High Risk Holidays: Avoiding Termination During Peak Season

As the holidays swing into full-gear in 2018, high risk ecommerce merchants are well-advised to prepare their business for an onslaught of sales—and fraud. With an expected 15% year-over-year increase in online sales, high risk merchants are especially prone to problems arising from volume spikes, fraud spikes, and bad actors looking to exploit online businesses.

High risk merchants already face impending scrutiny from payment processors, card networks, and issuing banks due to the nature of their business. Most high risk businesses already experience an elevated rate of chargebacks; however, the holidays can be especially problematic for these merchants. The influx of customers—and fraudsters—can make chargebacks unmanageable.

Understanding High Risk Chargeback Pain

Chargebacks come in many different shapes and sizes. Friendly fraud happens when a customer makes a legitimate purchase but later disputes the charge with their issuing bank. They may say they never received the merchandise or that the merchandise they received was damaged—even if it wasn’t. By bypassing the merchant, bad actors can convince the issuing bank that they deserve a refund. Unfortunately for merchants that don’t keep great records, the customer often wins these cases. The merchant is then left footing the bill for the product (which the customer kept anyways), the shipping, and fines and fees from the network and the processor.

Most online merchants experience chargebacks at some point, but high risk merchants field chargebacks frequently. This puts them at elevated risk during the holidays, when their already-high chargeback ratio can spike into dangerous territory.

The card brands often monitor chargeback rates, notifying acquirers when one of their merchants reaches the chargeback “danger zone”, which equates to a ratio of over 1%. In those cases, the acquirer must work with the merchant to reduce the dispute activity. This is an industry-wide practice for low risk merchant accounts; however, high risk merchants face additional obstacles.

High risk merchants typically look to stay within a 2% chargeback ratio and work with specialized high risk payment processors to keep their merchant account in good standing. During the holidays, these merchants may be at risk of breaching that 2% magic number, putting them at risk for merchant account termination in addition to expensive review fees of up to $25,000.

Avoiding Termination

High risk merchants have recourse during the holidays to ensure their business remains up-and-running during the busiest shopping season of the year.

Customer Service

Having a strong customer service policy and process in place is key to stopping avoidable chargebacks. Merchants should properly staff customer service lines during the holidays and even consider offering 24/7 support. Customer service staff should be properly trained to quickly and seamlessly resolve customer issues. In addition to phone lines, merchants should enable online chat support and email support and ensure that response times are optimized.

Robust Fraud Prevention

Implementing end-to-end fraud tools and protocols keeps transactions safe, even for high risk merchants. Merchants should consider the following to secure transactions:

• Address Verification System (AVS): Checking the cardholder’s address and zip code against the same information on file with the card-issuing bank can identify mismatches and potentially fraudulent activity.

• Card Verification Value 2 (CVV2): Asking the customer for the three- or four-digit security code on the back of the card can confirm that the person making the purchase is the true cardholder.

• Manual Review: Reviewing rapid-delivery and big-ticket orders can help spot fraudulent activity.

• Behavior-Based Tools: Implementing tools that use algorithms to identify anomalous behavior can flag suspicious order for further review.

Record Keeping

Merchants should keep thorough and accurate records of anything that proves a credit card transaction took place. These can make responding to complaints much easier and it can help in representing chargebacks that do happen. Merchants should be able to provide transaction information, verification and authentication methods used, shipping receipts, and any other evidence that may support their cause. Merchants often have limited time in which to respond to a chargeback, so keeping this information organized and easily accessible is important.

Chargebacks are often the Number One culprit behind high risk merchant woes. Creating and implementing a plan to reduce chargebacks during the holidays not only prevents costly fraud but also keeps the merchant account in good standing. A terminated merchant account during the holidays could be curtains for an online merchants, but creating an action plan can keep high risk merchants out of high water—and in business.