Post-holiday returns, chargebacks could undermine record-breaking 2024 shopping season
The 2024 holiday shopping season shattered records, with consumers spending $1.2tn online globally, according to a Salesforce report released Monday. In the UK, in-store sales alone were projected to generate nearly £56bn. However, the surge in holiday sales will soon be accompanied by a rise in product returns and disputed transactions, according to experts at Chargebacks911, signaling a challenging start to 2025 for retailers known as the “holiday hangover.”
According to the same Salesforce report, $122bn worth of global holiday purchases have already been returned—a 28% increase from the previous year—while chargebacks traditionally spike in January and February, as consumers reassess their finances, experience buyer’s remorse or want a quick refund on a product they’ve already used.
January and February are typically peak months for chargebacks, as most disputes occur 45 to 60 days post-purchase, although cardholders usually have up to 120 days after a purchase to make a chargeback claim, depending on the card network.
Most chargebacks stem from avoidable issues like late shipments or buyer’s remorse. Unrecognizable billing descriptors are another problem; according to the 2024 Chargeback Field Report, one-third of cardholders said they often found the billing descriptors that appear on their statements confusing or unrecognizable. However, an increasing proportion of chargebacks stem from friendly fraud—instances where customers dispute legitimate charges to get items or services for free.
“Retailers, especially those in eCommerce, are celebrating a record-breaking holiday season, but the returns and chargebacks soon to flood in represent a real challenge,” said Monica Eaton, CEO of Chargebacks911. “With economic pressures still weighing on consumers and word spreading on social media of how to exploit the dispute process, the temptation to misuse chargebacks has grown, and merchants must act quickly to protect their Golden Quarter revenue.”
Friendly fraud is the second most common form of fraud, ahead of card testing and identity theft, according to a survey by Merchant Risk Council (MRC) and Verifi. In fact, Visa reports that friendly fraud now accounts for up to 75% of all chargebacks, highlighting the ever-worsening issue of chargeback abuse and misuse.
According to Chargebacks911’s 2024 Cardholder Dispute Index (CDI)—a survey of more than 4,000 cardholders on their views regarding transaction disputes—the ongoing issue of friendly fraud is being exacerbated by customers contacting their issuing bank for a chargeback rather than requesting a refund from the merchant. With issuing banks happily obliging their customers, this is setting a precedent for rewarding such behavior, and consumer sentiment supports this.
Half of survey respondents admitted disputing a transaction with the bank without first contacting the merchant, and nearly three-quarters of cardholders consider disputes a valid alternative to requesting a merchant refund, even though chargebacks cost merchants 3.75 times the transaction value through fees, penalties and employee resources.
“The problem is out of control, and until regulators and card networks amend the chargeback process so that it’s fair and balanced for both merchants and cardholders, retailers need to do what they can to prevent and manage chargebacks,” said Eaton. “Retailers who take a proactive, data-driven approach can not only recover lost revenue, but also improve long-term decision making and customer satisfaction.”
Chargebacks911 recommends merchants implement the following tactics to prevent and defend against friendly fraud:
- Leverage AI Tools: Use AI-driven fraud prevention tools to segment transaction data and identify issues. This data can serve as evidence in the representment process or highlight operational errors. Chargeback alerts can also notify merchants of disputes early, enabling refunds or challenges before escalation.
- Check Billing Descriptors: Many cardholders dispute charges because they don’t recognize billing descriptors. Merchants should review their descriptor with their account representative and adjust it to ensure clarity on customer statements.
- Enhance Customer Service: Slow or unresponsive customer service increases chargeback risks. Merchants must resolve customer issues quickly to prevent disputes and reduce revenue loss to chargebacks.
- Clear Communication: Transparency is essential. Inform customers about shipping times, return policies, and delays. Send order confirmations with tracking details and updates to manage expectations and avoid disputes.
- Fight Back: Always respond to chargebacks, even those caused by merchant error. Representment can recover lost funds and build stronger relationships with card networks.
“Record-breaking sales are worth celebrating, but unless merchants prepare for the ‘holiday hangover,’ the impact of returns and chargebacks could overshadow this spike in revenue,” said Eaton. “Now is the time to implement a comprehensive, end-to-end chargeback prevention strategy to ensure a strong start to the new year.”
