In 2016, US online consumers spent $3.34 billion on Black Friday, a 21.6% rise on 2015. Like most of Europe, the UK saw similar surges of 12.2% to £1.23billion. The phenomenon is now growing from a one-day Black Friday event into a ‘Black Fiveday’ event from Thanksgiving through to Cyber Monday.
The fear of missing out on discounts or countdown deals is driving higher conversion rates for merchants over the Black Fiveday period. Lower cart abandonment is generally good news for merchants but some analysts believe that the Black Fiveday sales period does not actually improve a merchant’s bottom line, arguing that spending is merely concentrated into this specific period rather than spread out across the season.
Black Fiveday also presents merchants with the problem of customers regretting their hastily made spending choices. Increasingly, the end result is a wave of returns and chargebacks.
In 2015, £600m worth of products bought over Black Friday and Cyber Monday were tied up in return loops by the middle of December. From 2016, the total value of Black Friday returns is estimated to exceed £1 billion. Unwanted gifts certainly play a major role in creating these huge returns volumes but we’re also seeing increasingly demanding customers reacting to what they deem to be poor service. A new report from Radial indicated that 71% of shoppers expect their online orders to arrive within five days, while 51% would stop shopping with a retailer if their order arrived later than the promised delivery date.
If retailers fail to make the returns process fair and convenient for customers, they leave themselves open to risks that could impact their bottom line. The most obvious risk is that of losing customers unhappy with the level of service, and who will simply go elsewhere. Most likely, they will also communicate their feelings to friends and family, as well as sharing their negative experience online, causing further reputational damage to the business.
Merchants could also face the costs of dealing with customers who initiate a chargeback through their bank if they feel unable to obtain a refund through the retailer. Although chargebacks were originally designed to provide some protection for cardholders who fell victim to fraudulent transactions, many consumers take advantage of the fact that banks will often rule in their favour rather than that of the merchant. They initiate a ‘friendly fraud’ chargeback, whereby they claim a transaction they previously made was actually not authorised by them, securing the return of funds from the bank, who then passes the costs on to the merchant.
Chargebacks typically hit 30-60 days after the original purchase, meaning we are now in the peak period for chargebacks and stock tied up in the returns process. Unfortunately, a great many of these ‘returns’ will be fraudulent.
Analysis of our own data reveals that the busiest chargeback days of the year come in early January. Typically, consumers will put off disputes and refunds until just after the New Year and in 2017, we expect the peak chargeback day to come on 10th January.
It is important that merchants understand the true cause of these chargebacks. Even though fighting cybercriminals and protecting customer’s data and money must be a priority for all merchants, criminally fraudulent purchases are surprisingly low over Black Fiveday. Only 10% of chargebacks can be attributable to criminal fraud, with 20% coming from merchant error and 70% from friendly fraud.
As seasonal chargeback volumes continue to rise YoY, merchants who lack a disciplined chargeback policy are likely to be more vulnerable than ever before. The only way to avoid this is for retailers to understand chargebacks and the detrimental affect an ineffective risk mitigation system can have on their business. Beyond losing merchandise and revenue, online retailers can face additional fees and consequences, particularly if they exceed allotted chargeback thresholds.
Recently, we’ve seen issuers becoming increasingly serious about enforcing better governance on chargebacks. MasterCard recently acted to help reduce its own encumbrance by introducing its new Dispute Administration Fee (DAF). This is a fee passed through to merchants who fall foul of customer chargebacks and fail to effectively dispute their legitimacy. Ecommerce merchants can expect to pay an additional €15 fee for chargebacks they accept without filing rebuttal, and up to €30 if a non-compliant response is filed. Issuers are penalised as well with the reverse incentive.
Chargeback fraud can be mitigated through a proactive chargeback management plan. The best results are found when merchants combine methods which leverage both in-house and outside expertise. Recent studies performed by Global Risk Technologies™ revealed that merchants using a combination of fraud management strategies experienced improved performance within every fraud detection tool and reported a gain on average of 22.4% over those who did not utilise a layered approach or combination method.
Retailers should never think of chargebacks as just a cost of doing business. With comprehensive management strategies, merchants can maximise the benefits of the seasonal shopping surge without incurring huge, unjustifiable costs.
