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MAG Sponsor Spotlight: 4 Reasons You May Get Slammed By Record Holiday Chargebacks (MAG Quarterly- Volume Four, Issue Four)


By Don Bush, Vice President, Marketing, Kount Inc. 

December 1, 2016

Chargebacks Due to Fraud Pie ChartEarly reports indicate the 2016 holiday season will be the best ever for eCommerce sales!

But these record sales are also likely to generate record chargebacks in the weeks and months following the holiday season. 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 2016 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. With the significantly higher volume of legitimate holiday eGift card transactions, fraudsters have 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 holiday season—were predicted to jump by 28%. With EMV making it much more difficult to commit card-present fraud due to enhanced POS verification, fraudsters had to switch tactics. One way they are able to avoid the higher fraud prevention barriers posed by EMV is by buying via a fraudulent card-not-present or mobile transaction, then strolling into the store to pick up the ill-gotten merchandise before the in-store and online systems flag the fraudulent order. If you lack a best-in-class CNP fraud prevention solution, you may be vulnerable to this scheme.
  3. Mobile transactions—which surged 47% during the 2015 holiday season—are twice as likely to involve fraud as conventional eCommerce. Even before the holidays, merchants conducting mobile commerce are loosing 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 represent 14% of online transactions, yet accounted for 21% of online fraud. With record-breaking mCommerce just around the corner, the likelihood of record-breaking fraud and chargebacks is a near certainty.
  4. The chargeback lag—just in time for the holidays—means that many merchants will not have the full story on their chargeback issues until 30, 60, 90, even 120 after the holidays have melted away. We call this the chargeback lag. 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. Putting in place a system that can notify you almost immediately to a possible chargeback, before it occurs, can be the gift you give yourself this season. 

Looking ahead this season can help avoid the painful “holiday hangover” too many online merchants experience when it comes to chargebacks. It’s not too late to prepare. Get a comprehensive fraud analysis today and put an end to the “nightmare before Christmas.” 

If you wish to explore this topic more in depth use the following link to an eBook prepared by Kount.