Rising with Holiday Shopping, Chargebacks Are on the Naughty List for Most Merchants

By Kevin Woodward

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Chargebacks may not be lumps of coal, but many merchants may consider them as such this holiday season.

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Risk-management provider Verifi Inc. says chargeback volumes among its clients increase by as much as 50% during the holiday-shopping season.

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Chargebacks are the process by which cardholders contest charges they didn’t make or don’t recognize when they receive their statement. A chargeback filing typically requires a merchant to dig up supporting documentation for the transaction, including such items as signed proof of delivery, and to respond according to rules that vary by card network.

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Not all merchants will take the time and resources to follow up on a chargeback. On average, only 54% of merchants respond to chargeback requests, according to a survey of 378 merchants by SecureBuy LLC, a fraud-prevention company, and Magento, an eBay Inc.-owned e-commerce platform provider.

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Failing to respond could cost merchants revenue, says Monica Eaton-Cardone, founder of Chargebacks 911, a chargeback-resolution services firm. Eaton-Cardone operated an e-commerce site until September 2012. The retail side was sold and the company morphed into Chargebacks 911 following its travails trying to understand how chargebacks work and what resources were available to merchants.

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Chargebacks proved to be a more formidable obstacle than finding online customers, she says. “We got into the Internet-marketing space and thought, ‘If we can get customers we have it made,’” Eaton-Cardone says. “That was a barrier, and then we found a whole other, worse barrier that was chargebacks.”

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Out of that experience evolved Chargebacks 911, which represents merchants in chargeback cases. Chargebacks 911 is integrated with various processors and banks to receive chargeback notifications concurrently with the merchant.

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The holiday-shopping season can mean more business for her company. “All those little things with holiday craziness have a tendency to increase the likelihood of a chargeback,” Eaton-Cardone says. Chargebacks at this time of year may arise from consumers who make an online purchase, but don’t consider the cost until the package arrives and then realize they can’t afford the item, she says. Also, merchants may change their return policies by shortening or eliminating them, or charging a restocking fee for products without doing a clear job of informing consumers of that charge. When the consumer receives a partial refund for a returned item, a chargeback is likely to ensue, she says.

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Merchants can try to recoup some of these lost sales by responding to chargeback requests, she says. But the real payoff is to learn from each chargeback to examine why it happened and what can be done to prevent similar ones in the future, she says.

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“You have to approach each response with the goal of reducing future chargebacks,” Eaton-Cardone says. “Instead of just responding, you should be learning from that activity.” That’s especially important because merchants get one shot at responding to chargeback cases, and in addition to avoiding future chargebacks, they can become more proficient with their responses, she says.

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Merchants may spend between $8 and $40 per chargeback with Chargebacks 911 to resolve it, Eaton-Cardone says, with much of that cost devoted to a person ferreting out the required information, including authentication records, customer signatures, proof of delivery, and the like.