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How Merchants Can Use Technology to Protect Their Holiday Sales

With Black Friday and Cyber Monday just around the corner, this is the most crucial period of the year for merchants. But how can they ensure that all those purchases stay bought?

By Matthew Katz, CEO of Verifi
The holiday season is almost upon us, and for merchants everywhere it’s time to make hay, as the bulk of their yearly sales will be conducted during this period. Trends show more than ever before that customers are choosing to make those purchases online and via mobile. According to Adobe Holiday Insights, last year holiday sales for the months of November and December grew eight times faster online than in stores, and they predict that the 2017 holiday season will be the first to break $100 Billion in online sales.
Black Friday (which this year falls on November 24th) started as an American tradition, being the first day after Thanksgiving to officially mark the start of the Christmas shopping season. It has become a crucial part of the economy for many countries, which now hold Black Friday and Cyber Monday sales in spite of not celebrating Thanksgiving themselves. Approximately 30% of annual retail sales occur between Black Friday and Christmas, and that number is even higher for retailers in certain sectors, such as jewelers.
In the never-ending race to stay ahead of the competition, retailers are rolling out deeper discounts much earlier, and many of these campaigns have already started. Many online retailers, including Amazon, are already upstaging Black Friday by offering deals earlier and earlier due to the fierce competition: recent statistics revealed that most of the best online deals actually appear on Thanksgiving (with an average discount of 24%). It is, therefore, a safe bet that many customers are already busy assembling online wish lists and browsing for potential Black Friday and Cyber Monday bargains as Christmas approaches. On Cyber Monday in 2016, desktop e-commerce sales amounted to 2.67 billion US dollars, a rise from 2.28 billion US dollars the previous year – and e-tailers are hoping for a similar bonanza this year.
But it’s not all cheer and good will, as this great rise in sales brings an equally substantial rise in instances of fraud. Some of this arises from the fact that shoppers are more likely to take risks with unfamiliar or unsecured websites in the rush to grab a good deal. But many sales are also lost due to incomplete information and billing confusion, as well as so-called “friendly fraud,” which is where customers dispute genuine transactions and obtain a refund for purchases they actually made – all of which can result in costly chargebacks for merchants.
As consumers begin to analyze the debt they’ve incurred during the holiday period – especially via transactions bought in the heat of the moment over the Black Friday/Cyber Monday period – they often experience buyer’s remorse and contact their bank or issuer directly to try to get those charges reversed, which is why merchants experience the highest instances of friendly fraud following the holiday period – which can make January a particularly miserable month for many businesses.
The LexisNexis True Cost of Fraud Study 2016 found that roughly 28% of total fraud losses were the result of such friendly fraud and chargebacks, with the losses attributed to “true fraud” only responsible for around 23% of those losses. A similar study conducted by JP Morgan found that friendly fraud is estimated to account for 30% of all chargebacks.
Exactly what are credit card chargebacks? They can be a useful safeguard for consumers, as when a customer sees a transaction on their bank or credit card statement that they don’t recognize, they may challenge that it was in fact a legitimate purchase that they made, often requesting that the charge be refunded. Issuing banks experience a dramatic spike in cardholder disputes following the holiday season. Whether driven by confusing billing descriptors or friendly fraud, cardholders flood an issuer’s call center throughout January, costing each issuer hundreds of thousands in processing, investigation, and call center expenses.
These disputes often lead to a refund, or chargeback, to be issued, especially when the alternative is an in-depth investigation in the face of little data to establish whether the transaction actually took place.
“Consumer awareness of their chargeback rights has increased over the past five years,” says Julie Conroy, research director for Boston-based analyst firm Aite Group. “We’ve seen a doubling of the term ‘chargeback’ on Google for the past five years.”
In its research, Aite Group found that card issuers often give customers varying degrees of leeway when it comes to accepting evidence for granting a chargeback. Retailers complained to the firm that this lack of consistency led to mixed results from issuer to issuer. Chargebacks protect cardholders from fraud and give them recourse if goods are not as advertised, but it’s getting easier for consumers and it’s being abused.
“No one likes getting on a 13-minute call with their bank to dispute a charge,” Conroy says. “If you can allow them to do this digitally, you’re providing a better customer experience.” The other issue is cost: the average call is 13 minutes. “For some of these disputes, the consumer could be on the phone for 30 minutes,” she says. “That’s really expensive. The aggregate cost for U.S. issuers alone for call centers to field these calls is $2 billion a year.”
Sometimes these cardholder services disputes arise from a genuine concern by the shopper, and that can be a sign that their account details may have been compromised. Common cases include so-called buyer remorse referred to above, automatic renewal of subscriptions, or children using a parent’s account to buy gaming content online without consent. Often, the merchant’s name as it appears on a statement doesn’t match their trading name either, making it more likely that forgetful or confused customers will dispute any given transaction. However, sometimes consumers will illegitimately dispute a transaction, more often than not going directly to the card-issuing bank rather than the original merchant. This leads to loss of revenue, merchandise, and shipping costs to merchants, who have to cover any additional fines and fees applied by the bank, as well as being sat with the potential long-term damage to customer relations.
Stopping fraud before it starts is the key to combatting such costly effects. But how do you do that, especially in cases of friendly fraud in which the customer card numbers, names, and addresses all seem legitimate, but their intentions may not be? Unfortunately, businesses can’t rely on banks and credit card companies to always protect them, with consumer acts very much written to protect the consumer, though with few provisions written in to protect merchants.
The easier credit card companies make it for cardholders to initiate a chargeback, “the more likely it is that there will be abuse that drives up costs for retailers and prices for consumers,” agrees J. Craig Shearman, spokesman for the National Retail Federation. The general consensus is that consumers should first dispute a charge with the retailer or service provider.
Issuing banks that neglect to include their merchants early in the dispute process generate an unnecessarily high chargeback volume. According to Verifi, a global end-to-end payment and risk management provider for card not present fraud and chargeback solutions, the best way to avoid this problem is for merchants and issuers to collaborate and share the right information, in the right place, at the right time.
The amount, timeliness and the depth of data that a party in the payments eco-system acquires to associate a transaction with a customer, and what that customer divulges during the purchasing experience, allows merchants to make the best informed decision.
Connecting the merchant and the issuer early in the dispute process can prevent the loss of millions of dollars in sales. Verifi’s Cardholder Dispute Resolution Network (CDRN) is an innovative platform that enables issuers at the initiation of a dispute to redirect consumer disputes to the merchant, pausing the chargeback process for up to 72 hours, allowing the merchant time to assess and resolve the issue appropriately before becoming a chargeback. In 2017, CDRN has handled over 9.5 million disputes with an average 89% success rate on managed disputes.
In April 2017, Verifi launched Order Insight, an advanced collaboration platform that applies this principle of connecting merchants, issuers and cardholders to access accurate and timely purchase data to the benefit of all.
Order Insight is the next phase of Verifi’s services evolution, where all parties are connected to work together for mutual benefit. By being able to share and access data – such as purchase item description (size, color, style), date of purchase, merchant’s name and contact information, customer’s device used, IP address, etc. – the volume of chargebacks can be significantly reduced. This results in fewer fees and penalties imposed on merchants, but most importantly the retention of sales and improved customer relations, all of which translate into increased profits.
Order Insight enables near real-time sharing of the transaction details between cardholders, merchants and issuers, providing detailed information for customers to act upon disputed transactions, and for merchants to have the ability to challenge and fight chargebacks. It does this by allowing issuers and merchants to share detailed order information in near real-time at the initiation of a customer dispute. Apart from the goods or services in dispute, detailed information on the cardholder’s transaction history, previous disputes filed, refunds issued, and account delinquency will also be available.
The device (and type) that was used to make the purchase will be accessible, in addition to the name, username, IP address, location, phone number and email address included in the merchant’s customer profile to match the unique cardholder information with the bank’s system. Customers, too, have access to their order details through the issuer-hosted mobile or online banking application, providing immediate answers to a transaction query for a quick and painless resolution. If a transaction isn’t recognized, then the name, address, customer service number and email address, as well as terms and conditions, warranty information and return policies, will be provided to resolve the confusion created by vague descriptions on a statement. Thus, whenever a dispute arises, each party will have access to the information to eliminate customer confusion, provide an improved customer experience, and determine the legitimacy of the sale, thus reducing the impact of issues such as friendly fraud.
“Shared data can be beneficial in multiple fraud scenarios, and friendly fraud is no exception. I’ve been hearing from e-commerce merchants in the app and gaming environment that friendly fraud is just going through the roof, representing as much as 75% of all their card-not-present chargebacks,” explains Conroy.
With this robust information to hand, issuers can quickly determine if a particular transaction should be flagged as a compromised account or as a legitimate transaction. Data sharing can thus greatly benefit issuer and merchant, preventing sales loss and costly chargebacks, loss of merchandise, and fees, which can lead to increased confidence and profits for the merchant, as well as saving banks both time and unnecessary expense of call center investigation and office operations to facilitate the chargeback process.
Such leveraging of data will not only boost merchants’ bottom line and save operational costs for issues, but will also help to preserve consumer confidence and build loyalty. Real-time data sharing helps resolve disputes the moment they occur, which apart from avoiding loss of profits and resources can help build trust in the process and discourage people from trying to “game” the system. The shared feedback loop between merchant, cardholder, and the issuer makes for an overall better customer experience, and some well-deserved holiday cheer for hard-working merchants.

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