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4 Reasons You May Get Slammed By Record Holiday Chargebacks

posted on: Mon Feb 01 2016

chargeback fraudEarly reports indicate the 2015 holiday season was the best ever for eCommerce sales!

But these record sales are also likely to generate record chargebacks in the coming weeks and months. Why? Fraud is the number one cause of chargebacks. In fact, fraud will account for nearly 2 out of 3 chargebacks incurred during the holiday season.

Unfortunately, four key trends are likely to push fraud (and chargebacks) for the 2015 holiday season to their highest levels ever:

  1. Virtual gift cards and eGifting—popular during the holidays—have the highest attempted fraud rate. The liquidity of virtual gift cards and eGifts make them highly attractive to fraudsters who can easily resell them or quickly convert them into cash. One striking example: Spotify saw chargeback rates of 10% on their eGift card transactions before implementing Kount! (BTW, they’re now down below 0.2%.) With the significantly higher volume of legitimate holiday eGift card transactions, fraudsters had the perfect cover they needed to mask fraudulent eGift card orders.
  2. Fraud rates for “buy online, pick up in store” transactions—offered by more brick-and-mortar retailers than ever this past holiday season—were predicted to jump by 28%. With EMV—also called Chip-and-PIN—making it much more difficult to commit card-present fraud due to enhanced POS verification, fraudsters had to switch tactics. One way they were able to avoid the higher fraud prevention barriers posed by EMV was by buying via a fraudulent card-not-present or mobile transaction, then strolling into the store to pick up the ill-gotten merchandise. If you lacked a best-in-class CNP fraud prevention solution, you may have been vulnerable to this scheme.
  3. Mobile transactions—which surged 47% during the holidays—were twice as likely to involve fraud as conventional eCommerce. Even before the holidays, merchants conducting mobile commerce lost 1.36% of revenue to fraud, double the 0.68% of revenue lost to fraud by all other eCommerce transactions. In fact, pre-holiday mobile commerce represented 14% of online transactions, yet accounted for 21% of online fraud. With record-breaking mCommerce during the holidays, the likelihood of record-breaking fraud and chargebacks is a near certainty.
  4. The October deadline for EMV—just in time for the holidays—was projected to drive fraud away from card-present transactions and towards card-not-present (CNP) orders. Double digit increases in CNP fraud have been common wherever EMV has been instituted. Case in point: in the five years after Canada adopted EMV, CNP fraud skyrocketed 133% as fraudsters abandoned more difficult card-present fraud.

Finally, there’s a complicating factor with holiday chargebacks that often catches many merchants by surprise:

There is typically a 60-90 day or longer lag in chargeback reporting. That lag can hide “naughty” holiday orders, making them look “nice” until you’re deep into the first quarter. What looked like great sales and profits in November and December could turn into an above average number of chargebacks in January, February, and March. The result? Ugly losses you weren’t anticipating.

Are you seeing chargebacks starting to come in at higher-than-normal levels? Not sure what’s happening or why? Read our eBook “Beat Those Post-Holiday Chargeback Blues” to get the whole story.

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