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Will Record December Sales Bring Record Chargebacks in Q1?

posted on: Tue Feb 16 2016

The numbers are not all in yet, but preliminary results indicate the strongest holiday season ever. Here’s a snapshot1 from Cyber Monday:

Cyber Monday

2014

2015

% Change

Desktop eCommerce

$2,038,000,000

$2,280,000,000

12%

Mobile Commerce

$548,000,000

$838,000,000

53%

Total

$2,586,000,000

$3,118,000,000

21%

 

However, there are indications that the joy of record-breaking holiday sales may turn into the post-holiday blues for some merchants. That’s because a number of factors that increase card-not-present fraud – and drive higher chargeback rates – became more pronounced during the 2015 holiday season. These included more virtual/eGift card transactions, more “buy online, pick up in store” orders, and more mobile commerce, all of which have higher than normal fraud rates.3

Especially when the 60-90 day lag in chargeback reporting makes “naughty” orders look “nice” until it’s way too late! If you were hit by an unseen fraud attack during the holidays, those great profits you thought you had in December could turn into ugly losses in January, February, and March. The bar chart below illustrates the problem:

 chargebacks

0 DAYS. With a typical number of chargebacks from November reported against record December transactions, your chargeback rate is an acceptable 0.6% (or so it seems). But that’s because chargebacks ACTUALLY incurred in December haven’t registered yet.

30 DAYS. 2,410 of the 9,263 chargebacks actually incurred in December (when you started getting hit by an undetected fraud attack) now get reported in January, when your sales are lower. Chargeback rate is suddenly in the penalty zone, but you think it’s just an aberration from the holidays.

60 DAYS. An additional 2,024 of the 9,263 chargebacks incurred in December roll in during February—a month in which you have traditionally low sales—on top of the fraud chargebacks that continued in January. Now your fraud team frantically starts auditing December sale to find the origin of the problem, and takes steps to shut down the fraud scheme. It’s your second consecutive month of excessive chargebacks, triggering penalties and fines.

90 DAYS. A whopping 4,092 of the 9,263 chargebacks from December get reported in March. Of course, fraud attack chargebacks from January and February (before you discovered and shut down the scheme) are added on top of the abnormally high December number. Chargeback rate hits 2.2%, eliciting even higher penalties and fines.

120 DAYS. Another 493 chargebacks from December get reported during April. With unusually high fraud chargebacks from January and February still rolling in—along with more normal March chargeback numbers—you continue to pay escalated penalties and fines.

180 DAYS. Chargebacks from the fraud attack finally start to tail off in May—the final 244 December chargebacks trickle in. While your chargeback rate drops, you are still paying added penalties and fines. Worse, you’ve experienced a full quarter of excessive chargeback fees and penalties—and lost merchandise—that have hurt your bottom line. At this point, your “record” holiday looks like a bust.

If you’re starting to see higher-than-normal chargebacks roll in from the holidays, there could be even more bad news coming your way. Take action now before you lose thousands of dollars to penalties and fines, and even more to lost merchandise. Download the eBook, “Beat Those Post-Holiday Chargeback Blues”, to learn what holiday chargebacks are really costing you and what you need to shut down fraud and chargebacks.

SOURCES: 1 http://www.comscore.com/Insights/Press-Releases/2015/11/comScore-Forecasts-14-Percent-Growth-to-70-Billion-in-2015-US-Holiday-Digital-Commerce-Spending-Via-Desktop-and-Mobile-Devices 2 http://www.comscore.com/Insights/Press-Releases/2015/12/Cyber-Monday-Surpasses-3-Billion-in-Total-Digital-Sales-to-Rank-as-Heaviest-US-Online-Spending-Day-in-History

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