illegitimate chargeback. Making a case in what amounts to a quasi-judicial process means, at a minimum, gathering documents that demonstrate that the consumer or someone in the household did in fact place the order, that an order was delivered as promised and that the customer received the order. Some cases are more complicated.

And no, disputing the chargeback can’t wait. Card companies have deadlines that need to be met at each stage of the dispute, or representment, process. 

This year, that will leave some retailers with a no-win choice: Do they pull members of their risk team away from reviewing suspect orders and possibly slow down fulfillment leading to cancellations and the potential loss of a customer for good? Or do they simply pay the chargeback, losing revenue and establishing a reputation among bad actors that they are retailers that can be taken advantage of?

Beyond reputation, a retailer can jeopardize its ability to do business online if it accrues too many chargebacks. Card companies and payment gateways monitor chargeback activity. If a retailer’s percentage of chargebacks is too high, they will be placed on a monitoring program or even have their accounts suspended.

So, what can a retailer do under the extraordinary circumstances prompted by the COVID-19 pandemic? One alternative would be to proactively create a tiger team to focus on chargebacks in the fourth quarter. This team would work solely on monitoring and disputing chargebacks.

A tiger team would ensure that other members of the risk team wouldn’t need to be pulled from reviewing orders and adjusting any fraud tools to stymie new attacks. The team members could be established experts in chargebacks and representment.

The downside, of course, is that it’s hard to predict the volume of chargebacks and the timing of the surges in chargebacks. The team could be in a constant state of hurry-up-and-wait and wait-and-hurry-up. There’s also the fact that the team members would have to come from somewhere — either starving other functions of the enterprise or requiring increased headcount. 

Signifyd’s Commerce Protection Platform eases merchants’ chargeback burden

Signifyd customers have a different way of handling 2020’s holiday chargeback surge. Signifyd’s Commerce Protection Platform shields merchants from all types of chargebacks. The platform’s machine-learning-powered Revenue Protection solution identifies legitimate and fraudulent orders instantaneously and it is infinitely scalable. It provides a financial guarantee, which makes merchants whole for any approved order that turns out to be fraudulent. 

And Signifyd’s Abuse Prevention solution automates the consumer-abuse protection and offloads the work of disputing chargebacks from the merchant to Signifyd. Abuse Prevention means retailers can focus on their core mission, serving customers and providing a seamless online experience.

While those things are always important, they become all the more important during the holiday shopping season. Even if that season starts in mid-October — and even if it is likely to play out like no holiday shopping season before it.

Photo by Getty Images

 

Mike Cassidy

Mike is lead storyteller at Signifyd. A former journalist and a retail geek, he covers ecommerce and the way technology is transforming digital commerce. Contact him at mike.cassidy@signifyd.com; follow him on Twitter at @mikecassidy.