Pros & Cons of Alerts

In today's payments ecosystem, chargebacks have become a significant concern for businesses of all sizes. To mitigate the financial and operational impact of chargebacks, many businesses have turned to chargeback prevention alerts as a proactive measure.

These alerts provide businesses with real-time notifications about potential chargebacks, allowing them to take prompt action. While chargeback prevention alerts offer several advantages, they’re not the ideal solution for every business. In this article, we’ll examine the pros and cons of chargeback alerts to help you determine if they’re right for your company.

What Are Chargeback Prevention Alerts?

Chargeback alerts are a system designed to notify merchants of potential chargebacks before they occur, allowing the merchant to prevent a chargeback by issuing a refund instead. The two major chargeback alert networks are Verifi and Ethoca. Each network includes a large number of issuing banks, with some banks included on both networks.

When a cardholder disputes a charge with a bank that’s part of an alert network, the bank will send a notification through the network before proceeding with a chargeback.

If the merchant is signed up for chargeback alerts through the same network, they'll receive an alert. The merchant can then stop fulfillment of the order if it hasn't already been completed and issue a refund to the cardholder, negating the need for a chargeback.

For merchants, a refund is almost always preferable to a chargeback. Refunds don't come with additional fees or threaten your merchant account. However, if the merchant has evidence that the cardholder's dispute is illegitimate, they can still choose not to issue a refund and instead fight the chargeback through representment.

What Are the Advantages of Chargeback Prevention Alerts?

A Lower Chargeback Ratio

The main benefit of chargeback alerts is that they give merchants the chance to resolve an issue with a customer directly before it officially becomes recognized as a chargeback. That means their chargeback-to-transaction ratio remains unaffected, so they won't be penalized by their card network or bank.

For merchants in high-risk industries or those who are in danger of exceeding the chargeback ratio thresholds established by the card networks (0.9% for Visa, 1.5% for Mastercard), alerts can be a crucial component of a cohesive chargeback management strategy.

Merchants do have to pay fees for chargeback prevention alerts, but in the long term, paying those fees can be a lot more cost-effective than dealing with the expenses and lost revenue associated with being enrolled in a dispute monitoring program or having your account suspended or terminated.

Enhanced Customer Service

Chargeback prevention alerts provide an opportunity for businesses to engage with customers in a proactive and customer-centric manner. When alerted about a potential chargeback, businesses can reach out to the customer promptly to understand and address their concerns.

By offering timely resolutions or refunds, businesses can turn potential chargebacks into positive customer experiences. This proactive approach not only helps retain customers but also fosters a positive brand image.

What Are the Disadvantages of Chargeback Prevention Alerts?

Limited Coverage

While Verifi and Ethoca have established relationships with a significant number of issuing banks, it is important to note that not all banks are part of their network. This can result in occasional gaps in coverage, leaving some chargebacks undetected or requiring merchants to rely on other means to manage chargeback risks. Businesses should consider the coverage of these alert networks in relation to their specific customer base and target markets.

Cost

Merchants have to pay a fee for each alert they receive, which can vary depending on the provider, volume, and type of transactions. The most common price for alerts is $35-$40. For merchants at risk of exceeding important chargeback thresholds, this cost is often well worth it. For those facing a lower chargeback volume, however, alerts might not provide a positive ROI.

Time and Labor

Chargeback prevention alerts require you to monitor and respond to notifications within a short time frame, usually 24 to 72 hours. This can be challenging for busy or understaffed merchants, who may not have the resources or expertise to handle each case effectively. This is why many merchants obtain alerts through a chargeback management company that can deal with these responses on their behalf.

Working With a Chargeback Management Company to Handle Alerts

Collaborating with a chargeback management company that serves as an authorized reseller of Verifi and Ethoca prevention alert programs offers several advantages. By leveraging such a partnership, businesses can enjoy the combined coverage of both Verifi and Ethoca, streamlining their chargeback prevention efforts through a unified system.

When engaging a chargeback management company, merchants benefit from a dedicated team that responds promptly to chargeback prevention alerts, ensuring compliance with the required response timeframes. This alleviates the concern of failing to address alerts in a timely manner, which can be a burden when merchants sign up for alerts directly with the networks.

Additionally, certain chargeback management companies provide merchants with an intuitive dashboard that consolidates alerts from different networks into a single portal. This eliminates the need for merchants to log in to multiple systems, improving efficiency.

In some cases, chargeback management companies go a step further by offering a 100% chargeback prevention guarantee for handled prevention alerts. This means that if a merchant issues a refund in response to an alert, and it still results in a chargeback, the management company will refund the alert fee. This guarantee provides businesses with added confidence and financial protection.

It is worth noting that some chargeback management companies offer their services at the same fee charged by the alert networks. This means that businesses can access these additional benefits and services without incurring any extra cost compared to signing up directly with the networks.

Conclusion

The decision to implement chargeback prevention alerts should be based on a comprehensive evaluation of the business's specific needs, resources, and risk tolerance.

For most businesses, alerts are best used in combination with a chargeback representment strategy to recover revenue from illegitimate chargebacks.

Ultimately, businesses must strike a balance between preventing and fighting chargebacks to maintain financial stability in an increasingly complex payment ecosystem.

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