Payment Platforms Offer Chargeback Protection, but Merchants May Need More Help
If someone offered you chargeback protection for your business, would be interested? A lot of merchants would be. This is particularly true in the eCommerce space, where chargebacks can be a serious revenue drain.
Unfortunately, there is no way you can completely insulate yourself from all chargebacks. The right to dispute a credit card charge is a federal mandate. As long as that consumer protection mechanism is in place, you’ll always be subject to a potential dispute. That said, there are plenty of tools and techniques that can help protect your business from the worst effects of chargebacks.
In this post, we’ll talk about chargeback protection at different stages of the transaction process. We’ll also look at some specific solutions to help you lower your risk of disputes.
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What Is Chargeback Protection?
- Chargeback Protection
Chargeback protection is any service, procedure, or technology used by merchants to reduce chargeback issuances. This can involve preventing fraudulent chargebacks, mitigating the worst impacts of chargebacks, or conducting research to identify chargeback sources.
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Excessive chargebacks threaten your business’s sustainability. It makes sense that you’d look for a way to prevent that damage.
“Chargeback protection,” as we talk about it here, refers to any of the various programs or platforms that insulate your business from the effects of chargebacks. There are three main forms we want to discuss:
|Chargeback Protection Type||What is it?|
|Pre-Transaction Chargeback Prevention||Identifying and stopping fraud and errors before a transaction is authorized.|
|Post-Transaction Chargeback Prevention||Responding to fraud and errors after the transaction but before a dispute is filed.|
|Post-Transaction Chargeback Protection||Proprietary programs that assume liability for certain chargebacks after the fact.|
All these solutions work in collaboration to protect your revenue and your chargeback ratio.
Preventing chargebacks is one of the keystones of any good chargeback management strategy. At the same time, post-transaction efforts can help deal with customer claims after the sale. We’ll cover these in more detail, but first, we should take a quick look at the chargeback process to better understand how merchant chargeback protection programs work.
Chargeback Prevention vs. Chargeback Protection
Chargebacks were originally created to be a “last resort” for cardholders victimized by either criminal activity or dishonest merchants. The system still functions well in that capacity. Unfortunately, more and more disputes are filed fraudulently, which has made the entire process much less efficient.
Chargeback protection services and tactics are designed to help lessen the impact of these claims. Each type of tool has a specific function, based on its use along the chargeback timeline.
Merchants can opt to implement tools that: stop fraudulent sales prior to authorization, preempt customer issues prior to actual chargeback, or reimburse them for eligible chargeback costs.
In many cases merchants should consider a multilayered approach utilizing the strengths of each chargeback protection program.
Step 1: Pre-Transaction Chargeback Protection
Pre-transaction prevention tools let you identify potential fraudulent transactions prior to processing. The goal is to stop fraud before it happens.
There are three primary categories of pre-transaction chargeback protection we want to discuss: fraud screening, fraud scoring, and merchant best practices.
Step 2: Post-Transaction Chargeback Prevention Tools
Deploying a post-transaction chargeback prevention tactic is not ideal. If you’re doing this, it means that a dispute has already been triggered by either fraud or some merchant error. However, post-transaction chargeback prevention is still better than getting hit with a chargeback.
In some situations, you may be able to resolve an issue by providing additional information. In most cases, however, you’ll need to refund the purchase. Chances of getting your merchandise back are low.
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Obviously, preventing chargebacks before the transaction is better, but these tools will still help you manage your chargeback ratio.
Step 3: Post-Chargeback Protection
Chargeback protection plans don’t keep chargebacks from happening. In many cases, though, you can avoid dealing with as much—or any—of the fallout.
There are also some third-party protection programs and apps available. Many of the most widely used payment platforms like PayPal and Stripe, however, offer their own protection plans.
All these various plans are different, and the coverage offered varies widely. None of them claim to cover all chargeback situations. Examples of platform-specific chargeback protections include (in no particular order):
What About Chargeback Insurance?
Some third-party providers offer “chargeback insurance.” At first glance, it seems this would work like any other insurance. The merchant pays a regular premium, and is reimbursed by the insurance company in the event of a chargeback…right?
You must remember that insurance policies vary considerably in their coverage. Chargeback insurance is no different. Every policy will have different requirements, different exclusions, and different price points.
Some will be redundant—overlapping with existing coverage—while others only work with certain processors and gateways. The range and scope of protection will be limited, at best. Chargeback insurance is not inherently bad, but it should never be your first line of defense.Learn More About Chargeback Insurance
The Bottom Line
While chargeback prevention tactics will help in the short term, most do not address the underlying causes of disputes. Unless you can resolve chargebacks at their true source, you’ll end up fighting the same battles over and over.
An effective long-range chargeback management strategy must be flexible enough to identify new trends and techniques, counteract new technology, and adapt on the fly to a constantly shifting landscape.
Chargebacks911® offers the most comprehensive chargeback management services and products available today. No other provider can deliver our level of transparent, end-to-end chargeback management, going beyond prevention to revenue recovery and future growth.
Whatever you need to prevent chargebacks, we can help. Contact us today for a free demo.