The holidays have come and gone. With the annual rush of consumer spending in the last two months of the year now behind us, we’re settled in for holiday season’s ugly backside: slow sales, returns, and chargebacks.
Problems Will Soon Begin to Emerge
If they haven’t already, time-sensitive problems will start to emerge throughout the e-commerce environment.
Feeling the Full Effects of the Chargeback Cycle
People tend to spend pretty liberally around the holidays. Once the first credit card bill of the year arrives, buyer’s remorse sets in pretty quickly. These feelings of regret, combined with an intense need to relieve debt, result in a considerable spike of friendly fraud.
There could also be a spike in criminal fraud chargebacks. Unauthorized purchases that went undetected during the holiday’s high-transaction volume will be discovered by cardholders.
Chargebacks tend to hit between 45 and 60 days after making a purchase. As a result, the flood of holiday chargebacks tends to land in Q1 of the new year, making an already slow retail period especially painful for merchants.
Visa’s New Regulations Complicate Matters for Merchants
Visa’s new policies on chargeback management certainly aren’t going to help the situation. In case you weren’t already aware, Visa revised its chargeback monitoring program in order to streamline management tasks for acquirers.
One of the most noteworthy changes is the new chargeback threshold for any merchant who processes international transactions. The new thresholds are 1 percent and 100 chargebacks less than the previous program’s allotment.
The Visa Chargeback Monitoring Program (VCMP) regulations took effect on Jan. 1, 2016. These lower, less flexible thresholds are coming at a time when chargeback rates traditionally spike. This will spell bad news for merchants.
Learn more about Visa’s new regulations in this whitepaper.
An Uptick in Returns and Unsatisfied Customers
Research shows nearly a quarter of annual returns are tied to holiday shopping, tallying $60 billion in merchandise.
All those unsatisfied and disgruntled shoppers must pass through the merchant’s customer service department. For most merchants, the uptick in consumer demands and communication expectations is hard to handle.
While returns aren’t enjoyable, they are preferable to chargebacks. If merchants aren’t able to rally the customer service department, they can expect extra chargebacks and damage to the business’s reputation.
Unfortunately, merchants will forever be competing with issuing banks. Who provides the fastest and easiest refund?
Minimizing the Effects of 1st Quarter Problems
It’s not too late to put a risk management plan in place—but it soon will be. Merchants must take the necessary steps now to protect their bottom line.
- Be Proactive: Merchant complacency is one of the fraudster’s greatest assets. Don’t merely accept that chargebacks are an unavoidable part of doing business. Take steps to mitigate your risk.
- Improve Interdepartmental Communication: It’s no surprise that a flood of customer concerns will be coming in the weeks following the holidays. Each department needs to be on the same page to develop and implement effective risk mitigation strategies.
- Be Ready for Returns: Returns will come. It’s an unavoidable reality that, as sales increase before the holidays, so do returns after the holidays. Make the return process as simple as possible. Your customers will want their money back one way or another, and if they can’t get it from you, they will get it from the bank.
- Sign Up for Alerts: Some issuing banks have joined chargeback alert networks. Issuers agree to alert merchants when there is an unauthorized transaction dispute. Merchants then have the option of refunding the purchase preemptively in order to prevent a chargeback.
- Provide Stellar Customer Service: Provide responsive and friendly customer service for as many hours a day as possible (ideally, 24/7). Resolve any pending issues like backordered or discontinued merchandise.
- Fight Friendly Fraud: Friendly fraud must be fought. Illegitimate chargebacks unfairly steal revenue. Get a plan in place now that allows you to successfully dispute fraudsters’ claims.
- Get Professional Help: Regardless of the size of the business or budget, chargeback management and risk mitigations services are available. Whether you just need occasional assistance or want to completely outsource the task, professional assistance is highly recommended. Your business’s sustainability could be at stake if you don’t, and you’re guaranteed increased revenue if you do. You have nothing to lose!
If chargebacks spike out of control and the acquirer demands a mitigation plan, take it seriously. A mitigation plan could actually make or break your business. It’s the merchant’s only chance to rectify the situation, decrease future risks, and maintain payment processing abilities.
The first quarter of the year is never very fun for retailers, and failing to effectively manage chargebacks can make it a living nightmare.
Photo by James Barker/FreeDigitalPhotos.net
Monica Eaton-Cardone is Co-founder and COO of Chargebacks911.com.