As the holiday season wraps up, one thing is clear: Consumers are doing more shopping online than ever before, thanks to the pandemic and increased comfort levels with buying online. Were you prepared for the increased volume and potential for higher fraud levels?
Even once the pandemic is over, many people will stick with ecommerce. This means merchants should be using every bit of information they’ve gathered over this recent holiday season, so they can start preparing now for what will undoubtedly be a busy 2021.
In this episode of Gateway to Ecommerce, Rafael Lourenco, ClearSale’s Executive Vice President, and Denise Purtzer, ClearSale’s Vice President of Partnerships and Alliances, explore how merchants should prepare for the busiest shopping time of the year.
In our 12th episode, we explore how ecommerce merchants can have a record-breaking holiday selling season—while still protecting their customers and their revenue against fraud and false declines. But first, let’s introduce you to our hosts today.
is ClearSale’s Executive Vice President. A 12-year veteran at ClearSale, Rafael combines the company’s innovation-driven culture and emphasis on communication with a deep understanding of the statistical tools that underpin excellent fraud protection.
is ClearSale’s (former) Vice President of Partnerships and Alliances, and she lives for connecting the right people to make things happen. Denise has 20 years of experience in ecommerce and knows the ecommerce landscape from every angle, for every size business, in every market.
As consumers are making their lists and checking them twice, they’re also getting ready to spend some serious cash on those they love.
Many merchants report average order values of more than $200 during the holiday season — approximately 50% more than what they usually see. In addition to bigger orders, ecommerce retailers may benefit from:
• An increased sense of urgency as shipping deadlines draw close
• Reduced fraud rates because of the higher-than-usual number of good customers
• A well-equipped fraud prevention team and customer service frontline that approve more good transactions and keep customers happy
While ecommerce merchants are likely to experience lower-than-normal fraud rates during the holidays due to the rise in the number of legitimate customers, that doesn’t mean merchants shouldn’t still be worried about fraud, chargebacks and false declines. Just as Santa relies on his elves to get the job done, ecommerce merchants should be able to count on their fraud prevention and customer service teams to:
• Separate the good customers from the bad by taking a closer look at customer behavior
• Understand and calculate key KPIs, including chargeback rates
• Know their vertical’s risk level and if processors consider them to be a high-risk merchant
You’re listening to Gateway to Ecommerce, a podcast by ClearSale. This is a podcast where global ecommerce leaders discuss challenges, best practices, new tech and secrets to success. Now your hosts, Rafael and Denise.
Hello, this is Denise. And I’m joined today with Rafael. And we’re going to talk about selling during the holidays, which for me is a really exciting piece of information to talk about.
It’s something that, now as we’re heading into the holiday season, if you haven’t started thinking about these, these different aspects and getting your site ready, it’s time to start now.
And so we’re going to talk about just one aspect of that today. And that’s really about the sales process and everything to do with completing that sale, because marketing and all these different aspects could be involved.
But really, we’re going to hone into one piece of that today. So as we look into the holiday season, Rafael, this year is going to be even busier than the past? And so thinking about that, what are some of the aspects that merchants need to consider?
Well, hi, everybody. I’m happy to be here again. And Denise, you hit the nail on the head when you said that we’ve got to get prepared, right?
By this time of the year, it’s important to be very prepared for what’s next. And I think as you said, as sales increase so much during this period of the year, preparation is the key. It’s interesting, because this is the most expected part of the year for us, for us all. Very frequently, we have to hire a bunch of people to help us going through these times of the year. And this is very exciting.
I mean, while for a lot of companies and people, this is a time of the year where they’re resting, they’re rethinking, they’re strategizing. For us, I think it’s the same for the retailers and our partners: It’s time to work hard. And for me, yeah, and for me, it’s actually the favorite part of the year. Because that’s when we can put the most of our capabilities in skill sets on the line. And I’m sure it’s exciting for you, too.
It is. There’s always this great sense of urgency when I deal with the partners mostly, but then, of course, we’re working with merchants as well.
And there’s always this rush to get to the finish line. And it seems like that timeframe becomes shorter and shorter and shorter, because more merchants are onboarding and, you know, they’re trying to do more to maximize their site, make it more competitive, and thinking about all the security aspects, including fraud on that back end.
So it’s a fun time for sure. It’s always really good conversations that proceed quickly.
Yeah, definitely. And I said about preparation, but I think this year, we have a specific, interesting scenario where anything that has to do with predictability is in a completely different perspective. Right?
Everything is out the door. Right?
Exactly. Why do you think we’re talking about the sales increase, but what other aspects do you feel are relevant?
And why so many merchants and so many players in the ecommerce industry are always talking about the holiday season? So what is it that’s so important about it that people get so focused on it throughout the year?
Well, beyond people being ready to spend money, and that’s exciting, because average order values are generally about double for most merchants, when we look across the board, average order values of about $215 is what we see during the holiday season. It’s about 50% more than what merchants see.
So based on that alone, it’s different buying habits, but you’ve also got that purchaser, such as myself, who waits until the last minute to make purchases, and then they’re wanting to rush those orders and get them in time for the holidays.
So we’ve definitely got deadlines in mind for the shoppers as well, which is kind of a unique situation, because it’s not always the case. Sales and other things need to drive that urgency during other parts of the year.
So given that, you know, we take those things into factor and it starts to become a little bit more confusing for the merchant to decide if the sale a good sale or not? I know that you’ve talked about that a lot with merchants and trying to figure out, you know, what is the benchmark that you’re at? What is your fraud rate? What is your false decline rate?
Could you talk a little bit about that? Because I think that’s important for merchants to understand and be able to calculate.
Yeah, sure. So I think, first of all, you’re right, when you say that this makes sense. This makes the life of merchants a little challenging during this time of the year.
Because on one hand, consumers are in a hurry more than ever. I mean, they have a deadline, they want to give, deliver the gifts or whatever.
On the other hand, we are talking about a higher volume. So the period of the year where you would entertain the most time is also the time of the year where the consumers are actually more in a hurry, which makes life much harder.
But speaking of fraud, as you said, I think it’s also interesting, this time of the year from a fraud perspective, because we are talking about a lot of things changing, right? So what you should expect for holiday season is not even on a KPI perspective, as you said, is not the same as you should be expecting for the rest of the year, because the sales increased so much.
The amount of fraudsters or the amount of transactions that are actually fraud attempts does not increase as much as the good sales. And the reality is that what that does is the fraud rates are actually a little lower because there are so many good customers.
And again, fraudsters do not get attracted by promotions, right? Like they’re not going to be paying in any way. They know how much busy the merchants are, so they try to take advantage of it. But at the end of the day, the increases in sales are usually higher than increases in fraud attempts.
And as you said, KPIs must be expected to be different. And in my point of view, you’ve got to be perfect during this time of year, meaning, the less fraud you allow happening, the better and the less false positives, the better, also.
I think that’s a great point. Because when you talk about that amount of fraud being less, I think a lot of times, merchants are taken aback by that because they think “more sales, more fraud.”
But then you talked about the fact that there are more good customers, there are more, you know, valid customers out there willing to spend money, but you touched on the point of false clients, which I think is so important as well. Because you have to consider even more that false decline piece because of the fact that you’ve got better customers coming to the table.
And the last thing you want to do is turn them away. And I think that is one point that we constantly talk about with merchants because they don’t think about that piece of it. And that merchant could get lost or — excuse me — that purchase.
And that customer could get lost in the fray a little bit more because you’ve got busy customer service on the part of the merchants and everything else going on. And that could lead to a bad experience.
Yeah, definitely. You’re talking about — a lot of people just think about the transaction itself being lost. But I think you brought a good point when you said that, I mean, you may be losing the consumer for the lifetime value of this consumer, right?
I think there are other costs also involved with clients. And I know that you’ve talked a lot about it with partners and merchants, right? So not only this specific transaction, but actually a bunch of other sources of costs that are related to people declining orders that they shouldn’t.
Agreed. So stepping back a little bit: What is a typical chargeback ratio and a false decline rate? What can merchants expect if they don’t even know their numbers? Where do they start?
Yeah, good question. Well, first thing. I believe that this is a question that will depend on the size of the merchant and will depend on the segment the merchant is in. So, for instance, furniture. If you look at one side of it, furniture is one of the less risky segments, while electronics or jewelry could be understood to be some of the risky ones. So that answer actually depends a lot on different stuff. But I would say the most important is to start to measure it right.
So let’s say we are talking about chargeback as a percentage of the total sales. And if you have too much above 25 basis points, for instance, I think it’s already a good moment to start thinking about it. Because I feel like depending on the segment and how much you have recurring customers, you may be a little higher than the average.
But again, it’s a case-by-case discussion. And when it comes to the clients — the approval rate as a percentage of the transactions — then it’s a different story, because people do not necessarily measure it in the post to the chargebacks. Instead, they receive it on a notification on a report from the card processing.
For declines for approval rates, my main advice here is making sure you are measuring it and you are measuring it considering the combination of all the sources of decline, divided by the total order attempts. And if it’s giving you much more than 3%-4% of decline rate, which means 96%-97% approval rate, then you would have a problem. So that those are just ballpark numbers.
You brought up a good point. And this made me think, because it’s simply a percentage, right? So when you look at chargebacks, merchants always know their chargeback, it seems like, because they feel the pain, they see it as a negative on their balance sheets and their statement from their processor every single month.
And if you look at the holiday season, then you’re getting additional chargebacks. So you talked about that 25 basis points. But — and I think that’s a good point to consider — because it used to be you know, people would talk about that 1%. And now it’s more of nine basis points that they’re thinking about.
But that’s really when it gets to be like to the point of no return, because if you get to that point, with a processor, they’re likely to drop you or charge you additional fees. As you know, your stuff is not in check with their standard. So given that, I think it’s important to obviously know that piece, but also think about the flow of the orders during the holiday season.
So if you have a high flow of orders and then it drops off the following months but your chargebacks come in, that can get out of whack very quickly, right?
Definitely, definitely. That’s one of the challenges of the holiday season, depending on how you measure the chargeback rates and how your card processor measures your chargeback rates. Because as you said, I mean you have November and December, very hot in terms of number of orders and sales. And then the chargebacks will take a while to be notified, right?
And when you get those chargebacks, perhaps you’re comparing two months of January and February that tend to be a little slower.
So let’s say you had, if you had a half-percent of chargebacks on a month, that is the double of the month where the chargebacks are coming, if you measure it, comparing the chargebacks that you received in January versus the sales of January, half percent may turn out to be 1%.
Because it’s the double of the volume and then the half of the fraud attempt or the chargeback rate numbers. So that’s, that’s, that’s very interesting.
The numbers can sneak up on you, that’s the scary part. What you do now is, you know, going to determine what happens for you in the future. So it makes it even more important to consider making some changes around fraud.
Yeah, I agree. And not only that, but also if you allow fraud to happen. You mentioned the 1% threshold, so let’s say in a given month, in or outside of the holiday seasons, if you allow like close to 1% of chargebacks to happen.
The reality is, the fraudsters are also a network. They talk to each other and they will let everybody know that it’s easy in your website, right? So you’re not only worried about this particular month in which you faced the 1%, but the chances are that the next month is going to be even worse. And then, that’s the challenge, because how will you react?
As we were saying, being too tough, being too conservative on your declines, on your approvals, can be also a big problem, especially in the holiday season. So think about the consumers being on the edge and being, you know, anxious to get their goods, their products. And yeah, it’s not gonna sound good, right?
I agree. And so I think that brings up a good point with the whole customer service piece, because if you do have customers on the edge, the first thing you do is have a front line of defense, where you’ve got somebody answering the phone or answering emails and reaching out to those customers to try to mitigate that anxiety and make it a better experience and buy some time if needed on a delivery or whatever the case might be.
All of these things are intertwined. If you’re not getting your orders out in time and they’re not getting delivered on time, you’ve got unhappy customers that could result in chargebacks. So that goes even beyond the fraud aspect. It’s thinking about all these pieces and making sure that your team is equipped.
So, you know, I think that training would be a good thing, even if it’s just a refresher, and going over, you know, some customer service do’s and don’ts and outlining some different scenarios and even role-playing and giving those customer service frontline people an opportunity to practice before it gets crazy.
So that in giving them the pride that they’re the first line of defense and they’re the ones that can help, you know, make the company more profitable at the end of the day.
Yeah. And when you tell me that, I’m sure you have a lot of information about it and had a lot of conversations about it. That triggers me to think about the same aspect on the point of view of fraud. Right?
So if you want to train and practice with our customer service reps on how it looks like, during holiday seasons, base it on how it looks like in the past. Are you using, you know, experienced reps to train the new ones?
I feel like in fraud, it’s the same. So because as we said, there are many aspects of fraud prevention that changed during the holiday seasons. I feel like we’ve got to focus whatever we do with our fraud prevention strategy and try to base it on people’s experience of this during the same period of our other sales peaks.
And there is a lot to be considered in this matter, right? So you’ve got to think about the different types of fraud. And what is specific about the holiday seasons when it comes to risk, right?
So true. So true. So I think that kind of takes us to the interesting side of it and looking at the fraud itself and that we were talking prior to this and you were mentioning that, you know, people are asking about the new types of fraud that are emerging. And we kind of chuckled because fraudsters are fraudsters.
And they’ve got different tricks, but they’re really under the same when it comes down to it at the end of the day. Yeah.
When we start talking about that actual fraud, then what are some of the sneaky things that merchants have to start to consider and watch for?
Well I think, as you said, the fraudsters do not change that much their behavior. I mean, they may — they may increase their activity, they may try to take advantage from — from the fact that they know the merchants are busy, but not necessarily they changed that much their behavior.
But the reality is that the good customers do change their behavior. Right? So we are talking about people traveling, so shipping and billing addresses may not be matching, we’re talking about people not necessarily getting on the phone, working, waking up later. So if you need to get these people on the line might not be easy.
We all know how busy our house is when family is in, right? And yeah, and gifts means getting...
Trying to be sneaky. Yeah.
They get to somebody else’s address or whatever the case might be to hide it from the kids. Yeah, exactly.
Gotta keep Santa going.
Yeah, so Santa is busy as well, right? So the reality is there are a lot of behaviors that during holiday seasons are behaviors expected somehow by good customers that in other periods of the year are actually red flags for fraud.
So that’s why we talked so much about the false policies, right, because you’ve got to understand what is the behavior during the holiday seasons. With that, try your best not to affect these processes for people buying gifts, people delivering to different addresses, people buying for the first time.
I mean, we didn’t talk about it, but how many merchants use this part of the year to offer pro prices? And that attracts a whole new bunch of customers that never bought online. But they are not willing to go to brick and mortar during this time of the year. And they are buying for the first time.
So I never saw this email address or this customer in a different transaction and now I’m having to make a decision again, on the busiest part of the year for me as a fraud prevention manager, for instance. So it’s challenging. I mean, it’s a lot of things happening at the same time.
It is and it’s almost mind-boggling to think about, and you mentioned that whole first-time buyer. It’ll be interesting to see how many more first-time buyers come on board after getting used to hearing about being able to purchase online.
And you know, it’s kind of the perfect storm here with the, you know, people not wanting to get out of the house. So I think we’ll see even more of that going into the holiday season than we had in the past.
Yeah, I agree. I think ecommerce as a channel has a lot of conveniences. And even though a lot of people don’t feel necessarily safe in this environment, the fact that some of us were forced actually to test it and to, you know, have this experience in buying online during this year, I think it may trigger us to see a very interesting behavior throughout the holiday seasons into 2021.
I think one thing that I get asked a lot, especially for that small- to mid-tier merchant that hasn’t, you know, really relied on fraud prevention in the past and might be thinking about going into it for the future is, you know, “How quickly can I get up and running with a fraud prevention system?”
And I think if you’re building it on your own, you’ve got to think about a longer timeframe, because you’ve got to do a lot more testing and things like that. But if you’re talking about a pre-integrated, outsourced company like ClearSale, it’s something that can be done pretty quickly, especially if you’re on an ecommerce platform that’s pre-integrated.
So I think those are things to consider as well for the merchant, because it’s something that you don’t have to think “Well, I have to put that off until next year because I didn’t have enough time.” There’s plenty of time now to get something in place.
Yeah, I agree. And I think you know better than anyone how much the ecommerce platforms know about it. And they, I mean, virtually pretty much the second half of the year, they are pushing, you know, these alternatives.
They are trying to advertise solutions like ours or many others that would be helpful during this part of the year so that you know, not only in advance, but actually if you have a last-minute concern, you will have some of those decisions or some of those solution providers ready to help you.
And that has been a focus of the ecommerce platforms in the last couple of months, right ,Denise, as I know you talk a lot to them.
It has. It has. It seems like shipping and logistics, marketing, and now fraud, are three pillars that they talk about constantly. And yeah, there’s a reason why. Those are all the things that you need to make things successful.
I think we covered a lot today. It’s been interesting, talking about the different aspects of the holiday impact on sales. I hope this gives everybody a little bit of food for thought.
I hope you can join us for our next episode. It’s going to be a roundtable discussion, so Rafael, myself, and then Sarah and David. We’ll all be together again, talking about trends for 2021.
So thinking ahead once again, if you’d like to know more about how to prevent ecommerce fraud, visit our website at clear.sale. If you have questions, please contact us at www.clear.sale.
Thanks for listening to the Gateway to Ecommerce Podcast, where global ecommerce leaders discuss challenges, best practices, new tech, and secrets to success.
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Thanks so much, everyone.
For more ecommerce insights, visit us at clear.sale.