Tips For Handling the Merchant Chargeback Process
All merchants who accept credit card transactions are vulnerable to chargebacks. While many merchants simply accept the chargeback as a cost of doing business, the savvy merchant understands that managing this intrusive occurrence is the smarter approach.
There are two components to managing merchant chargebacks: prevention and representment. To provide comprehensive protection, merchants must engage in both tasks.
Choosing a Prevention Strategy
There are two methods for preventing chargebacks: do it yourself or outsource the task.
Merchants who are determined to handle chargeback prevention techniques in-house should download our eBook, 35 Simple Steps to Preventing More Chargebacks.
Some of the suggestions include:
- Improving customer service
- Using tools made available through the payment industry
- Identifying potentially fraudulent activity
- Marketing products and services honestly.
Merchants can identify weaknesses in their chargeback system and establish strategies to prevent future transaction disputes.
DIY efforts can prevent the low-hanging fruit of the chargeback world and fix obvious errors. Often, though, merchants need a more comprehensive approach to successfully prevent revenue loss. With the right help, merchants can eradicate virtually all criminal fraud and merchant error chargebacks, as well as dramatically reduce the occurrence of friendly fraud.
Identifying and Avoiding Chargeback Triggers
To prevent chargebacks, merchants must first understand the three sources of chargebacks. All chargebacks are caused by one of three things: merchant error, criminal fraud, or friendly fraud.
Chargebacks911® has created Intelligent Source Detection™ technology to help merchants create a workable strategy to prevent all three types of chargebacks. This solution uses patent-pending technology, combined with expert analysis, to determine the true source of a chargeback.
If you’d like to learn more about this innovative chargeback prevention tool, let us know.
Based on data accumulated through Intelligent Source Detection™, we’ve been able to analyze risk by prevalence.
About 20-40% of chargebacks are caused by merchant error. Seemingly minor mistakes can have grave consequences over time, leading to substantial revenue loss. These preventable errors need to be identified, and then they can successfully be eliminated.
Chargebacks911 has developed a proprietary solution to identify errors or oversights that can lead to chargebacks. Merchant Compliance Review™ includes a 106-point inspection of a business’s practices, policies, and procedures. After identifying potential chargeback triggers, the merchant receives an actionable plan to eradicate these easy-to-avoid chargebacks.
Unauthorized transactions are made by criminals who gain access to credit card information. Cardholders file chargebacks when they discover the transaction, and the merchant pays the price.
Many merchants spend the bulk of their chargeback management budget trying to prevent criminal fraud because it is perceived as the biggest threat. Usually, their prevention efforts are met with minimal results. The reason for this low success rate is misinformation in the form of chargeback reason codes. Merchants are fighting the wrong problem: friendly fraud is disguised as criminal fraud.
Criminal fraud accounts for just 1-10% of all chargebacks. Merchants are wasting funds because they are misidentifying chargeback triggers and implementing insufficient prevention solutions.
There are various tools that can help prevent merchant chargebacks resulting from true criminal fraud.
Preventing criminal fraud chargebacks can be as simple as putting up a shield. Chargeback911’s Affiliate Fraud Shield™ offers protection from threats associated with affiliate marketing. By identifying potential liabilities, merchants can avoid chargebacks due to unsavory affiliate activity.
Additionally, merchants should consider using fraud filters to identify transactions that may be the result of fraudulent activity. Transactions are flagged for merchant review before being processed, giving the merchant the ability to verify the legitimacy of a sale before completing the charge.
Chargebacks911 offers merchants the opportunity to participate in the largest chargeback alerts network in the industry. Issuers notify merchants of a transaction dispute due to credit card fraud, allowing merchants to refund the cardholder before being assessed a chargeback. This prevents the merchant from incurring chargeback fees and increasing the business’s chargeback rate.
Friendly fraud contributes to the vast majority of chargebacks, between 60% and 80% for the average merchant.
Instead of dealing with the merchant directly to handle disputes or returns, customers contact their bank to initiate a chargeback. Fraudsters could potentially offer one of various reasons for the dispute, resulting in a loss of revenue for the merchant.
Merchants often selectively ignore chargebacks that do not seem worth the effort to fight. Unfortunately, that type of thinking validates the banks assumption that the merchant is at fault for whatever claim the cardholder implied. This damaged reputation increases the likelihood of future chargebacks.
The best method for preventing friendly fraud chargebacks is to engage in tactical representment.
Merchant Chargeback Representment
The second component to combating merchant chargebacks is representment. Representment is the only way to recover funds that the merchant never should have lost in the first place.
Representment is necessary for more than just recouping lost revenue though. When done correctly, representment actually helps prevent future chargebacks:
- It improves and maintains the merchant’s reputation with the issuing bank. When a merchant fights a chargeback, the process informs the bank that the merchant is not at fault.
- The representment process helps teach consumers that friendly fraud tactics will not be tolerated. Statistics show that 40% of consumers who successfully file a friendly fraud claim will file another within 90 days. However, it their first attempt is unsuccessful, consumers are less likely to try filing another illegitimate chargeback.
Choosing a Representment Strategy
As is the case with prevention, merchants have two representment options: handling the task in-house or seeking professional assistance.
Many merchants think in-house chargeback management is the ideal solution. There are various reasons why this option might seem wise.
However, in most situations, the cons outweigh the pros:
- Merchants don’t have the necessary chargeback education to successfully dispute determined friendly fraudsters.
- Policies and procedures are constantly changing. It’s a full-time job to stay current on network expectations.
- Without the proper tools, merchants won’t be able to isolate the true problem (thinking friendly fraud is criminal fraud). They’ll fight the wrong problem with an insufficient solution.
- Putting in the time and effort needed to learn all the chargeback management nuances and executing the necessary tasks in-house eats up valuable resources. Merchants should be using those resources to grow their businesses.
If merchants are determined to handle things on their own, there are two things they absolutely must do:
- Consult Visa and Mastercard guidelines. Find out how each specific card network handles the representment process for each reason code. The networks update their policies regularly, so merchants must routinely check for any updates and changes to the representment process.
- Avoid automation. Don’t give in to the temptation to rely on automated representment responses. Craft customized responses to each chargeback to increase the likelihood of success.
Ultimately, in-house representment is a balancing act between risk and reward, and the risk is pretty substantial.
The danger of damaging the merchant’s relationship with issuing banks is serious and should not be taken lightly. Overly aggressive tactics or mishandling of the representment process can make things worse, not better.
Merchants who want to engage in representment with a guaranteed ROI and the best win rate possible should seek professional assistance.
Outsourcing options for chargeback disputes and representment vary. Depending on the size and scope of business needs, merchants have the option of fully outsourcing their merchant chargebacks or utilizing on-demand services.
Retaining Revenue: The Ultimate Benefit of a Two-Fold Approach
Running a business is hard work; merchants shouldn’t have to deal with the added stress of chargebacks. This additional burden on a merchant can cause undue revenue loss, complications with card networks, and stress with consumers.
By taking a two-step approach that involves both prevention and representment, merchants can virtually eliminate chargebacks and rid themselves of this hassle. For maximum peace of mind, merchants can enlist the services of professionals who are skilled in detecting and preventing merchant chargebacks.
Ready to get back to the business of running your company? Let Chargebacks911 tackle your chargebacks today!