Merchants know that the holiday shopping season is make-or-break. Without the vital influx of transactions between Black Friday in November and the New Year celebrations in January, many companies would struggle to meet their revenue goals.
However, a rising tide lifts all boats - as transactions surge, so do chargebacks. This article reveals exactly why seasonal chargebacks are so impactful, and how to prevent them damaging your business.
Want to know what you can expect when it comes to chargebacks in the coming holiday season? We’ve analyzed hundreds of thousands of chargebacks from last year to understand the direction of travel. Read the full findings in our exclusive Holiday Chargebacks Report!
Any increase in transactions typically leads to a subsequent rise in chargebacks, and the holiday season is no exception. Salesforce research shows that average order value grows by 30% during the holiday season, and conversion rates rise by 60%, while Adobe’s online shopping data shows that eCommerce consumers spent $222 billion online in November and December 2023. This represents growth of 4.9% from the previous year - a record that Deloitte has forecasted will be exceeded by 7-9% in 2024.
You might imagine that chargeback rates rise proportionally with transactions. However, they actually rise faster during the holiday season. Justt’s retail customers saw a 40% increase in chargebacks during the 2023 holiday shopping period. Disputes for fraud reason codes spiked most significantly, followed by increases of “not as described” disputes.
More concerning still, the average transaction value for chargebacks spiked by 21% during the 2023 holiday season. As the true cost of a chargeback is often 2.5X the transaction amount, including the price of goods lost, shipping costs, and card scheme penalties, this simultaneous increase in both chargeback volume and chargeback amount can have a potentially catastrophic impact on merchants.
While the seasonal rise in transaction volumes offers a partial explanation for seasonal chargeback surges, there are other factors at play that account for disproportionate numbers of chargebacks in November, December, and January. These include:
Impulse buying: Factors such as limited-time deals, the pressure to keep up with family and friends, and seasonal marketing tactics appealing to emotions such as nostalgia and a sense-of-belonging, all trigger impulse purchases. In turn, impulse purchases can quickly trigger buyers’ remorse, which results in illegitimate ‘friendly fraud’ chargebacks.
Time-sensitive gifts: Cardholders who leave gift purchases to the last minute will often be disappointed if their items fail to arrive when they had hoped, even if a merchant has specified that delivery may take longer. In these cases, cardholders may file illegitimate chargebacks out of frustration.
Unhappy customers: Heightened emotions surrounding gifts also lead to chargebacks. If a gift fails to impress, or the cardholder discovers that the recipient already has the item, they may request an illegitimate chargeback in order to recoup costs.
Rushed purchases: Holiday shoppers often make quick decisions under time pressure, which can lead to misunderstandings about product details or return policies. These misunderstandings may later result in illegitimate chargebacks.
Just as chargeback rates rise higher than expected during the holiday season, dealing with them also becomes more demanding than anticipated. This is partly because this surge in disputes coincides with a period when businesses are already operating at peak capacity, creating a perfect storm that can overwhelm even the most prepared merchants. But it’s not quite that simple. Let’s look at precisely why seasonal chargebacks can be so challenging.
As the volume of chargebacks increases, the quality of responses often decreases due to the time and labor required to address multiple disputes. This can prove problematic at any time of the year. For instance, if a popular product is discovered to be faulty, merchants may face a wave of chargebacks, causing extra work for their employees, who must gather evidence and revise card scheme rules.
However, the holiday season amplifies this issue significantly. Disproportionately high chargeback rates for large transaction volumes can cause surges that may overwhelm your existing staff. These surges are usually unpredictable and may take time to filter through, leading to lasting pressure on in-house teams.
In turn, this pressure typically leads to a dramatic reduction in chargeback response quality. Even highly skilled in-house teams tend to miss deadlines, fail to account for regulatory change, and submit generic, undetailed responses when dealing with unusually high chargeback volumes. This situation naturally produces suboptimal win rates that may result in fees, penalties, fines, and reputational damage for your business.
Despite the numerous challenges presented by seasonal chargebacks, all hope is not lost. To mitigate some of the impact of holiday season disputes, merchants should consider the following strategies:
Even the best laid plans go awry, and this includes seasonal chargeback prevention strategies. Despite the potential efficacy of measures listed above, the emotion-driven nature of many seasonal chargebacks means surges remain likely, and when they happen, scalability will be your main challenge. Here, we’ll explore your options for dealing with this problem when it arises.
One approach to managing seasonal chargeback surges is to scale existing processes. This involves building extra capacity by hiring and training additional staff, implementing more robust procedures for evidence collection, and taking additional precautions to ensure timelines are met. In theory, this solution allows merchants to handle increased volumes while maintaining quality.
However, this manual approach comes with significant challenges. Accurately predicting required capacity is difficult; overestimating leads to idle resources during slower periods, while underestimating leaves merchants unprepared for sudden surges. The substantial time and financial investment needed for training additional staff and implementing new procedures can also prove daunting, especially when there is no guaranteed return.
Another increasingly popular approach to seasonal disputes is to invest in a chargeback management solution that leverages automation, making scale a non-issue. Automation allows you to process huge volumes of chargebacks without compromising on quality, ensuring that each dispute is handled with the same level of attention to detail. This scalability is particularly valuable during the holiday season when chargeback volumes can spike unexpectedly.
While template-based solutions will still require oversight and manual effort, Justt’s AI-driven system is completely hands-free. No human intervention means no human errors, which are often exacerbated during high-stress periods like the holiday rush. This means you no longer have to worry about missed deadlines, formatting issues, or rule changes that could potentially harm your case.
AI-powered automation can also adapt quickly to changing patterns in chargeback behavior, which can prove unpredictable throughout the holiday season. By leveraging artificial intelligence and machine learning, advanced automated solutions can identify trends in dispute types and adjust strategies in real time, improving win rates over time.
Justt's Dynamic Arguments feature offers a state-of-the-art approach to automated chargeback management. The system continuously collects data from payment service providers, merchants, and third-party sources. With access to over 500 data points, Justt autonomously crafts expertly informed representments tailored to each specific dispute, without requiring any merchant intervention.
This data-driven strategy allows Justt to create compelling arguments that address the nuances of each chargeback case, such as specific reason codes, the issuer's preferences, and the unique circumstances of the transaction. This permits merchants to maintain high win rates even during peak seasonal periods when chargeback volumes surge and internal resources are stretched thin.
Justt’s AI-driven solution continuously learns and adapts, utilizing A/B testing to improve its performance over time, and as much as doubling chargeback wins within weeks. By analyzing patterns in your holiday season chargebacks, Justt’s system becomes increasingly effective at identifying and combating seasonal friendly fraud, dramatically reducing the overall impact on your business.
While it might be cold outside, you don't want to be worrying about an avalanche of chargebacks over Christmas dinner. Use chargeback automation to focus on what matters during the holiday period – whether that's driving sales, improving customer experiences, or simply enjoying some well-deserved peace and quiet.
