Preparing for Chargebacks and Fraud this Holiday Season 

Damo Sampathkumar

Chief Product Officer, Chargeback Gurus

The holiday season brings joyous celebrations, gifts, and endless shopping sprees. However, it can also be a season rife with financial complications for merchants. With the allure of Black Friday deals, end-of-year festivities, and special events, there is an undeniable spike in transaction volumes, and consequently, chargebacks. It is important to understand this trend and prepare to preemptively tackle fraud during the imminent 2023 holiday season.

"A season of joy should not transform into a season of financial stress. Rapid influx of transactions makes it vulnerable to fraud and disputes. Merchants should take proactive measures to ensure prosperity and reduce future headaches."

Historical data paints a clear picture: sectors like telecommunication and retail witness a surge in transaction volumes during significant sales events. For instance, our data shows that telecommunication chargebacks rose by 42% and 39% during the 2021 and 2022 holiday seasons, respectively. Similarly, the retail sector's data indicated significant chargeback counts post-holiday sales. One core reason for these spikes is the provision allowing cardholders to dispute transactions up to 120 days from the transaction date. Consequently, the chargebacks stemming from holiday sales often carry into the new year and the subsequent months.

Moreover, with the ease of online shopping, the rapid influx of transactions can sometimes overwhelm a merchant's system, making it vulnerable to fraud and disputes. Often, in the haste to capitalize on the holiday sales momentum, businesses might inadvertently overlook crucial security measures, resulting in fraud.

—Damo Sampathkumar, CPO, Chargeback Gurus

A Unique Time Period

As the retail sector gears up for an anticipated 100% volume growth by the end of 2023, the possibilities of fraud during this holiday season are expected to evolve. To illustrate just how ripe the season is for fraudulent activity, TransUnion reported that the daily average of suspected digital fraud attempts during the period from Thanksgiving to Cyber Monday last year saw a global increase of 82% compared to other times of the year. For transactions originating within the U.S., this surge was even more pronounced, with a rise of 127%.

Additionally, merchants are navigating newer payment methods, digital wallets, and AI-driven sales tools that might be unfamiliar territory for some businesses, making them potential hotspots for fraudsters. And as more consumers lean towards e-commerce, CNP (Card Not Present) transactions will rise, which historically account for a large chunk of fraud disputes.

Preventative Measures for Merchants

For businesses, it would be wise to equip their customer service team with adequate training on handling disputes, understanding chargeback codes, and navigating the nuances of holiday sales. Often, an informed representative can turn a disgruntled customer into a satisfied one, negating the chargeback threat.

Also, ensuring that customers are well aware of any recurring charges, and providing an easy option to cancel the service can make a sizable difference. A significant chunk of chargebacks arise from "Cancel-recurring" disputes, which can be minimized with transparent communication.

Lastly, with holiday gifts, there's always a possibility of returns. Businesses should make their return policies crystal clear, easily accessible, and fair. It’s also important to build rapport with issuing banks who can assist in receiving early warnings about possible disputes, streamlining the process of dispute resolution.

Ultimately, the holiday season, while bringing joy to consumers and sales for merchants, also introduces complexities in the form of chargebacks and fraud. By understanding the nuances of why these spikes occur, and, more specifically, what 2023 might have in store, merchants can better prepare and safeguard their interests. After all, a season of joy should not transform into a season of financial stress. Through awareness, vigilance, and proactive measures, merchants can help ensure prosperity and reduce future headaches when the holiday season arrives.

To safeguard against potential chargebacks and fraud this holiday season, merchants should consider taking a number of steps.

They should implement robust verification systems, especially for CNP transactions. Using tools like CVV checks, two-factor authentication, and Address Verification Service (AVS) can substantially reduce fraud.

Further, they should ensure that product descriptions are accurate, and that they are clearly communicating delivery timelines. A lot of chargebacks, especially in retail, arise from “goods/services not received” disputes. Keeping the customer informed at every step can reduce these grievances.

If a customer raises a concern, they should address it promptly. A quick resolution can prevent a potential chargeback. In addition, merchants need to leverage AI and machine learning tools that analyze transaction patterns to detect and flag potential fraud. These systems can offer real-time alerts, giving businesses a chance to review suspicious transactions.