How to Deal with Your Chargeback Problem

Tackling chargebacks is a complicated endeavor, but a necessary one. If you as a merchant don’t address chargebacks, there is a good chance you will face problems with your payment service providers (PSPs) and the credit card networks. Should your chargeback or fraud rates exceed certain thresholds, the credit card networks will put you in expensive monitoring programs and your PSPs will re-think working with you. In the end, you might even lose the ability to process credit card payments, the lifeblood of most businesses.

Merchants experiencing high levels of chargebacks should take a three-pronged approach to addressing their problem, making use of a pre-sale anti-fraud solution, chargeback alerts and a chargeback mitigation solution. The pre-sale anti-fraud solution would be tasked with fighting cases of true fraud. The chargeback alerts provider would help prevent and preempt chargebacks by enabling the merchant to address disputes before they reach chargeback status. Lastly, a chargeback mitigation solution would fight all the cases of friendly fraud that come through the system, seeking to recover money from the abused chargeback system and deter future customer attempts at gaming the system.

Selecting an anti-fraud solution

Pre-sale anti-fraud solutions exist in many flavors, but there are some basic features whatever solution you choose should have. All state-of-the-art solutions incorporate machine learning, which means the computer software generates its own rules for filtering out fraudulent transactions based on past transaction data. A machine learning approach is preferable to older, static rules-based engines or filters as they change rules automatically to reflect changing fraud trends. 

A solid pre-sale anti-fraud solution should also minimize false positives, that is when a transaction that is good is flagged and rejected as fraudulent. This typically means incorporating some element of consumer identity beyond pure behavioral data.

Not absolutely required but fairly de rigueur among anti-fraud solutions is a fraud chargeback guarantee or insurance. Sometimes part of the basic offering, sometimes for additional per transaction fee, these policies typically refund the merchant for any chargeback attributed to specific fraud-based reason codes. You should ask your specific vendor if the insurance covers shipping and fulfilment costs as this can vary. 

Utilizing chargeback alerts

Once we enter the post-transaction phase, we are already dealing with a dissatisfied customer who contacts their issuing bank to dispute a charge. At this stage, you can employ a chargeback alert provider to create a window of opportunity with the issuer when you can refund the customer and avoid receiving a chargeback. The time period varies by provider, but it is between 24 and 72 hours.

Chargeback alerts are almost like a silver bullet for dealing with a chargeback ratio that is near or past the credit card networks’ thresholds. You can implement the solution and start pre-empting chargebacks almost immediately.

However, alerts aren’t perfect. Sometimes you will end up paying refunds on transactions that also go through and become chargebacks, doubling your losses.

Even when they work like they are supposed to, chargeback alerts aren’t a long-term solution. Once you get that chargeback ratio down, you’re going to want to fix whatever is causing all those chargebacks in the first place. Paying out refunds on top of chargeback alert fees can become an expensive proposition. This is especially true when you’re refunding cases you could have fought successfully in re-presentment within the chargeback process.

Fighting back with chargeback mitigation

That brings us to the backstop of all your chargeback fighting efforts, the chargeback mitigation solution. While chargebacks may seem like a small percentage of your overall sales, they can take a significant bite out of your profit margin. 

Most business operations lack the expertise to fight chargebacks well on their own. When you keep in mind that over 80 percent of chargebacks are illegitimate, that leads to a significant amount of money being left on the table. It also means that the self-serve SaaS tools out there won’t aid most merchants in putting a serious dent in their chargebacks problem.  For most companies, the best option is to outsource the problem to a full-service chargeback mitigation company. 

There are a handful of full-service chargeback mitigation service providers in the market. Justt stands out in a number of ways:

• It’s risk-free. There are no set-up or per case fees. You are only charged a percentage of the money recovered from chargebacks reversed.
• It’s customized to meet the specific chargeback needs and reason codes faced by each client, ensuring the highest success rates in fighting chargebacks.
• We use machine learning every step of the way - from determining the legitimacy of each chargeback to gathering evidence and building the evidence packet we send on behalf of the customer. This means our solution can quickly adapt to the volume of chargebacks you are experiencing.
• We strive to be fair to your customers. We will only fight chargeback cases that we deem illegitimate and likely to be reversed. We won’t needlessly antagonize your customers.

Whatever service provider you choose, make sure to utilize the analytics dashboard and whatever detailed case information they provide to track your chargebacks. You’ll want to see what reasons are being provided for chargebacks to see if you fix any problems in your business, eliminate chargebacks before they happen and keep your customers as happy campers. 

The purpose of dealing with chargebacks

At the end of the day, that is what this whole process of dealing with chargebacks is about. Maximizing the revenue you keep, while ensuring your card-holding customers feel satisfied with your customer service and the buying experience.