It was a good year. Your online and mobile channels have just eclipsed your storefront sales. Management is celebrating their vision and foresight, IT is relieved that the website held up and fulfillment is working furiously to ensure that merchandise is delivered. For many merchants, that is how 2017 came to an end. According to a study by the National Retail Federation, 59% of shoppers had planned to shop online last year, marking the first time that e-commerce was the more popular choice for shoppers.
There are many reasons why this trend is not expected to slow down. One of the largest contributing factors is the ease with which products can be ordered, shipped and returned. Consumers have the world of retail at their fingertips, literally. Mobile (a combination of phones and tablets) shopping is gaining speed — in fact, mobile payment revenue is expecting to exceed a whopping $1 trillion by 2019.
Understanding that this is the future direction of retailers, many merchants have helped support the promotion of various “cyber” holidays, including China’s wildly successful Singles Day and the U.S.’s Cyber Monday. While this shift in retail habits has some merchants celebrating, there are others seeing the darker side of online sales. Always lurking in the background is the threat of fraud.
That risk was once “the cost of doing business,” but now, if not addressed, fraud can quickly diminish profits and threaten customer loyalty. Additionally, if merchants have too many returns or are subject to fraud, they become part of a special chargeback program by card issuers. Chargebacks, similar to a traditional refund, are unique in that the consumer is asking the bank to forcibly take money from the business’s account. The merchant — who has no say in the matter — might not be aware of this transaction until after the fact.
Chargeback programs are the financial equivalent of a bad hangover. Retailers’ agreements with the various credit card networks place upon them an obligation to minimize disputes (also known as chargebacks) and instances of fraud. If these occurrences exceed each card network’s identified thresholds, the retailer is subject to a monitoring program. This could result in fines or added fees until the dispute or fraud levels reach acceptable levels.
And just like with a New Year’s Eve party, the best solution to preventing induction into a chargeback program (or suffering from a hangover) is a little planning and understanding what is going to cause you the most pain. Our firm’s 2018 State of Chargebacks Report, developed in conjunction with Chargebacks911 and The Fraud Practice, revealed that merchants are fighting an uphill battle. Of the more than 1,000 respondents, a staggering 82% of merchants said they are actively disputing chargebacks. Ten percent are in excessive chargeback programs, and perhaps the most shocking finding of all is that around 25% of merchants don’t know what their actual dispute win rate is.
Of the 82% disputing chargebacks, one-fifth of merchants are winning less than 15% of their dispute cases, and more than one-third win less than 30% of their disputes. This lack of success correlates directly to the type of merchandise sold, the amount of volume and the dedicated resources available to combat chargebacks. The number of those in the excessive chargeback programs speaks to a fundamental breakdown in fraud detection and prevention solutions.
According to Juniper Research (paywall), the battlefront is arguably Card Not Present (CNP) fraud, in which retailers stand to lose $71 billion globally over the next five years from fraudulent CNP transactions. More than 70% aim for an optimum chargeback rate at or below 0.5%, but only 47% of merchants are succeeding at hitting this target. By not reaching their optimum chargeback rate, merchants are are leaving money on the table when they alienate their valid customers — and lose out to fraudulent purchases.
Furthermore, fighting chargebacks is a constant battle for merchants. And with ever-changing regulations and fraud tactics, it’s not enough for a merchant to review and assess chargebacks once a month. Prevention is the best course of action, which is why utilizing the latest technology to fight chargebacks is the most effective plan. Machine learning can collect and analyze hundreds of data points per transaction, using multiple, integrated technologies — something that is simply impossible for a small team to keep up with.
Today, merchants across a wide range of industries are looking to combat online and mobile fraud, reduce manual reviews and avoid the dreaded chargeback programs. Because fraud is ever-changing, it is important that online merchants deploy solutions that adapt, are powered by real-time transactional data and leverage cutting-edge technology and human input. The benefit of this approach is that it allows the merchants to understand that data to provide the confidence to approve, decline or kick the order for further review. Advanced analytics are what separates merchants from having to deal with chargebacks 30 to 90 days down the road.
The truth is that online fraud is just too fast and too technical to effectively keep at bay without the use of technology. Chargebacks are a part of today’s digital payment processing landscape. How merchants proactively address fraud and ongoing disputes daily is what will separate those that succeed and those that will suffer the dreaded chargeback hangover.