Over the holiday shopping season, retailers score big. However, in late December and January, when disputes over purchases spike, it’s time for payback for consumers.
According to a report by the U.S. Commerce Department, U.S. merchants and credit card issuers can expect to see $980 million in disputed charges reversed in the consumers’ favor. The volume of these post-holiday chargebacks is 25% to 35% higher compared with other times of the year.
The following factors contribute to the increase:
The disputes rise proportionately as holiday spending increases. Online retailers, eager to cash in on the buying spree, decrease security rules for approving transactions. Furthermore, increasing the count of stolen card numbers, allowing scammers to advantage of the opportunities, leading to even more disputes.
“Friendly fraud”, when consumers make online purchases with their own cards and then, after receiving the goods or services, claim they haven’t, and request chargebacks.
Less than 1% of transactions result in chargebacks. However, payment-card purchases exceed $5 trillion on an annual basis.
There are multiple parties are involved in a chargeback, including the cardholder, card issuer, card network, merchant processor and merchant, making the process rather complicated.
A chargeback occurs when a card issuer or retailer pays back a cardholder for a disputed transaction. When the issuer and retailer disagree over who is liable for the charge, the network decides. Often, the consumer wins due to the avid competition for customer loyalty and company reputation.
“The ability to return a good has become an essential feature in the retail industry. However, chargebacks can certainly be misused, and this is reflected on the retailers’ bottom line” said Keith Knutsson of Integrale Advisors.