How Effective is Your Chargeback Management System?
Let’s be honest: the most challenging thing about chargebacks is deciding how best to deal with them.
From dispute resolution through representment, there is no such thing as a “one-size-fits-all” solution for chargebacks. So, how do you respond to and manage chargebacks without breaking the bank or losing your mind? Taking a hard look at your chargeback management system could be a great place to start.
This article will explain what a chargeback management system is and how it should work. We’ll also help you determine which dispute management approach is best for your needs.
- What is a Chargeback Analyst? Do You Need to Hire One?
- Chargeback Rate – What’s Normal & How is It Calculated
- Double Refund Chargebacks: When Disputes Cost Twice as Much
- Looking For a Chargeback Solution? 7 Smart Questions to Ask
- The Specialists Your Chargeback Management Team Needs
- Can A Chargeback Manager Handle Your Disputes on Their Own?
What is a Chargeback Management System?
- Chargeback Management System
A chargeback management system refers to the basic strategy, as well as the collected policies and procedures a merchant uses to deal with credit card chargebacks. There are three major approaches to a chargeback management system: in-house, outsourced, or a hybrid of both.
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Preventing and fighting chargebacks is difficult, especially for new merchants. The chargeback process involves multiple parties, tight deadlines, and constantly changing regulations.
Some retailers have never created or used a dedicated chargeback system. They accept chargebacks as an unavoidable “cost of doing business.” This is incorrect thinking, though.
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Failing to take chargeback management seriously will lead to an increase in the number of chargebacks you receive. This means you lose more revenue, and could even lose your card-accepting privileges if you let the problem go unmanaged too long.
With a chargeback management system in place, you can keep your chargeback ratio within an acceptable range. You can pay lower fees and see fewer penalties. When you have a well-functioning dispute management system in place, it’s possible to prevent many issues before they cause problems.
How Chargeback Management Systems Should Work
Let’s get this out of the way now: there’s no single “right” answer for a chargeback management system. The best approach for you depends on the specifics of your business.
Questions to Ask Yourself:
- What kind of budget do you have to work with?
- Do you have sufficient staff to implement your system?
- Do you have the internal software necessary to stay on track?
- What expertise do you have regarding chargebacks and fraud?
- How much data do you have at your disposal?
- Do you know how to leverage that data most effectively?
- How many chargebacks do you receive each month?
Maybe you’re a business owner with a small budget and few staffing resources, but you have a solid CRM and management software to integrate. Or, maybe you have a bigger budget, but no staff with the bandwidth to manage chargebacks properly. In either case, what’s the best chargeback system for your needs?
Let’s rundown the three basic approaches you can take—outsourced, in-house, or a hybrid approach—and look at the strengths and weaknesses of each.
In-House Chargeback Management
When we talk about in-house chargeback management, we’re referring to a chargeback management strategy built on a DIY framework. You might deploy some third-party technologies; however, you are ultimately the one in charge of collecting and examining data, diagnosing risk factors and vulnerabilities, and deploying solutions.
If you plan to run an in-house chargeback system, you need to be the expert. You must understand:
- Every step of the entire chargeback process, from start to finish.
- The relationships between cardholders, banks, processors, and card networks.
- The rules published by each card network governing chargeback procedures.
- The strict time limits for each stage of the chargeback process.
- The ever-changing methods and technologies involved in chargeback prevention.
Now, there are some definite advantages to in-house chargeback management, including:
If your budget allows, and you can manage the problem with your existing team and tech infrastructure, then there’s no need to make extra investments.
Working with a third party will require opening up sensitive data to outsiders. Despite the wisdom of allowing someone with particular expertise access to your sensitive operational information, the risk can be daunting. But, if you’re managing chargebacks in-house, then that data never leaves your system.
Relaying information to a third party means the data might be misinterpreted or received incompletely. This could lead to severe problems for all involved. But, if you’re using an in-house chargeback system, this is not an issue.
Outsourced Chargeback Management
In another corner, you have the option to outsource your chargeback management strategy. In this instance, you would turn over all chargeback management to a third-party specialist for an end-to-end, hands-off experience.
The benefits of this approach are:
Expertise matters. You need people who understand the chargeback process, systems, and card schemes’ rules and regulations, inside and out. Dedicated experts are well-placed to lead you through the dispute management quagmire.
Exclusivity of focus is another benefit that you can’t afford to sneeze at concerning disputes and chargebacks. Instead of paying someone in-house who might bear other official responsibilities that distract them from chargebacks, third-party coverage ensures that every dispute receives absolute focus.
Someone with access to broad industry data and expertise can access information that you might struggle to find and utilize as a merchant. This is particularly helpful with analysis that could help your business identify and recover from weak spots in your systems that may be leading to chargebacks.
Clear, actionable insights are important. Third-party experts know how to collate data and analysis in a manner that helps you gauge your return on investment and decide what works and what doesn’t. This is a crucial part of the chargeback recovery process in the mid- to long term.
Hybrid Chargeback Management
Outsourced chargeback management is almost always more effective than in-house management. This doesn’t mean that in-house management is useless. On the contrary, we often promote hybrid solutions that incorporate your built-in resources with third-party expertise. Hybridizing solutions would allow you to tailor your management strategy to your business's exact needs.
At Chargebacks911®, we say you should improve upon whatever works, and drop whatever doesn’t. You can safely integrate in-house best practices with intelligent, outsourced management solutions. This approach offers many of the same benefits as both in-house and outsourced solutions, but with the adaptability needed to deliver the best ROI possible.
How do I strike a balance between in-house & outsourced dispute management?
Unfortunately, there's no single right answer. The optimal balance between approaches depends on the specifics of your business. In many cases, consulting with a chargeback management professional can help you identify the best balance.
Outsourcing some chargeback management responsibilities doesn’t mean losing control. Even prior intelligence and data acquisition efforts will be put to good use, making products and services more efficient.
Being aware of the costs and time commitments required to make a partnership like this beneficial is of equal importance. An internal audit of your chargeback management system, from top to bottom, can help you make the best choice for your organization.
“One-Size-Fits-All” Won’t Work
Many merchants have a laissez-faire attitude about chargeback management. It could be that they’re just not feeling the chargeback pinch as keenly as others…at least not yet. If you wait until you need chargeback help to start making moves, though, it could be too late.
Of course, not all chargebacks originate from the same threat source. Tools and tactics aimed at filtering out criminal fraud will be no help against merchant error chargebacks. They will also do nothing to stop friendly fraud chargebacks, which now account for a majority of chargebacks.
Remember: a tool is only as effective as it’s crafted to be. Having multiple tools to fight fraud won’t be enough. More than anything, you need a coordinated, carefully-planned strategy to make the most of the resources at your disposal. So, applying a “one-size-fits-all” strategy is destined to fail.
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How to Implement Your Chargeback Management System
One approach you can take is to diagnose your needs and build out a strategy as you go.
For instance, you can ensure integration with the Visa dispute management system, known as Visa Order Insight. The same goes for the Mastercard dispute management system, known as Consumer Clarity These should be no-brainers, as these platforms may help you prevent inquiries from becoming chargebacks.
The same goes for using dynamic fraud detection and fraud scoring, which lets you intercept questionable transactions. You must also take steps to manage friendly fraud, as well as mitigate risk posed by merchant error.
This is a lot to think about. There are a lot of different angles to consider. But, it’s a problem you really can’t afford to ignore. If you’re unsure about your ability to build out an in-house chargeback management system on your own…it might be time to call in help.
Expert Chargeback Management
DIY chargeback management solutions can be complex and expensive. By turning to a third-party chargeback management system, you gain access to crucial tools, data, and expertise that would not otherwise be available.
At Chargebacks911, we offer our proprietary Intelligent Source Detection technology. This tool combines machine learning and human expertise to diagnose chargeback sources with pinpoint accuracy.
Whether you need help supplementing your in-house team, or you’re ready to offload chargeback management to the experts…we’re here to help. Call us today for your free ROI analysis, and see how much you stand to save.