Chargeback Protection Services

Table of Contents

1. What Is a Chargeback Protection Service?
2. What Types of Chargeback Protection Services Are There?
3. What Are Chargeback Alerts?
4. What Is Chargeback Deflection?
5. What Are Chargeback Guarantees?
6. How to Choose the Best Chargeback Protection

Protecting your business from chargebacks can be complicated. There are several possible causes attributable to a chargeback, and the best way to deal with a given chargeback will largely depend on what the cause of that chargeback is. For example, chargebacks caused by true fraud are best handled by implementing effective fraud prevention tools, but those tools won't do anything to protect you from chargebacks caused by merchant error.

In recent years, many merchants have been turning to outside help to deal with the problem of chargebacks, and a variety of businesses have sprung up promising solutions. There are a number of options available, from chargeback protection plans to insurance to full chargeback management. Unfortunately, the breadth of choices means that many merchants struggle to grasp their differences. Let's take a look at the different kinds of chargeback protection available and evaluate their pros and cons from a merchant's perspective.

For merchants, a chargeback isn’t just a loss of revenue in the same way a refund might be. When fees and operating expenses are factored in, the true cost of a chargeback can be up to two and a half times the original disputed transaction amount.

What’s even worse is that every chargeback is counted against a merchant's chargeback ratio. If that ratio gets too high, the merchant might face additional penalties or even have their merchant accounts terminated. Merchants who have their accounts terminated may be placed on the MATCH list, a shared blacklist in the payments industry that can make it difficult and expensive to do business.

With consequences like these, preventing chargebacks must be a priority for every merchant. Effective chargeback defense requires a comprehensive strategy. You need anti-fraud tools and screening practices to block true fraud and process review and training to eliminate merchant error chargebacks. As for friendly fraud, those can be the hardest chargebacks to prevent, but there are solutions for them as well.

All of these services cost money, but merchants may find that investing in a chargeback solution is worth it compared to the cost of enduring chargebacks, spending time and resources fighting them, and dealing with the consequences of an excessive chargeback rate. There's also another option merchants might want to consider, which we'll get to later.

When you enroll in a chargeback alert service, you will receive a notification any time a dispute is opened by an issuing bank in the provider’s network. You then have a short window of time—usually 24 hours—to take action before the dispute turns into a chargeback.

With chargeback alerts, your options are to either issue an immediate refund, negating the need for a chargeback, or take no action and accept the chargeback (which may be a better option if you are sure you can fight the chargeback and win). Verifi also offers Rapid Dispute Resolution, which allows merchants to set rules for automatic refund issuance.

Chargeback alerts can be very effective at bringing your chargeback rates down, but they will cost you. You’re still out the refund amount for each dispute you resolve, and you have to pay a fee for each alert you receive.

While refunds are never fun, due to the extra fees and other costs associated with a chargeback, a refund is usually the better option. Refunds don't increase your chargeback ratio, and a customer who receives a refund is less likely to leave a negative review online or spread a negative opinion of your business through word-of-mouth. Issuing refunds to customers who open disputes can therefore protect both your business's bottom line and its reputation.

Chargeback alert services provide few guarantees, but one thing they do promise is that any dispute that a merchant responds to by issuing a refund won't continue on to become a chargeback. For merchants who've had to deal with double refund chargebacks in the past, this can be a welcome assurance.

The Order Insight system was created by Verifi and applies to purchases made with Visa cards, while the Consumer Clarity system was created by Ethoca and applies to purchases made with Mastercard.

Either system will integrate with a merchant's CRM and grant issuing banks' customer service representatives the ability to look up orders, transaction information, and even shipping details when a cardholder calls them with a dispute.

Many friendly fraud chargebacks originate from miscommunication, confusion, forgetfulness, or a cardholder’s preference for dealing with their bank instead of the merchant. These disputes can often be resolved by providing the cardholder with information about the charge.

Examples include cardholders who dispute a valid charge simply because they don’t recognize the merchant identifier on their bank statement, or ones who assume that the merchant has just taken their money and disappeared because they weren’t aware of shipping delays. Chargeback deflection services allow the issuer to pass along this information to their customers, resulting in fewer chargebacks.

Chargeback deflection can sometimes give issuing banks information that helps them spot malicious friendly fraud chargebacks. For example, if a customer received their purchase in working order but wants to file a chargeback anyway, they might claim that the item was never delivered. The additional information provided to the bank via these services can include delivery confirmation, which would let the bank know that the customer's claim isn't legitimate.

Chargeback deflection requires more complex integrations than other forms of chargeback protection, but they do offer an effective, proactive way to mitigate friendly fraud chargebacks. Merchants looking to get set up for integration with these services can find guides available online or get assistance from a chargeback management company.

Chargeback guarantees usually carry some fine print—they may only cover certain chargeback reason codes, or only cover costs up to a certain dollar amount. They may also have requirements that must be met in order for a transaction to be eligible for coverage, such as delivery confirmation. And chargeback guarantees aren't without costs of their own, of course. They typically increase a merchant's cost per transaction, either through an additional fee on each purchase, or by virtue of the payment platform that offers the guarantee having a higher transaction fee by default.

How to Choose the Best Chargeback Protection

Which chargeback protection methods are right for you? It depends heavily on where your chargebacks are coming from, and why you’re getting them. Investing in a chargeback protection solution that doesn’t address the bulk of your chargebacks can be counterproductive.

Your best option is to analyze the data from your past chargebacks to learn the root causes behind them. Once you know why you're receiving chargebacks, you can revise your operations to eliminate some of the causes, deploy targeted tools and solutions, and evaluate which chargeback protection methods will have the best chance of bringing your overall chargeback rate down.

It’s also important to note that some solutions require more merchant resources than others. Chargeback deflection services need to be integrated with your CRM system, and chargeback alerts only work if you have staff available 24/7 to respond to them.

Rather than employing one or more of these chargeback protection services on their own, many merchants choose to hire a chargeback management firm to handle every aspect of their chargebacks for them. Chargeback management firms can often handle integrations, provide round-the-clock alert monitoring, and show you the data and reporting that lets you know how well your various chargeback protection services are working.

In addition, these companies often take on the task of chargeback representment as well, fighting illegitimate chargebacks on your behalf to recover lost revenue. This means that a skilled chargeback management team can actually provide a significant return on investment, increasing overall profits.

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