Expert: How merchants and marketers can prep for holiday chargebacks

Kristina: Why are so many Internet retailers unprepared for the holiday shopping season?

Monica Eaton-Cardone, Co-Founder & COO, Chargebacks911: When it comes to managing risk, retailers tend to be hyper-focused on a few key sources of loss like identity fraud and account takeover, but overlook other risk factors like friendly fraud and affiliate fraud. That's because we hear a lot more about the threat posed by criminal threat sources. However, given the majority of online chargebacks are friendly fraud, and that chargebacks may cost merchants as much as $25 billion a year by 2020, it's clearly a problem that we need to address.

The chargeback issue is most prominent in the weeks following the holidays. Customers commit friendly fraud unintentionally, believing that a chargeback is no different from a merchant refund. At the same time, deliberate fraudsters file for chargebacks hoping to get something for free; a practice known as "cybershoplifting."

Kristina: What steps can retailers take to maximize sales and minimize losses?

Monica: Merchants need to develop a multi-layer approach to fraud management, and the key to that is distinguishing "good" and "bad" transaction friction. Good friction will identify fraud without significantly complicating processes for customers, while the latter can frustrate customers and increase losses.

Some ways to leverage good friction include adopting fraud filters with complex rule systems, address verification, and delivery confirmation, as well as seeking professional chargeback mitigation. Merchants can also encourage the use of mobile wallet apps like Apple Pay, which employ 2-factor authentication with biometric capabilities.

Kristina: How can merchants identify and prevent chargeback fraud/cybershoplifting?

Monica: The problem with chargeback fraud is that it's incredibly difficult to identify beforehand. Cybershoplifters operate by making purchases as if they were a normal, legitimate customer. They know they're going to file a chargeback, but the merchant doesn't have any way of knowing that until it's too late. The most effective response to chargeback fraud is representment to challenge the chargeback after it's filed.

Kristina: Why should retailers focus on risk management before ramping up seasonal campaigns?

Monica: The holiday shopping season is a very busy time; merchants need to focus their attention on sales, not on implementing and fine-tuning new fraud tools. Merchants who wait until the holidays are in full-swing before thinking about fraud management have already missed the boat.

An effective risk management strategy should consider the merchant's needs before, during, and after the holidays. Remember that most chargebacks are filed 45-60 days after a purchase; while December may be prime time for criminal fraud attacks, merchants are likely to see friendly fraud spike in January and February.

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