The holidays are right around the corner and merchants across the world are gearing up for a busy retail season, including peak periods like Black Friday, Cyber Monday, and Singles Day. But with increased sales come increased risks for fraud. And big ticket retailers, like electronics merchants, have even more to lose – losses that may not appear until several months after the holiday shopping rush. Read on to learn what retailers’ biggest vulnerabilities will be this shopping season so that you can enjoy a holly jolly season and avoid holiday horrors.
Chargebacks are a huge issue for retailers, and given that fraud is the number one culprit in chargebacks, it’s essential for retailers to be prepared to deal with them. There are often delays with chargeback reporting, so come early spring, merchants may be shocked to find serious fees from holiday chargebacks. What looked like great sales and profits in November and December can very easily turn into a surprise increase of chargebacks in January, February, and March, resulting in ugly losses for merchants. Once all that time has passed, it’s even harder to identify the cause of fraud to prevent similar cases in the future. There is no universal “best rate” for chargebacks, every business—and holiday season—has its own sweet spot, so retailers will need to find the best rate that can help them make sure revenue generated by borderline approvals consistently exceeds the chargeback costs of those borderline approvals. If merchants have a comprehensive fraud system in place, the typical 60-90 lag in chargeback reporting becomes a non-issue, and there are no longer distorted month-to-month swings in financials.
“Right now, it’s important for retailers to be more proactive and recognize the commonalities among chargebacks,” said Skip Myers, Director of Loss Prevention/Risk Strategy at computer and electronics retailer Micro Center. “Not all chargebacks are fraud. Unless retailers take the time to analyze chargebacks, they cannot determine if a particular product or service is returned because it’s defective, due to a restrictive return policy, or fraud. We analyze our chargeback information every month and communicate our findings with other departments. If businesses aren’t analyzing chargebacks down to this specific level, they’re more likely to get hit with more chargebacks during the holiday season.”
In-Store and Online Disconnect
Fraudsters are finding new ways to get around extra security at point-of-sale transactions thanks to the implementation of EMV in the United States last fall. Online and mobile fraud have infiltrated brick and mortar stores through marketing and sales strategies like “click online and collect in-store.” Fraudsters can use this to their advantage, avoiding the extra barriers due to EMV, easily purchasing items via a fraudulent card-not-present or mobile transaction and simply strolling into the store to pick up the ill-gotten merchandise. Electronics are prime targets for this. Fraudsters know there’s often a disconnect between merchants’ online and in-person teams, and exploit the opportunity. The two worlds are colliding, and merchants need to stay vigilant and make sure all teams are communicating to prevent fraud from crossing over.
Mobile transactions continue to surge, especially around the holidays, and are twice as likely to involve fraud than traditional eCommerce. Merchants can no longer bucket mCommerce and eCommerce into the same group with the same preventative measures. Each type of transaction has unique identifiers and requires a fraud solution to combat fraud based on each specific platform. Merchants that are able to tell which devices or platforms consumers are transacting on, and have a targeted plan in place for each, are one step closer to avoiding fraud and protecting their bottom line.
“Retailers must be able to tell the difference between transactions coming from various devices,” said Greg Coles, Director – E-Commerce Operations at Canadian consumer electronics and wireless retailer The Source. “Purchase patterns are often different for mobile versus desktop purchases, as well as among mobile device platforms. If merchants aren’t analyzing these transactions closely, they’re losing out on both the opportunity to identify certain behaviors associated with each device and the ability to prevent similar types of fraudulent transactions in the future.”
Retailers are not fraud experts and that’s ok – they aren’t expected to be. But, they must be aware of the latest threats affecting their business and bottom line, and work with experts to make sure they have a comprehensive system in place that monitors and prevents fraud, without reducing legitimate transactions. That’s the difference between a holiday high and a ho ho low.
Don Bush is the Vice President of Marketing at Kount. Don joined Kount as the Director of Marketing in October 2010 and became Vice President of Marketing in December 2012. Don attended Brigham Young University studying Business Administration and Marketing.