January Chargeback Threat Signals the End of the Season of Goodwill
UK consumers spent a staggering £13bn online in the run up to Christmas, which is great news for retailers. However, with increased sales comes increased risk of chargebacks. High levels of what is known as ‘friendly fraud’ is particularly common during the festive season, affecting merchants and retailers at their most prosperous time of year.
The season of goodwill has now ended and retailers are currently in a period of refunds and returns as unwanted Christmas presents and too-hastily purchased sales items are returned, often at a big cost to retail businesses. As one of the most common types of chargeback fraud, friendly fraud involves a consumer making an online purchase and then contacting their bank, stating that the transaction was not their doing, resulting in a chargeback. The customer gets their money and the retailer gets the hassle of dealing with banks and paying fines, as well as losing a valuable item of stock in many cases.
Last year, 98% of US consumers who had filed for chargebacks from January to March did not attempt to resolve their issue with the merchant first, according to a survey by eConsumer Services. Visa has reported that an alarming 86% of chargebacks are filed without the merchant participating as a first recourse. An astounding £7.5bn can be attributed to annual losses to friendly fraud in the UK, higher than losses through identity theft. This results in higher prices for consumers to cover the losses incurred by merchants hit by fines and processing charges, along with potential damage to credit ratings. With Black Friday, Christmas and January sales, identifying and preventing friendly fraud can be like a needle in a haystack for busy retailers.
Monica Eaton-Cardone, CIO and Co-Founder of chargeback management firm Global Risk Technologies, said:
“Fraud during the peak festive season is a real problem and as consumers are increasingly shopping online, increased chargebacks via friendly fraud is a very high and costly risk unless managed correctly.”
“January is a particularly busy time for consumers returning goods or claiming not to have received gifts. The sad truth is that not all of these will have been genuine purchases. For every £64 in chargebacks filed, the average merchant pays £172 in related costs, so merchants need to be extra vigilant at key seasonal shopping times and ensure they have the right protection technologies and processes in place to safeguard their business.”
From monitoring suspicious activity to having a security solution in place to protect against potential risks and guard sensitive data, both merchants and retailers need to wake up to the huge problem of friendly fraud and protect themselves from charges and reputational damage, which all impacts the bottom line.
Built upon years of risk management experience, Global Risk Technologies is focused on bringing exclusive solutions for ecommerce payment processing to merchants in the European market.