How Effective is Your Chargeback Management System at Stopping Disputes?
Managing chargebacks is a persistent challenge for a lot of online retailers.
If you don’t pay attention to disputes, then losses are going to add up over time. We’re talking about financial losses, strained customer relationships, and damaged merchant reputations. In response, you need to adopt a chargeback management system that can help you handle disputes and minimize the impact of chargebacks.
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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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This topic can be a little ambiguous. We’re not just talking about a single product here; instead, we’re covering every component of your overall chargeback management strategy. Just a few of the operations we’re talking about include:
You can handle chargeback management internally, or outsource to a third-party provider. Most merchants will end up going with a combination of both.
What Should My Chargeback Management System Help Me Accomplish?
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.
A chargeback management system lets you take a comprehensive approach to tracking and responding to disputes. With a good system in place, you can organize and automate key operations related to chargebacks.
A good chargeback system enhances operational efficiency and helps in identifying and mitigating fraud risks. You can keep tabs on chargeback responses, provide evidence to banks more quickly, and analyze the reasons why cardholders file chargebacks.
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. That’s why a well-implemented chargeback management system is crucial for maintaining the financial health and reputation of a business.
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:
Cost
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.
Security
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.
Data Integrity
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.
SaaS Chargeback Management
This is effectively a “self-service” option. You purchase a chargeback management solution from a provider, but manage the service yourself. This approach offers:
Flexibility
You can control the parameters yourself. It’s easier to exercise control over which transactions trigger alerts, for example, and what type of responses you’re going to submit for those alerts.
Time Savings
SaaS chargeback management is a cost-effective solution for those who don't want to spend their time (and money) developing an in-house system. It also saves time by letting you to focus on other tasks while the SaaS provider handles chargeback management.
Ongoing Support
Many providers offer ongoing support and updates to their SaaS solutions, offering assistance with any issues or changes that may arise. This can be a valuable resource for merchants looking to stay updated on the latest chargeback rules and regulations.
Fully-Managed 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:
Expert Analysis
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.
Focused Coverage
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.
In-Depth Reporting
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.
Selecting the Right Approach: Questions to Ask
So, which of the approaches outlined above is right for you? And, if you want to go with a SaaS or fully-managed solution, how do you pick the right service provider?
Is your goal to intercept disputes before they escalate to chargebacks, or to prevent them from occurring altogether? Both strategies are legitimate and effective. However, the most suitable approach may depend on your specific circumstances.
Does this solution assure a high success rate in a reasonable window of time? Is that promise based on anything tangible, like actual performance metrics?
How sophisticated is the solution? Does it leverage artificial intelligence and machine learning technologies? Is it capable of distinguishing between legitimate chargebacks and cases of friendly fraud, or does it handle all chargebacks in the same way?
Is this system work independent of specific hardware or software? Can it seamlessly integrate into your existing workflow? Or, will you need to make modifications and update your tech?
Will this solution be adaptable and advanced enough to keep up as your business grows? Or, will you need to search for a new tool once your business expands to a certain level?
Do the system’s reporting capabilities align with your requirements, like performance analysis and ROI monitoring? Are the reports straightforward, well-organized, and easy to interpret? Or, are they just extensive data compilations lacking context? Can you generate custom reports?
Will this system lead to cost savings? If it won't, then it’s overpriced, regardless of the cost. Examine the pricing model closely: is there a recurring monthly fee, a one-time purchase cost, or a pay-per-case arrangement? Additionally, watch out for any hidden charges.
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.
FAQs
What is chargeback management software?
Chargeback management software is a tool designed to help merchants monitor, manage, and dispute chargebacks efficiently. It combines advanced technologies like machine learning with expert knowledge to accurately identify the root causes of chargebacks and implement strategies to prevent them.
What does a chargeback manager do?
A chargeback manager oversees the entire chargeback process, from initial dispute to resolution, ensuring that all claims are managed promptly and effectively. They analyze chargeback trends, implement prevention strategies, and liaise with financial institutions to minimize revenue loss and operational disruption.
Can you go to jail for chargebacks?
While chargebacks themselves are not inherently criminal acts, engaging in chargeback fraud — knowingly disputing legitimate charges — can lead to serious legal repercussions, including potential jail time. Merchants and consumers should always handle chargebacks transparently and responsibly to avoid such legal issues.
