News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud


Product Returns: The Nightmare After Christmas

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[Editor’s Note: December is Chargebacks Month on Chargebacks are an ever-present headache for digital merchants. Rules set by the card networks to govern them are complicated and favor consumers and issuers, often leaving merchants feeling frustrated. Check back here throughout the month for updated content aimed at helping merchants understand, manage and respond to chargebacks.]

Think Returns are the Worst? Think Again.

As the bulk of holiday shopping focuses on gift purchases, a surge in returns down the line is an unfortunate—but understandable—reality. Roughly 25 percent of a retailer’s annual returns can be directly tied to the few weeks following the holidays. The effect is even more pronounced in the e-commerce sector, where as many as one out of every three purchases were returned during the 2016 season.

The biggest problem with these returns is that most of them won’t show up until well into the next quarter. This makes it very difficult for merchants to judge how much revenue they’ll receive for the holiday season. Add to that the very real possibility of fraudulent chargebacks, and you can see why, for some merchants, the real nightmare comes after the holidays.

Dealing with returns is a necessary cost of doing business; putting up with return fraud, however, is not. Despite that, fraudulent returns will see a spike during and after the holidays. There are several factors that contribute to this. Most could be handled by offering the customer a refund, but all carry the threat of a potential chargeback.

Buyer’s Remorse

Holiday sales pull shoppers online in droves, but once the best deals are over, the guilt starts to kick in. Purchases that seemed necessary just hours earlier may suddenly feel like wasteful spending. This reaction is not limited to holiday shopping, but the season amplifies the situation.

In this situation, conscientious customers will turn to the merchant for a refund. Others, however, might feel embarrassed at that thought, or view the return process as unnecessarily convoluted and time-consuming. They may be tempted to use a chargeback, as many consider it the same thing as a refund, which is a dangerous misconception.

Not only will merchants be stuck with issuing a total refund (warranted or not), they’ll be hit with chargeback fees on top of that, and won’t even recover the disputed merchandise.

Late Returns

Timing, in regard to when gifts were purchased, can produce chargebacks as well. Since gifts purchased in September or October aren’t unwrapped until late December, it’s easy to see how a purchase could slip past the standard 90-day return mark.

Merchants should (and often do) remain flexible because of the circumstances. Customers might not realize this, however, and may view filing a chargeback as an acceptable substitute for a return.

Insufficient Preparation

Even though they count on holiday shoppers for a large share of their annual revenue, many merchants underestimate just how much traffic they’ll get during this period. As a result, many retailers go into the holidays underprepared.

Last year, polling showed that just under half of all online shoppers experienced frustration in the form of poor delivery strategies, time-consuming returns processes, lost orders and more. These issues are never in the merchant’s best interest, but customers are likely to be even more easily annoyed during the holidays. No one likes to feel their shopping is done, only to discover that several gifts are on backorder or were lost in the mail. This type of frustration can make the cardholder even more willing to bypass the merchant and go straight to filing a chargeback.

The holiday season represents a significant uptick in sales for most merchants. Unfortunately, the holidays are also that time of year when online retailers are most likely to see an accompanying increase in fraud. Merchants need to take serious care to protect their revenue against excessive—and completely unnecessary—online chargebacks.

For more tips on surviving and thriving during the extended season, be sure to download The eRetailer’s Guide to Holiday Chargebacks. This new eBook gives you the exclusive insights and information you need to protect your bottom line—all for free!

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