Chargeback Automation

Table of Contents

  1. What Is Chargeback Automation?
  2. What Are the Benefits of Chargeback Automation?
  3. What Are the Drawbacks of Chargeback Automation?
  4. Should Merchants Use Chargeback Automation?

More and more merchants are learning that they can't afford to ignore chargebacks, but many still struggle when it comes to deciding exactly what to do about them. There are a number of available options when it comes to chargeback management, each with its own pros and cons. One option in particular that many merchants are drawn to is chargeback automation.

Chargeback automation promises a simple solution to handling chargebacks that doesn't require taking time away from regular business operations, hiring more staff, or outsourcing to a third party. But does chargeback automation deliver on those promises, or is it too good to be true?

For most merchants, accepting chargebacks as an unavoidable cost of doing business just isn’t an option—with fees and overhead factored in, the typical chargeback ends up costing the merchant more than twice the amount of the original transaction.

New call-to-actionPlus, when a chargeback problem is ignored for too long, it frequently grows to become serious enough that processors and card networks start to take notice.

Merchants who receive too many chargebacks can have their accounts terminated or even blacklisted from opening new merchant accounts.

Managing chargebacks can take up a lot of time. Every time you receive a chargeback, you need to investigate it to decide whether to accept liability or fight it by representing the charge. If you do go the representment route, you need to put together compelling evidence and write a rebuttal letter.

There are also retrieval requests and chargeback alerts that must be responded to promptly to avoid potential chargebacks, and if you’re really serious about stopping chargebacks, you need to track and analyze your chargeback data and use it to inform your prevention strategy going forward. It’s a lot for a small merchant to take on.

As chargebacks have grown to become a more costly and common issue for merchants, especially in e-commerce, a variety of potential solutions to the problem have sprung up, each purporting to be the best way to deal with chargebacks. One of those potential solutions is chargeback automation.

What Is Chargeback Automation?

Chargeback automation uses a set of software tools to allow for automatic, rules-based responses to chargebacks. These tools are intended to respond appropriately to a variety of possible chargeback scenarios without requiring the merchant to review every case.

These are some of the actions that might be handled by chargeback automation software:

  • Responding to chargeback alert services
  • Issuing refunds during the pre-dispute phase and notifying relevant parties
  • Determining whether to accept or fight a chargeback
  • Selecting compelling evidence for representment
  • Submitting representment
  • Canceling future billings after a dispute
  • Blocking friendly fraudsters from making future purchases
  • Compiling reports on your chargeback activity

The rules that the solution uses to make its determinations may be provided entirely by the merchant or may be informed and updated by processes such as machine learning to improve over time.

Most chargeback automation solutions will integrate with your CRM and other systems to provide as seamless an experience as possible.

What Are the Benefits of Chargeback Automation?

The primary benefit of chargeback automation is that it significantly reduces the time a merchant must devote to chargeback management, saving the merchant time, labor, and the costs of assigning or hiring staff to handle chargebacks.

This can be especially helpful for merchants with a high transaction volume or fast-growing merchants who are having difficulty scaling up their chargeback management efforts.

Chargeback automation can also be used very effectively in combination with opt-in chargeback alert services that give merchants the chance to resolve disputes by issuing refunds before the dispute is escalated to a chargeback.

To gain the full advantage of these services, you have to respond quickly and consistently to alerts, so having automation here can eliminate the chances of missing an alert or responding too late.

It’s also very useful to automate some of the follow-up activities after a chargeback, such as flagging the customer’s account in your CRM to identify them as a friendly fraudster.

Because these activities do not directly relate to chargeback representment or revenue recovery, they can be easy to deprioritize, but they are important for preventing double refunds, future disputes, and other issues.

What Are the Drawbacks of Chargeback Automation?

The major downsides of chargeback automation include a lower recovery rate, reduced information about the causes of chargebacks, and an inability to effectively handle rare or unusual situations.

There are several different chargeback automation solutions out there, each with its own strengths and weaknesses to evaluate. Speaking generally, it can be risky to turn critical processes such as accepting liability and submitting representment over to automated software solutions.

Not every dispute will fit neatly within a rules-based model, and there will always be cases where human intelligence is needed to make the best choice of whether or not to fight a chargeback and what argument and evidence should be brought to bear in doing so.

Should Merchants Use Chargeback Automation?

Chargeback automation works best for merchants who receive chargebacks mostly for one of only a handful of different reasons. Even for these merchants, however, a hybrid solution that leverages the expertise of chargebacks analysts in addition to automation is usually the best option.

Manage Chargeback In-House Or OutshoreThe win rate of an automated chargeback representment system will vary greatly depending on both the system itself and the types of chargebacks a merchant tends to receive. If a merchant received a high volume of substantially similar chargebacks, automation can be very effective at fighting and reversing them.

On the other hand, merchants with more variety in their chargebacks tend to see more mixed results. Automated representment can sometimes still be nearly as effective as an in-house team in these situations, but it can't approach the win rate of a professional chargeback management company.

Chargebacks tend to be a dynamic problem, with root causes that can shift with changes to the merchant’s policies and procedures, new trends in fraud, and other unpredictable factors. While automation can helpfully supplement both in-house and outsourced chargeback management, there’s no such thing as a set-it-and-forget-it solution for chargebacks.

Chargeback automation should be reviewed regularly by the merchant or their chargeback management team, and strong manual processes should always be in place for handling critical matters related to representment, revenue recovery, and chargeback data analytics.

Chargeback Gurus recommends merchants use a semi-automated representment approach to overcome the challenges faced with full automation products.

Merchants have a lot of third-party options for dealing with fraud and chargebacks, but in order to choose the most effective one for your business, you have to know the root causes behind your chargebacks.

Some merchants may find that they deal with a high volume of predictable chargebacks that can be safely dealt with in a consistent, automated way. Others may find that an over-reliance on automation may lead to a lower success rate in chargeback representment. Either way, merchants still need to decide whether to direct their own chargeback management strategy or whether the situation calls for the advice of outside experts.

The key question with any chargeback solution is whether or not you’re getting a good return on your investment. In-house management isn’t saving you any money if you’re too busy to stop and fight winnable chargebacks, and an outsourced solution can be worth every penny if it’s succeeding at lowering your chargeback ratio and recovering your revenue.

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