Chargeback Management

Chargeback Management: In-House or Outsourced?

Chargeback Management - In-House or Outsourced?

Table of Contents

  1. What is chargeback management?
  2. Why manage chargebacks in-house?
  3. Why outsource chargeback management?
  4. What's the best way to manage chargebacks?
  5. What is the chargeback process?
  6. Why do companies hate chargebacks?
  7. What happens if I lose a chargeback?


Many merchants underestimate the true cost of chargebacks and dismiss them as just a cost of doing business. Others believe there's just nothing they can do to fight them. These misconceptions can hurt both a merchant's profits and their ability to stay ahead in a competitive marketplace.

When factoring in all the fees and hidden costs associated with them, chargebacks typically cost merchants more than twice the total transaction value (often around 2.5 times, by our calculations.) That means over $100 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 payments and do business.

Chargeback management is intended to help merchants not only confront fraudulent chargebacks, but manage and prevent chargebacks before they happen. To prevent the costs and consequences of chargebacks, fighting them 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 the process of preventing or recovering chargebacks using a variety of tactics and strategies. The main components of a cohesive chargeback management plan are as follows:

  • 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 Order Insight.
  • 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 requires this kind of multi-pronged strategy to be as effective as possible.

That's why while some businesses opt to handle chargebacks in-house, an increasing number of them are enlisting the help of a third-party chargeback management company with more expertise. 

Why manage chargebacks in-house?

New call-to-actionLots of merchants try to manage their chargebacks in-house, which is really no surprise. Many business owners are used to doing all the work themselves – even if that work doesn’t fall into their normal area of responsibility (or expertise).

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

Cost

The best third-party chargeback management services don't come cheap, so some merchants opt to save money by handling chargebacks themselves. This often doesn't work out well in the long run, however, since most merchants who manage chargebacks in-house lose more often than they win in representment.

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

Keeping chargeback management 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 longtime employee.

Incorrect data

Some merchants assume they don't need to hire professionals because their win rate is high or the money they're losing to chargebacks is low. Unfortunately, merchants often 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. Merchants also often fail to factor in the hidden costs of chargebacks when accounting for lost revenue.



Why outsource chargeback management?

The other option is to hire a professional chargeback management company to handle representment and provide insight into chargeback prevention methods. Naturally, this comes at a price, but it also comes with a number of significant benefits.

By calling in a chargeback representment team, you get: 

Expertise

The experts at a chargeback management company know the dispute process inside and out. It’s how they make money – by helping merchants and recovering their hard-earned revenue. They know all the rules, regulations, and nuances of dealing with different networks and issuers, and they keep up on them as they change and evolve within the industry. They’re also familiar with best practices for preventing and 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 hiring professionals 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, customers and revenue. Chargeback professionals have highly effective tools that can be customized to the needs of your specific business. These tools help you not only track and fight your chargebacks, but also give you insights into why these chargebacks are occurring so you can take steps to prevent them.

Strategy

Chargeback management companies aren’t just guessing when it comes to finding the perfect strategy for your business. 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 up your back office for success and prevent chargebacks from ever occurring in the first place.

Motivation

Chargeback management companies only stay in business if they're good at what they do. Many merchants have some experience trying to manage chargebacks in-house before switching to a third-party company, and they have the data to be able to tell if professional chargeback management is giving them a greater return on investment than handling things in-house. Therefore it's a matter of survival for a chargeback management company to provide their customers with effective service that more than pays for itself.



What's the best way to manage chargebacks?

We think it's clear that for most Download the eGuide, 4 Reasons to Hire a Chargeback Management Companymerchants, calling in a professional representment team is the best way to manage chargebacks. Deciding to hire professionals isn’t the only decision you’ll need to make, however. You’ll also have to choose which chargeback management company to go with, and not every option is created equal.

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

While some chargeback management companies only handle representment, when it comes to chargebacks, an ounce of prevention is worth a pound of cure. The right company will give you specific, actionable advice on what you can do to reduce the number of chargebacks you receive in the first place.

FAQ

What is the chargeback process?

First, the cardholder disputes a charge with their issuing bank. If the bank finds merit to the dispute, they will refund the money and send the chargeback through the credit network and acquiring bank to the merchant. Then the merchant can dispute the chargeback.
 

Why do companies hate chargebacks?

Chargebacks cost time and money. They also count against a company's 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 takes a hit on their merchant chargeback ratio.
 

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Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes