Chargeback Reduction Plan

March 22, 2021 | 8 min read

Chargeback Reduction Plan

5 Simple Steps to Build a Winning Chargeback Reduction Plan

A chargeback reduction plan, sometimes referred to as a chargeback remediation plan or a mitigation plan, typically refers to a formal document requested by a card network. As a merchant, if you start seeing your dispute issuances get dangerously close to the chargeback threshold established by one of these brands, they might request one of these plans from you.

So, what is a chargeback reduction plan? Why would you need one, what should your plan entail, and how can you make it work in the long term? Let’s dig into these burning questions and identify some solutions that will work for you, your customers, the banks, and the card networks.

Why it Matters: Explaining the Chargeback Ratio

Before we dive into the details on chargeback reduction plans, we must underscore the importance of knowing your chargeback-to-transaction ratio (or chargeback rate).

For some merchants, chargebacks are just a minor concern. If you’re reading this, though, there’s a good chance that chargebacks are already a liability for your business. If that’s the case, your chargeback ratio could be the most vital metric available to you.

Your chargeback rate measures your monthly chargeback issuances as a share of overall transactions. For instance, a 1% chargeback rate means that, of all transactions submitted by customers, one in every 100 will result in a chargeback.

Card networks like Visa and Mastercard set predetermined limits for acceptable merchant chargeback rates. If your chargeback cases for one or another card brand start creeping up on these thresholds, they may require you to put together a chargeback reduction plan. The goal here is to help the merchant reduce chargeback issuances as quickly as possible and prevent the need for further action, like entry into a chargeback management program.

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If a card network proposes that you draw up a chargeback reduction plan, you should get on it right away. Chargeback management programs can be a costly and time-consuming added expense, and they can impose harsh limits on your operations that will constrain your business.

Also, banks are held liable for any chargebacks that a merchant can’t cover. As a result, they view chargebacks as a serious point of financial risk and may cut ties with you, and even and list you on the MATCH List, if you’re unable to get chargebacks under control. If that happens, you’d effectively be blacklisted and unable to get another standard merchant account.

What is a Chargeback Reduction Plan?

Chargeback Reduction Plan

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A chargeback reduction plan is a formal document requested from a merchant by a card network after that merchant exceeds the network’s acceptable chargeback threshold. This document outlines why the chargebacks happened, what tools and tactics the merchant will use to prevent future chargebacks, and how the merchant will monitor this information.

In simple terms, a chargeback reduction plan is a document laying out your strategy to prevent future chargeback issuances. It’s formal, in the sense that the card network in question will request it from you and will have specific requirements regarding the information included. However, the actual information will vary considerably depending on your situation.

The aim of the plan is to develop a strategy to lower your chargeback rate. This is an important goal; as we mentioned, you could lose your card processing rights if your chargeback rate remains above the threshold set by the card network for too long (determined by the rules of the chargeback management program).

There are other benefits to assembling a plan as well. Every chargeback eats away at your hard-earned revenue; with a plan in place to prevent chargebacks, though, this would no longer be a problem. In fact, a good plan can offer a host of great benefits. You can:

  • Increase profits
  • Recover revenue
  • Decrease costs
  • Improve sales conversions
  • Avoid unnecessary declines
  • Improve customer retention and loyalty
  • Enhance your brand reputation
  • See sustainable growth and longevity

How Do I Create a Chargeback Reduction Plan?

You should work closely with your acquirer to help create a plan that works for your business. There’s not a preset template to follow for drafting a chargeback reduction plan, but some areas of focus should include:

  • Identifying valid transactions and decreasing false positives.
  • Lowering the acceptance of unauthorized transactions.
  • Identifying the source of each chargeback.
  • Eliminating preventable chargeback triggers, like merchant errors.
  • Challenging illegitimate chargebacks.
  • Improving industry relationships.

Step 1: Your Business

The first step is to provide some basic details about your business. You may talk about the products or services you sell, your marketing tactics, your billing methods, etc., as some of these factors may put you at elevated chargeback risk. For instance, using a subscription billing model or working with an affiliate program are both highly-profitable business options, but they may result in more chargebacks.

Step 2: Your Chargebacks

Next, you need to analyze why customers keep filing chargebacks against you. Review your recent chargeback issuances to try and identify a pattern. Do chargebacks come in after customers engage with certain customer service channels? Are certain products or transaction types more like to produce a chargeback? What about the cardholder’s region or country of origin?

Step 3: Your Tools & Processes

What are you currently doing to deal with the threat posed by chargebacks? Are you using a wide variety of antifraud tools as part of a multilayer strategy? Do you use chargeback alerts? Also, when customers reach out via channels like email or social media, how quickly do you respond? All these factors influence your overall chargeback issuances.

Step 4: What You Will Do & How

You want to clearly list out every new practice or technology you plan to roll out to deal with chargebacks. For example, are you going to grow your customer service staff to handle questions and concerns more quickly? Are you going to make policy or procedure changes to make product returns easier? Are there new antifraud tactics you plan to adopt? You will also need to include information about how you intend to track all these points.

Step 5: Your Documents

Along with all the items above, your chargeback reduction plan also requires supporting documents. These help establish your current benchmark, allowing for the card network to gauge improvement over time. For example, these supporting documents may include:

  • All terms and conditions, including any cancelation plans and refund policies.
  • Copies of order confirmation emails.
  • Copies of your recurring billing notifications.
  • Internal correspondences or any other information explaining chargeback reasons.

Monitor Your Results

Finally, you need to lay out your plan for how to maintain success in the mid-to-long-term. Chargeback rules and processes change constantly, and your chargeback reduction plan needs to change in response. So, what are you going to do to monitor results and adjust as needed?

Determining how you should review your progress and gauge your success rate is just as important as the plan itself. Obviously, if you see a reduction in chargebacks after adopting a plan, that’s a good sign that the plan is working. You should dig a bit deeper than that, though.

You need to set clear metrics based on the factors that caused the chargebacks in the first place. For example, if you see a lot of chargebacks stemming from errors in fulfillment, you should identify key performance indicators (KPIs) for fulfillment that you can track to gauge improvement.

If your plan doesn’t meet expectations based on these KPIs, that’s a clear sign that your plan needs revision. You might also need to adjust due to significant changes in card network policy; major overhauls like the introduction of Rapid Dispute Resolution can mean that your plan is out of date.

Revamping plans can be a pain. But, if you closely monitor outcomes and keep up-to-date with all industry news and updates, it will be much easier to adjust as needed.

In Conclusion

In this article, we learned what a chargeback reduction plan is, as well as why banks or card networks might require you to develop one. We also examined what information needs to be a part of your plan, and why you need to stay on top of this process and adjust your plan over time.

With a chargeback reduction plan in place as part of your day-to-day operations, you can keep chargebacks at a minimum. This will help you avoid a situation in which you’re scrambling to reduce chargebacks and allow you to recover revenue, reallocate resources, and refocus your attention on growing your business.

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