Chargeback Management

Chargeback Management: In-House or Outsourced?

Chargeback Management - In-House or Outsourced?

Table of Contents

  1. What is Chargeback Management
  2. What are the Reasons to Manage In-House?
  3. What are the Benefits of Outsourcing?
  4. Who Will You Choose?
  5. FAQ


Chargebacks should never be dismissed as just another cost of doing business. In fact, even when estimated conservatively, chargebacks typically cost you more than twice the total transaction value (around 2.5 times, by our calculations.) That means over $125 lost on a $50 sale.

On top of all these financial losses, chargebacks also threaten your merchant accounts – the very tools you use to accept payment and do business.

The process of chargeback management is there to help merchants not only confront fraudulent chargebacks, but manage and prevent chargebacks before they happen. This can be a huge cost of business up front for merchants in time, resources, and reputation.

To prevent these unwanted costs and repercussions, fighting your chargebacks is a must, especially if you know you’ve done right by the customer. But should you try to fight those disputes on your own, or is it better to call in a professional? Let’s weigh the pros and cons.

What is Chargeback Management?

Chargeback management is a process of preventing or recovering chargebacks through a combination of tactics and strategies. Because the tactics are variable, they typically fall under a few categories:

  • Security. Chargeback management starts with compliance and security. Use secure payment methods, POS terminals, online payment processing, and so on. 
  • Fraud prevention. Preventing fraudulent use of cards is a must for any chargeback management strategy. This includes using things like Address Verification Services (AVS), fraud prevention tools, and network-specific methods like Visa Merchant Purchase Inquiry (VMPI).
  • Prevention Alerts. Using prevention alerts from a management company in tandem with providers like Ethoca or Verifi will allow you to potentially prevent a significant number of chargebacks by pausing the process and allowing for a direct resolution with the cardholder. 
  • Customer Service. Good customer service, transparent refund policies and procedures, and clear transaction details will go a long way in avoiding chargebacks. 

Chargeback management leverages all of these to work. That's why some businesses opt to work in-house or through a third-party company with more expertise. 

What are the Reasons to Manage In-House?

New call-to-actionLots of merchants try to fight their chargebacks in-house, and it’s no surprise. Many business owners are used to doing all the work themselves – even if that work doesn’t fall into their normal realm of responsibility (or knowledge).

Here are just a few reasons merchants might decide to go it alone:

  • Cost. A lot of business owners believe (albeit falsely) that they’ll save money by fighting chargebacks in-house. Though they do save cash up front, unless they’re really great at navigating the chargeback process, they typically lose more chargeback battles (and more cash) in the end.

  • Data Security. Data security is a big concern nowadays, and as such, business owners are often hesitant to share their sensitive data with outside parties. They might worry about data breaches or exposing their customers’ information, or they could just be embarrassed about what someone would find behind the curtain. Either way, they want to keep their data from outside eyes.

  • Emotion. Going it in-house means more work – and more pay – for those internal employees. Many business owners, especially those with smaller, tightly knit staffs, are hesitant to bring in a pro when it means eliminating the duties (or entire job) of a long-held employee. Their emotions hold them back from making the financial decision they need to.

  • Assumption. Some businesses assume their success rate is good enough that they don’t need a pro. Unfortunately, many times merchants miscalculate their win-loss ratios, either because they don’t have enough data from their payment processors or they just don’t have time to track every chargeback and its progress. Sadly, this often leads to grossly overestimated win rates that mislead business owners into keeping chargeback disputes in-house.

What are the Benefits of Outsourcing?

The other option is to bring in a pro. Naturally, this comes at a price, but it also comes with a number of serious benefits, too.

By calling in a chargeback representment team, you get: 

  • Expertise. A chargeback pro knows the dispute process in and out. It’s how they make money – by helping merchants and saving their hard-earned dollars. They know all the nuances, rules and regulations, and they keep up on them as they change and evolve within the industry. They’re also familiar with best practices for fighting chargebacks – even for your specific type of company and industry – and they know what to look for when tracking, monitoring and reporting your data and returns back to you.
  • Tools. One of the biggest benefits of using a pro is the tools they typically come with. Most small and medium-sized businesses just don’t have the resources to invest in chargeback management technology, and that means they lose out – on sales, on customers and on cash. Chargeback pros come with highly customized tools that can help you not only track and fight your chargebacks, but also give you insights into why your chargebacks are occurring – so you can take steps to prevent them and stop them in their tracks.
  • Strategy. Finally, you get strategy. Chargeback representment companies aren’t just shooting in the dark, hoping something works. They have years and years of experience working with all kinds of merchants across all kinds of industries. They know how to craft a strategy that works specifically for the unique business you operate. They can even make recommendations on how to set your back office for success and prevent chargebacks from ever occurring in the first place.

Who Will You Choose?

It’s clear that calling in a professional representment team is the best way to manage chargebacks, but deciding to call in a pro isn’t the Download the eGuide, 4 Reasons to Hire a Chargeback Management Companyonly decision you’ll need to make. You’ll also have to choose which representment company to go with – and believe us, not every option is created equal.

Make sure the team you choose has experience, is supported with strong tech and tools, and that they work to help you not just fight chargebacks, but reduce them and prevent them in the first place.

FAQ

What is the chargeback process?

In essence, the cardholder will dispute a charge with the issuing bank. If they find merit to the dispute, they will refund the money and send the chargeback through the credit network to the acquiring (or merchant) bank and then to the merchant. At this point, the merchant can dispute the chargeback.

 

Why do companies hate chargebacks?

Chargebacks cost time and money. They also count against their chargeback ratio regardless of their merit.

 

What happens if I lose a chargeback?

A merchant that loses a chargeback loses the merchandise, the revenue, any fees, any additional costs (marketing, sales), and take a hit on their merchant chargeback ratio.

 

Thanks for following the Chargeback Gurus blog. Feel free to submit topic suggestions, questions or requests for advice to: win@chargebackgurus.com.

Want to learn more? Download our eGuide, 4 Reasons to Hire a Chargeback Management Company, to learn more.

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