The Silent Ecom Killer 🥷

Hey Folks, 

Based on today’s NYC weather, it feels like the bulk of winter is behind us. Warm days, iced coffee, good vibes. Nothing can keep us down.

Eek, knock on wood. 

It’s been a productive week here at Yotpo. It’s been really insightful sitting on this side of the table and being able to listen and learn from some of the best ecom operators in the business. 

In the last few weeks, I have had a few conversations with eight and nine-figure DTC brands and have learned a few things:

  1. Everyone has retention as a top-of-mind goal this year, drastically different from what we saw in 2014-2022. The tide is shifting big time. 

  2. Most have lofty Retention goals, such as  “get every customer back for a second order,” one that even Apple has not successfully cracked. We love ambitious leadership. 

  3. “Fraud” has become a concern in more conversations than you would have thought, specifically chargebacks. 

We spoke about Returns fraud a few weeks back, and I’ve gotten really great feedback on that newsie. This week, we’ll tackle chargebacks. 

Grab a seat; you’ll want to get focused. 

This week’s newsie is brought to you by Chargeflow.

Chargebacks are growing at a concerning pace, and there is not enough information online to teach ecom founders how to handle them more efficiently.

Not until now.

After handling hundreds of thousands of Chargebacks in 2023, Chargeflow, Shopify's #1 rated eCommerce app for chargeback Automation, has compiled all of this data into the 'State of Chargebacks,' an 18-page comprehensive guide that breaks down:

  • Win rate & reason code analysis by eCommerce sectors, transaction value, and chargeback types

  • Industry insights that will help you deeply understand the industry's unique chargeback challenges

  • Tactics and strategies that will help you proactively prevent and effectively resolve chargebacks

Two reasons why I am happy to collaborate with Chargeflow:

  • They are an Israeli-based company with a resilient team that, even through this hard time in the country, they are still providing value to thousands of eCom brands from all over the world during the busiest times in terms of Chargebacks (post-holidays)

  • Both Olipop and Jones Road are using their Chargeback management services

So what are you waiting for? 

Download the report now and safeguard your business against Chargebacks:

The 101:

Chargebacks start when a customer disputes a transaction directly with their bank. Originally meant to protect consumers from unauthorized transactions, they've morphed into a convoluted challenge. 

Think of chargebacks as a boomerang; what goes out in sales can return as a chargeback, hitting your revenue hard.

There are three kinds of Chargebacks:

Criminal Fraud: This is generally unauthorized use of stolen credit card information. Upon discovering that someone stole and used their card for an unapproved transaction, the legitimate cardholder files for a chargeback. This is otherwise known as “disputing the charge.”

Friendly Fraud: Despite its seemingly friendly name, friendly fraud is deceptive and harmful. It occurs when a customer makes a legitimate purchase and then disputes the transaction with false claims, such as the product or service not being delivered or the transaction being unauthorized. 

Merchant Errors: Not all chargebacks stem from intentional fraud. Some result from merchant errors like accidental overcharging, billing for undelivered services, or misrepresenting products. While these are honest mistakes, they still result in chargebacks on the merchant side. 

Across almost every business I’ve worked at in the last decade, chargebacks showed up. However, the luggage Kickstarter brand I started my career working at definitely had a larger share than most.

After all, the Kickstarter campaign had a shipping ETA of 2016, and these suitcases did not ship until late 2018. Ironically, though, most banks only allow chargebacks for 120 days after the initial charge, and most of the backers paid in 2014 🙃 

With brands with a lower AOV (think soda), we were less of a target for the chargeback crew way back, but I think that has changed in the last two years, too. 

I remember a moment when we had a subscriber of 10 months file a chargeback for her last nine orders, saying she never signed up for a subscription and it was supposed to be a one-time order. Fun times.

Why should merchants care?

Because every chargeback is a dent in your wallet, you're not just refunding; you're also paying fees, losing products, and potentially harming your relationship with payment processors. It’s a triple threat to your business.

Combatting Chargebacks:

I’ve seen my fair share of companies that do nothing when chargebacks hit. It gets bounced between CX, Ops, and finance folks and just gets left alone.

Aside from losing the chargeback, you generally pay a fee on top of the refund as well.

On top of that, when the fraudsters see that a company doesn’t push back, they tell the other fraudsters that you are a target (this might be a conspiracy theory, but one I feel strongly about, lol).

Here are some tips to combat the chargeback folks: 

1. Deep Dive into Chargeback Data

It's not just about noticing chargebacks; it's about understanding their roots. Analyze when and why they occur. Is there a trend in time or customer demographics?

Use this data to predict and prevent future incidents. Tools that offer detailed transaction analysis can be particularly helpful here, but you can uncover quite a bit in Shopify and Stripe if you are just getting started. 

2. Signature Requirement for High AOV Items:

If you notice a spike in "item not received" claims, especially for high AOV products, consider adding a signature requirement upon delivery. This adds a level of security and accountability, making it harder for false claims to hold up. It's a small step that can significantly reduce chargebacks on those big-ticket items.

3. Enhancing Order Processes and Customer Communication

Review your customer journey from start to finish. Is there a gap in communication that could lead to misunderstandings?

Sometimes, chargebacks arise from a lack of clarity in shipping times or product specifications. Implement automated systems for updates on order status and ensure product descriptions are detailed and accurate. (PDQ and Wonderment are great options here.)

4. Implementing Advanced Fraud Detection Tools

Invest in technology that doesn't just flag fraud but also learns from it. Look for systems that adapt to new patterns of fraudulent activity.

AI-driven tools can analyze real-time transaction data, offering valuable insights and preventive actions against potential chargebacks. Tools like Chargeflow might offer real-time fraud alert notifications. 

5. Strategic Dispute Management

Not all chargebacks should be accepted without scrutiny. If you have strong evidence against a fraudulent claim, use it.

Develop a systematic approach for disputing unjust chargebacks, including gathering all relevant documentation and presenting a strong case to the bank or credit card company.

Whether you are using a tool to manage or not, I have won countless disputes by pulling together data and submitting a chargeback response via Shopify or Stripe. 

6. Customer Education and Transparency

Ensure your customers understand how and when to raise issues with their purchases. Clearly outline your refund and return policies on your website and during purchase. Educational content about the proper resolution channels can also reduce the inclination to file directly for chargebacks.

A Convo With Caraway:

One of the brands that have successfully navigated this space is Caraway, and I chatted with my friend Nancy,  Associate Director of CX there, to learn more!

Nancy, thank you so much for taking the time to chat! How did you navigate the recent uptick in fraud?

During the early part of Q3, Caraway was blindsided by an array of fraud attacks. What was once a few chargebacks a week overnight skyrocketed to more than 30.

I’m sure chargebacks are one of the universally most tedious tasks for CX teams to deal with, as unless we have contact with the ordering consumer, the bank almost always folds in favor of the customer, especially with claims submitted as simple “fraud.” 

Little did we know this was only the beginning. In the days that followed, we received a report from our warehouse for multiple fraudulent packages, ranging from empty boxes, water bottles, and old AC units to return labels being attached to a simple envelope.

Needless to say, we had to act fast and get a handle on all of these various attacks.

Our first call to action was creating a strategy for dealing with the chargebacks. As a small, growing team, we couldn’t handle this internally and needed help. Never in my career has a cold email ever come to the front of my mind the way Chargeflow did. 😀 

We immediately connected with the Chargeflow team and decided to onboard their tool to help us respond to all chargebacks, with a pretty CX forward and a no-strings-attached trial period to submit evidence and recover where possible.  This trial immediately proved their value.

As all of the above was happening, we then had to connect with our returns warehouse on processes. The biggest CX experience that was hindered was having to change our refund on delivery to refund on the process.

Any learnings from Caraway on spotting trends?

Admittedly, being blindsided by this attack gave us the opportunity to think in a new way. Thankfully, we do have dedicated CX analysts, and have since worked with Loop to create a slack channel to alter policy based on any trends, including:

  1. Single customer submitting multiple returns (by both unit OR order value)

  1. Return label that noted weight that did not match the actual package weight

Practice being proactive vs reactive. Protect your rev!

Any crazy stories you’ve seen? 

Prime example # 1 presented the most startling revelation when our CX Analyst delved deep into the cyber world and uncovered Fraud Rings offering services to "customers" seeking to exploit the system for a fee.

These rings provided step-by-step instructions and exposed companies to exploitable return processes, particularly those refunding on delivery rather than on warehouse processing. 

The modus operandi involved assigning a dedicated fraudster to real customers, who would then share their card details with the fraudster to place orders on their behalf for ten or more sets, shipping them to the fraudster's home.

In this scheme, fraudsters employed three primary tactics:

  1. Altering or photoshopping FedEx labels to keep packages in transit indefinitely, making it nearly impossible for us to dispute and resulting in a default decision in favor of the customer.

  1. Attaching return labels to empty envelopes.

  1. Sending returns with fake products (oddest was an entire box of Pokemon cards)

As we became aware of these tactics and started denying vicarious attacks, the fraudsters began to argue on behalf of the customer.

This entire scenario was successfully eradicated after partnering with Chargeflow and other partners and updating our warehouse processes. However, it came at the cost of a slight decrease in NPS, which was a bitter pill to swallow.

The adjustment stemmed from the fact that waiting for a return to be processed was no longer the norm, and customers had to adapt to this change. 

After many weeks of collecting evidence, I took it upon myself to submit a report to the FBI’s cybercrime unit. After submission, I had a chance to chat with them and answer a few high-level questions they had. It was all wild.

Bonus: Here are some fraud sites still up detailing this scam: 1, 2

That’s it for this week!

Any topics you'd like to see me cover in the future?

Just shoot me a DM or an email!

Cheers, 

Eli 💛