'$25 billion are the total losses from friendly fraud over a year, according to the National Retail Federation. Friendly fraud accounts for up to 75% of all transaction disputes.' ChargeFlow, 2023.
With the holiday season peak sales behind us merchants find themselves in a challenge when it comes to balancing the aftermath of holiday fraud with lower sales margins. As the festive fervour subsides, businesses are now grappling with the dual pressures of mitigating fraud and chargebacks during the upcoming peak and navigating the inherent strain on profit margins that often accompanies post-holiday sales.
In simple words, merchants' two main issues are low sales volumes and high chargeback numbers. But how can they solve it? One can simply say just sell more and accept no risk but in the real world neither of those are realistic scenarios. What strategy a merchant decides to follow is completely reliant on their resources, however in this article we will discuss a few of the possibilities.
The major difference between the approaches is the set up of the merchant. Is the merchant linked to a single PSP or acquirer? Or is the merchant using some form of fraud prevention system? And probably what is lingering in everyone's mind is it possible to survive peak season without any automation?
'False declines are costly. According to the Global Fraud Survey published by the Merchant Risk Council, the average online store declines 2.6% of all orders because they suspect fraud. The higher the purchase price, the higher the percentage of declines. Merchants decline roughly 3.1% of orders over $100, for example.' bigcommerce.com
Let’s look into the case of fraud prevention with a tool which can help minimise the incoming “new” fraud. There are so many tools out there which can help you manage your fraud. Majority of fraud tools stop analysing at the point of checkout, with a heavy reliance on history data but there are tools out there like FUGU which use pre and post-payment data for improving payment acceptance, reducing false declines and churn. Their AI-driven multi-tier system addresses diverse fraud types across the transaction lifecycle including onboarding, payment, and returns. This empowers Merchants and Payment Providers to confidently accept transactions they are forced into declining.
Understanding your risk attitude should be the base of your strategy. During peak season it’s recommended to have a moderate risk appetite, so no new fraudulent activities occur.
Review and optimise your fraud setup:
Understanding conversion bottlenecks is the biggest challenge. The ideal setup for this season is high authorization rate whilst keeping low fraud/chargeback rate. For the season it’s good to keep focus on increasing conversion and authorization for loyal shoppers.
As mentioned above merchants should make use of risk scoring to ensure all of the above exemptions have been used to their maximised potential.
Some merchants don’t have the resources to use fraud management tools, so here are some tips on how to handle increasing fraud and chargeback numbers during the season.
Keep in mind that prevention is easier than mitigation. Starting early and preventing large fraudulent volumes during the holiday seasons (November-December) can help not having to deal with chargebacks the months after.
Here are some tips on how to do that:
In conclusion, as merchants navigate the aftermath of the holiday season, the dual challenges of mitigating fraud and managing lower profit margins require strategic approaches. Whether focusing on fraud prevention tools like FUGU, optimising conversion rates, or implementing preventive measures for future seasons, the key lies in understanding and adapting to the unique dynamics of each business. By proactively addressing these issues, merchants can enhance their chances of surviving peak seasons with minimal disruptions and improved financial resilience.
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