Preventing Chargebacks with Post-Authorization Tools
Chargeback defense strategies often focus on prevention before the fact, and not without good reason. Fraud and authorization-related chargebacks usually cannot be fought through the representment process, making proactive defense the only viable option. Chargebacks that result from friendly fraud or merchant error can potentially be fought, but it’s still better to nip these disputes in the bud before they become chargebacks.
In recent years, third-party providers have started offering tools that allow merchants to neutralize these disputes in the window of time between transaction authorization and the filing of an actual chargeback. How can merchants make the most effective use of post-authorization chargeback management tools?
Chargebacks fall into one of three categories—true fraud, friendly fraud, and merchant error. True fraud chargebacks result from transactions that never should have been authorized in the first place, but the other types of chargebacks often follow perfectly normal, legitimate transactions.
Merchants can use fraud detection tools that use customizable filters and AI to block fraudulent transactions before they can be completed, but there’s no software that can look into the future and determine which transactions will get disputed because of shipping errors, product defects, or buyer’s remorse.
As more shopping shifts to the ecommerce sector and banks make it easier to dispute transactions through apps and online portals, these types of chargebacks are becoming more common.
The claims that lead to these chargebacks are often somewhat subjective, and if merchants have the right compelling evidence on their side, they can represent the charges and get their money back. This is especially true in the case of friendly fraud, where the dispute claims are flat-out false.
However, fighting chargebacks through representment is an imperfect (yet frequently necessary) solution. These disputes can still impact a merchant’s chargeback rate, and it takes time and labor to gather your evidence, write a rebuttal letter, and track the status of the chargeback until its eventual resolution.
With the right third-party tools and services, merchants can be granted some ability to resolve disputes that arise out of post-authorization circumstances.
What are Post-Authorization Chargeback Tools?
Banks and card networks have a vested interest in reducing the overall prevalence of chargebacks, and they work with third-party providers to create tools and services that can make merchants aware of disputes and give them a chance to resolve the cardholder’s complaint before it escalates to a chargeback.
There are three categories of post-authorization chargeback tools: inquiry tools, chargeback alerts, and chargeback deflection. There is considerable overlap between the three categories; many chargeback alert services include deflection capabilities.
What are Chargeback Inquiry Tools?
Sometimes it’s because the transaction is fraudulent and this is the first the cardholder is seeing of it, but oftentimes the transaction is valid and the cardholder simply doesn’t recognize it or forgot about it.
In these situations, the first step for the bank may be to submit an inquiry to the merchant to request additional information about the transaction. The merchant may be able to provide details that help the cardholder recognize or remember the transaction, such as the product or services they purchased.
Inquiry tools can be used to streamline and automate this process, ensuring that the merchant never gets hit with an avoidable chargeback because they didn’t respond to an inquiry in time.
Some inquiry tools can integrate directly with the merchant’s CRM, allowing them to automatically pull up a wealth of relevant data in response to any bank inquiry. When provided with additional information about the transaction, most honest cardholders will realize that it wasn’t fraudulent and agree that no chargeback is necessary.
What are Chargeback Alerts?
Chargeback alert services can empower merchants to resolve disputes even when the bank doesn’t bother to send an inquiry. These services notify merchants as soon as a cardholder disputes one of their transactions and gives them a brief window of time—usually no more than 24 to 72 hours—to address the cardholder’s claims and resolve the matter.
Sometimes, the merchant can contact the cardholder and provide information or an explanation that satisfies the cardholder and convinces them to withdraw their dispute. In practice, the quickest and most reliable way for merchants to avail themselves of a chargeback alert is to immediately provide the cardholder with a full refund, which completely invalidates the need for a chargeback.
This still costs the merchant revenue, but they avoid the chargeback fees and, most importantly, their chargeback rate won’t be affected.
Chargeback alerts can be a good way to avoid chargebacks, but they require constant monitoring and immediate attention—miss that brief window of time to respond and the dispute will become a regular chargeback. However, alerts can be useful even when the chargeback cannot be avoided, because they can provide merchants with early warnings about product or operational issues that may lead to additional chargebacks in the future.
Some alert services, such as Verifi’s Rapid Dispute Resolution, can automate the response process by using a rules-based algorithm to automatically provide a refund or accept the dispute. This can be very helpful for high-volume merchants who can’t easily respond to chargeback alerts on a 24/7 schedule.
What are Chargeback Deflection Tools?
Chargeback deflection tools are the most powerful and complex, requiring a high degree of integration with the merchant’s CRM and other systems. These tools allow banks to retrieve a wide range of information directly from the merchant in order to address cardholder disputes and determine whether a chargeback is appropriate.
When merchants have chargeback deflection tools activated, bank representatives can obtain order information, transaction details, and even delivery confirmation in real time, while they’re communicating with the cardholder. This can be extremely effective at rooting out friendly fraud, as the bank may be able to immediately see whether the cardholder is telling the truth or not.
Post-authorization chargeback tools can be a huge timesaver for merchants, and can provide positive ROI by preventing revenue loss and protecting merchants from the consequences of an out-of-control chargeback problem. The catch is that getting them set up to work optimally can be challenging, especially when complex integrations are required.
A good chargeback management firm will always provide merchants with straightforward advice about which tools will provide the most benefit, and will take care of installation and set-up as well.