November 24, 2016: With the holiday season just around the corner, merchants are preparing for the most active online shopping time of the year. But, while many focus on marketing and deals, retailers and issuers face a bigger overlooked issue that could move them into the red.

In the US, the sales spree will be initiated on the fourth Friday of November with Black Friday, the day after the Thanksgiving holiday. In 2015, online sales for this event added up to an astounding $2.72 billion, with an additional $1.73 billion spent on Thanksgiving Day.

What started in the 1990s as a curious ‘anti-Valentine’s’ celebration for single people in China, has transformed into the biggest online shopping day in the world. Ostensibly held on November 11, but often extending to a week-long sale, the holiday set a new sales record of around £19 billion in just one day this year.

While these celebrations are increasingly global and popular, with record-breaking sales, huge amounts of attention from customers and greater earning potential for merchants, statistics reveal that severe consequences are likely to follow in terms of chargebacks.

Chargeback volumes can increase by as much as 50% during the holiday season, and this percentage is only likely to continue. But, what are the reasons behind this?

Buyer’s remorse is one of the biggest problems most closely associated with peak shopping days. The drop in prices and the multiple sales during the shopping seasons make customers feel pressured into buying something before it disappears. But, later, with a cool head, customers sometimes change their minds or find a better deal elsewhere and no longer want the product. This regret often results in illegitimate chargebacks for customers trying to find another way to get a ‘refund’.

Similarly, customers are becoming increasingly demanding. Tight deadlines and high pressure around the holidays means small mistakes can be unforgivable to shoppers. If consumers are having a bad shopping experience and are not satisfied with the merchant’s performance, they may initiate a chargeback. A new report from Radial indicated that 71% of shoppers expect their online orders to arrive within five days, while 51% would stop shopping with a retailer if their order arrived later than the promised delivery date.

Adding to this problem, there is a flawed impression for ecommerce regarding the source of fraudulent chargebacks. Even though fighting cybercriminals and protecting customer’s data and money must be a priority for all merchants, criminally fraudulent purchases are surprisingly low on Black Friday, Cyber Monday and Singles’ Day. Only 10% of chargebacks can be attributable to criminal fraud, with 20% coming from merchant error and 70% from friendly fraud.

Friendly fraud occurs when a consumer makes an online shopping purchase with their own credit card, and then requests a chargeback from the issuing bank after receiving the purchased goods or services. It is a problem which is not currently being properly addressed by most retailers.

The truth is the industry is also slow to react. Merchant liability often surfaces in the weeks following these shopping holidays – approximately 90 days after the purchase — as the costs of online fraud and chargebacks become apparent. In addition, big purchasing events, like Black Friday, produce significant alterations to normal customer shopping behaviours, making it even harder for merchants to identify and stop friendly fraud.

For them, sales are often seen as more important, but chargebacks can essentially make a greater loss when adding the value of the lost sale, as well as the cost of the goods and a chargeback fine. Worse still, ineffective or poor chargeback management is about to become even more costly.

The burden of chargebacks is not only owned by online merchants; issuers are getting increasingly serious about enforcing better governance on them. MasterCard recently acted to help reduce its own encumbrance by introducing its new Dispute Administration Fee (DAF). This is a fee passed through to merchants who fall foul of customer chargebacks and fail to effectively dispute their legitimacy. Ecommerce merchants can expect to pay an additional €15 fee for chargebacks they accept without filing rebuttal, and up to €30 if a non-compliant response is filed. Issuers are penalised as well with the reverse incentive.

As this year’s shopping season progresses, merchants who lack a disciplined chargeback policy are likely to be more vulnerable than ever before. The only way to avoid this is for retailers to understand chargebacks and the detrimental affect an ineffective risk mitigation system can have on their business. Beyond losing merchandise and revenue, online retailers can face additional fees and consequences, particularly if they exceed allotted chargeback thresholds.

Adhering to best practices reduces the risk of chargebacks. Superior results are obtained through the use of combined methods which leverage both in-house and outside expertise.

Recent studies performed by Global Risk Technologies revealed that merchants using a combination of fraud management strategies experienced improved performance within every fraud detection tool and reported a gain on average of 22.4% over those who did not utilise a layered approach or combination method.

Retailers don’t need to accept chargebacks as a cost of doing business. Acknowledging the problem and putting in place comprehensive management strategies can ensure merchants benefit from huge shopping days without sustaining enormous financial disasters.

Monica Eaton-Cardone is CIO and co-founder of Chargebacks911

The post The real shopping season sales killer appeared first on International Finance.

Monica Eaton-Cardone

November 24, 2016: With the holiday season just around the corner, merchants are preparing for the most active online shopping time of the year. But, while many focus on marketing and deals, retailers and issuers face a bigger overlooked issue that could move them into the red.

In the US, the sales spree will be initiated on the fourth Friday of November with Black Friday, the day after the Thanksgiving holiday. In 2015, online sales for this event added up to an astounding $2.72 billion, with an additional $1.73 billion spent on Thanksgiving Day.

What started in the 1990s as a curious ‘anti-Valentine’s’ celebration for single people in China, has transformed into the biggest online shopping day in the world. Ostensibly held on November 11, but often extending to a week-long sale, the holiday set a new sales record of around £19 billion in just one day this year.

While these celebrations are increasingly global and popular, with record-breaking sales, huge amounts of attention from customers and greater earning potential for merchants, statistics reveal that severe consequences are likely to follow in terms of chargebacks.

Chargeback volumes can increase by as much as 50% during the holiday season, and this percentage is only likely to continue. But, what are the reasons behind this?

Buyer’s remorse is one of the biggest problems most closely associated with peak shopping days. The drop in prices and the multiple sales during the shopping seasons make customers feel pressured into buying something before it disappears. But, later, with a cool head, customers sometimes change their minds or find a better deal elsewhere and no longer want the product. This regret often results in illegitimate chargebacks for customers trying to find another way to get a ‘refund’.

Similarly, customers are becoming increasingly demanding. Tight deadlines and high pressure around the holidays means small mistakes can be unforgivable to shoppers. If consumers are having a bad shopping experience and are not satisfied with the merchant’s performance, they may initiate a chargeback. A new report from Radial indicated that 71% of shoppers expect their online orders to arrive within five days, while 51% would stop shopping with a retailer if their order arrived later than the promised delivery date.

Adding to this problem, there is a flawed impression for ecommerce regarding the source of fraudulent chargebacks. Even though fighting cybercriminals and protecting customer’s data and money must be a priority for all merchants, criminally fraudulent purchases are surprisingly low on Black Friday, Cyber Monday and Singles’ Day. Only 10% of chargebacks can be attributable to criminal fraud, with 20% coming from merchant error and 70% from friendly fraud.

Friendly fraud occurs when a consumer makes an online shopping purchase with their own credit card, and then requests a chargeback from the issuing bank after receiving the purchased goods or services. It is a problem which is not currently being properly addressed by most retailers.

The truth is the industry is also slow to react. Merchant liability often surfaces in the weeks following these shopping holidays – approximately 90 days after the purchase — as the costs of online fraud and chargebacks become apparent. In addition, big purchasing events, like Black Friday, produce significant alterations to normal customer shopping behaviours, making it even harder for merchants to identify and stop friendly fraud.

For them, sales are often seen as more important, but chargebacks can essentially make a greater loss when adding the value of the lost sale, as well as the cost of the goods and a chargeback fine. Worse still, ineffective or poor chargeback management is about to become even more costly.

The burden of chargebacks is not only owned by online merchants; issuers are getting increasingly serious about enforcing better governance on them. MasterCard recently acted to help reduce its own encumbrance by introducing its new Dispute Administration Fee (DAF). This is a fee passed through to merchants who fall foul of customer chargebacks and fail to effectively dispute their legitimacy. Ecommerce merchants can expect to pay an additional €15 fee for chargebacks they accept without filing rebuttal, and up to €30 if a non-compliant response is filed. Issuers are penalised as well with the reverse incentive.

As this year’s shopping season progresses, merchants who lack a disciplined chargeback policy are likely to be more vulnerable than ever before. The only way to avoid this is for retailers to understand chargebacks and the detrimental affect an ineffective risk mitigation system can have on their business. Beyond losing merchandise and revenue, online retailers can face additional fees and consequences, particularly if they exceed allotted chargeback thresholds.

Adhering to best practices reduces the risk of chargebacks. Superior results are obtained through the use of combined methods which leverage both in-house and outside expertise.

Recent studies performed by Global Risk Technologies revealed that merchants using a combination of fraud management strategies experienced improved performance within every fraud detection tool and reported a gain on average of 22.4% over those who did not utilise a layered approach or combination method.

Retailers don’t need to accept chargebacks as a cost of doing business. Acknowledging the problem and putting in place comprehensive management strategies can ensure merchants benefit from huge shopping days without sustaining enormous financial disasters.

Monica Eaton-Cardone is CIO and co-founder of Chargebacks911

The post The real shopping season sales killer appeared first on International Finance.

October 6, 2016: Commodity markets are subject to the most fundamental law of economic activity: supply and demand.

That dynamic explains why the price of commodities such as oil, agricultural products and industrial metals is inevitably cyclical, and why producers face a constant struggle to strike the right balance between overcapacity and under-investment.

Because producers often miscalculate the appropriate level of supply at any given moment – and since prices are extremely sensitive to even incremental changes to the supply-demand balance – the history of the commodities market is one of inescapable booms and busts.

Today, following five years of steady commodity price declines and significant industry consolidation, there are now signs that the cycle is starting to turn.

Consider the performance of the Bloomberg Commodity Index (BCOM) – a measure of investor returns in a weighted basket of energy, grains, industrial and precious metals, soft commodities and livestock.

Up more than 160% between 2001 and mid-2008 – a period marked by sustained global economic expansion – the BCOM then experienced a sharp decline, reflecting the broader impact of the financial crisis. After recovering slightly, the index remained on a sustained downward trajectory from mid-2011 until the end of 2015, down 55% over that period of sluggish macroeconomic growth.

Commodities were the worst performing asset class globally last year – partly due to slowing Chinese expansion and the strong dollar – leading investors to withdraw a record $850 million from US exchange-traded commodities over the 12-month period.

Since the start of 2016, prices have at last begun to recover, up 14% since hitting rock bottom in mid-January and 6% for the first eight months of the year. Over the same period and of particular importance, Brent crude oil prices recovered strongly, up more than 30%.

While it remains too early to confirm a long-term upward trend, commodities are attractively priced at current levels.

Unsurprisingly, the five-year commodity price decline led to serious cuts in capital expenditure, suggesting that a supply shortfall lies in the near future – including in the oil industry, where investment has virtually dried up and new discoveries are now running at their lowest rate in six decades, according to the International Energy Agency.

Indeed, at a time when commodity prices are supported by greater demand and limited supply, the outlook for commodity producers is likewise more favorable. Not only are raw materials prices rising, but the sector is also benefiting from five years of consolidation.

During the 2011-15 price collapse, producers reduced dividends, cut or eliminated share buybacks, implemented supplier-rated reductions and slashed staff costs.

Over those five years, M&A activity in the sector was intense, including some $650 billion in transactions last year alone. That trend has now been capped by Bayer’s recently proposed $66 billion takeover of Monsanto, which, if regulators approve the deal, would create a global agro-chemical behemoth.

Given the importance of infrastructure investment to the sector’s health, the fact that China is once again pouring billions into such projects is another positive sign for producers. Perhaps even more important is India, the world’s fastest-growing large economy. According to the country’s finance minister, the country must invest at least $1.5 trillion over the next decade to bridge its current infrastructure gap.

In this context, it’s worth noting that US public fixed investment, measured as a percentage of GDP, is now running at a 60-year low. Indeed, this is one of the rare areas where Hillary Clinton and Donald Trump are in agreement, with both calling for huge increases in infrastructure spending – although only one of them intends to build a 3,200-kilometer wall on the Mexican border.

All of this will prove supportive of natural resources – and equities linked to them. While obviously closely tied to the price of raw materials, and thus difficult to predict, such shares tend to outperform the underlying commodity linked to them.

Consider that, in real terms, oil prices have risen only slightly since the 1920s. Over the same period, oil and gas companies have generated real returns of more than 8% per year, according to GMO, a Boston-based asset management firm, which notes that industrial metal miners have outperformed the underlying metals by a similar margin.

Moving forward, global macroeconomic trends will continue to prove key for both commodity prices and the performance of producers. At the same time, interest rate policies, currency fluctuations and geopolitics will also shape the market, sometimes in unexpected ways.

Despite such volatility, investors can take comfort from the fact that commodities are inevitably cyclical. What has gone down for the past five years will, perhaps sooner rather than later, once again reach equilibrium – that sweet spot where supply meets demand.

Stefan Van Geyt is the Group Chief Investment Officer at KBL European Private Bankers. The statements and views expressed in this document are those of the author as of the date of this article and are subject to change. This article is also of a general nature and does not constitute legal, accounting, tax or investment advice

The post What goes down must come up appeared first on International Finance.

Suparna Goswami Bhattacharya

October 3, 2016: Online merchants are facing a new problem — fraud by customers. Firms are increasingly facing malicious activity in the form of chargeback or friendly fraud. According to Visa, chargeback fraud has been growing at around 41% every year, costing over €10billion in industry losses.

Basically, chargebacks can be used to dispute a transaction and secure the return of funds for an unauthorised purchase. A chargeback voids a card transaction, withdrawing funds that were previously deposited into the merchant’s bank account and applying credit to the consumer’s card statement.

The idea behind chargebacks is to protect interest of customers. It was introduced to keep merchants focussed on providing exceptional customer service and delivering what they promise to customers. It acts as a deterrent to merchants who might be tempted to sell sub-par products or services.

For cardholders who fall victim to fraudsters (either criminals who place unauthorised transactions or unscrupulous merchants who take advantage of the consumer), a chargeback is their fall-back option. Essentially, it reassures them that their money is safe.

“The chargeback mechanism is weighted heavily in favour of the consumer and over the past five years consumers have become more and more aware of how simple and financially rewarding this outdated process can be for them,” says Monica Eaton-Cardone, COO and co-founder of Chargebacks911. “Most customers do not intentionally attempt to get something for free the first time there is a dispute. However, once they profit from a chargeback, as much as 50% people are tempted to fraudulently repeat the process within 90 days. In this sense, chargeback fraud is a learned behaviour.”

And that is precisely the reason it has become an invisible problem of today’s technology-driven online payment ecosystem. Worryingly, it is already transforming consumer behaviour.

According to the World Payments Report 2015 – Payments Cards & Mobile, as many as 86% of all chargeback claims are fraudulent. David Poole, business development director of MYPINPAD, says merchants often have to unnecessarily bear the brunt of all costs. “In most cases, it is reported that goods have vanished. However, merchants would have spent money to deliver the goods. What’s worse is the fact that this is growing. Post EMV roll out in the USA, some reports are claiming increases in fraud of 137% and a great proportion of these will result in a chargeback,” says Poole.

EMV is a technical standard for smart payment cards and for payment terminals and automated teller machines that can accept them.

Vendors’ nightmare

In the US and UK, vendors often complaint of a biased behaviour companies like Amazon have towards customers.

Amazon declined to comment on this issue, but in one of the sellers’ forum portal, a seller has complained how companies blindly support customers. “Often, we are in the dark of the reasons the buyer has filed for a chargeback. We just get a notification from Amazon stating there is a dispute. More of often than not, we end up bearing the loss,” writes a seller on Amazon.

“The industry can’t ignore this trend. It is a depressing but a true fact that chargeback fraud is not taken as seriously as it should be. It is simply seen as a cost of doing business. However, new regulations under European Banking Authority should stimulate better authentication techniques for mobile commerce and ecommerce,” says Poole.

Customers processing illegitimate chargebacks may see it as a victimless crime, but this couldn’t be further from the truth. “Chargebacks leave a trail of destruction behind them and it affects everyone. Firstly, the bank suffers the processing costs associated with the filed chargeback, and reimbursing and recovering the funds. The merchant loses the transaction value, the goods or services that were sent out and is fined by the bank, as well as being hit by damage to credit ratings and reputation,” says  Eaton-Cardone, adding that customers also lose out in the long run. “The more fraud is perpetrated by consumers, the more merchants need to raise prices to cover their losses,” she adds.

The pressure on banks to resolve disputes faster is also causing an imbalance in an industry that is almost always favourable to the consumer. This means that issuers and cardholders are essentially being rewarded for initiating illegitimate chargebacks, with processors ultimately penalised along with their merchants.

How does it work

Once the chargeback has been initiated, the merchant will receive a reason code from the issuing bank. Each card network, such as MasterCard or Visa, has its own unique set of chargeback reason codes, informing merchants of a host of reasons why they may have been hit with a chargeback.

Reason codes were first created as a valuable tool to help merchants understand chargeback management and analysis, but with the advent of friendly fraud, they have become less insightful.

For sake of simplicity, Chargebacks911, has categorised chargebacks for merchants by breaking it down to three main causes:

•   Merchant error

•   Criminal fraud

•   Friendly fraud

“We have found that the majority of chargeback volumes (70%) are attributable to friendly fraud, with a 20% share due to merchant error, while 10% is typically attributable to criminal fraud,” says Eaton-Cardone.

Once merchants understand the true reasons behind chargebacks against them, they can put in place the necessary steps to successfully dispute fraudulent claims, and best practice processes to minimise the risk of a repeat.

The post Ecommerce: Fraud by customers on the rise appeared first on International Finance.