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The 2024 holiday shopping season was another record-breaking year for eCommerce.
Shoppers worldwide spent $1.2 trillion online in the run-up to the holidays, according to data recently published by Salesforce. That’s great news, at least at first glance. But, the same report also shows buyers have already requested $122 billion worth of post-holiday returns, a 28% increase from 2023. And, especially as January rolls into February, many of those return requests will devolve into chargebacks — an annual phenomenon that I call the “holiday hangover.”
Buyer’s remorse leads to disputes
Shoppers tend to be pretty freewheeling with their spending during the holidays. As many as 85% of shoppers admit to making impulse buys between Black Friday and Cyber Monday. But, sales earned from shoppers who buy before they think are unlikely to last; the revenue can be very “easy come, easy go.”
As the excitement from the holidays fades, buyers are left with a porch full of packages and a painfully empty wallet. They may resort to refund fraud or chargeback abuse to get out of paying for the purchases they regret. When that happens, merchants end up paying the price.
Data from the 2024 Cardholder Dispute Index shows that American shoppers filed chargebacks against $65 billion of purchases last year. On average, that breaks down to 5.7 chargebacks per cardholder, each valued at about $76.
Compounding this issue is that chargebacks are unpredictable and vary in cadence. While impulse purchases occur instantaneously, consumers suffering from buyer’s remorse may take weeks or months to file a dispute. In most cases, card network rules state that cardholders have up to 120 days from the date they purchased to file a chargeback. This means that merchants can suddenly find themselves inundated with chargebacks in the first quarter of the new year.
No matter how legitimate it appears to the cardholder, buyer’s remorse is not a sound reason for a dispute, nor is a chargeback a substitute for a refund. Alarmingly, data from the 2024 Chargeback Field Report suggests that consumers are oblivious to the latter fact, with 75% of surveyed cardholders saying they believe chargebacks are basically equivalent to refunds.
This could not be further from the truth. Refunds involve an equitable reversal, in which funds are returned to the cardholder and purchased goods are returned to the merchant. When disputes occur, the cardholder keeps the merchandise and gets their money back. To add insult to injury, the merchant’s acquirer will also assess a chargeback fee ranging from $20 to $100 per disputed transaction.
How can merchants prevent the holiday hangover?
While the writings on the wall depict a grim start to the new year, merchants are not entirely defenceless against invalid chargebacks. Notably, sellers can:
Implement fraud detection tools at checkout
Machine learning-based transaction monitoring and behavioural analytics tools can leverage massive data sets to make intelligent and near-instant decisions about fraud risks. Using past transaction history, order volume, location and device information, and similar data, these tools can serve as proverbial gatekeepers that flag high-risk purchases while introducing minimal friction.
Deploy chargeback alert systems
Fraud decisioning solutions will not prevent all disputes, so a second line of defence is needed. Chargeback alert solutions, which notify merchants of impending disputes, can help sellers proactively resolve issues before they escalate into full-fledged chargebacks. For example, a merchant can offer a preemptive refund and avoid a chargeback altogether.
Clarify refund and exchange policies
Merchants with more generous and straightforward return policies may be able to entice buyers to opt for refunds or exchanges in lieu of chargebacks. Although this practice may incentivise needless returns, it may also prevent chargebacks that would have otherwise occurred. On balance, merchants should come out ahead.
Develop a process for representing chargebacks
Ultimately, merchants may still have to contend with some invalid disputes through the representment process. Sellers should be prepared to fight all fraudulent chargebacks systematically and repeatedly. Consistently responding to disputes with compelling rebuttal packages can help merchants drastically improve their dispute win rates and net recovery rates.
Merchants want to maximise sales during high-volume periods, but sellers should also be on the lookout for risk; sales volume and chargeback volume, after all, tend to have a correlated relationship. However, when armed with the proper preparation, prevention, and representment tools, merchants can be well-positioned to take advantage of increased sales, sans shopping hangover.