Many businesses shrug chargebacks off as an inevitable "cost of doing business," but a further inspection would soon prove otherwise. Although the cost of a chargeback seems negligible at first, it encompasses far more than just the original price of the good or service—there are also bank fees, shipping costs, and more. The final cost is usually twice as much as the value being disputed, or sometimes even more, resulting in significant revenue losses for some companies.
As if the economic hit wasn't bad enough, firms also risk losing the very merchant accounts they need to continue operating as a business. If 1% or more of a company's total transactions lead to chargebacks, its card network or payment provider could place it on their Terminated Merchant File or MATCH. In other words, there's a risk of being blacklisted—and the effects could last up to five years.
While it's impossible to get rid of chargebacks altogether, most businesses can minimize them by putting some basic measures into place. Understanding how chargebacks work and having a plan to monitor and control them is essential, but unfortunately, this is a time-consuming and challenging task. To avoid errors and overworked staff, companies should turn their attention to chargeback services instead.
Here's a comprehensive guide to them, including how they help merchants and how to choose between different providers.
Chargeback Services Overview
There are two main ways to tackle chargebacks. The first is to prevent them before they even go through, and the second is to contest them after they've hit the merchant account (through a process known as representment). Let's look at prevention and representment in further detail and examine how exactly merchants can tackle them.
Chargeback Prevention
By default, retailers may find out about chargebacks when it's already too late to do anything. It’s possible to get a forewarning, however—by paying a small fee. While Verifi (a Visa partner) and Ethoca (a MasterCard partner) provide these alerts, it’s usually best to purchase through an authorized reseller to ensure maximum coverage and avoid paying for duplicates.
After receiving an alert, merchants can issue an immediate refund and effectively reverse the chargeback. It might sound expensive, but it allows merchants to save up to 30% by avoiding disputes and saving on other related costs.
There's just one caveat—retailers must act on each alert within 24–72 hours. Failing to respond means wasted money on the service, plus the expense of the chargeback itself. To prevent this from happening, merchants need staff members who consistently monitor the alerts and respond appropriately. Fortunately, many chargeback management companies count 24/7 alert monitoring among their services.
Verifi also offers a Rapid Dispute Resolution (RDR) service, through which retailers can respond to alerts automatically instead of sorting through them manually.
Chargeback Representment
Representment is the process merchants go through when they want to fight a dispute. Effectively, they're "presenting" the chargeback again, which is where the name comes from.
For representment to result in a successful outcome, there must be strong evidence that the chargeback was invalid. Still, merchants should almost always attempt representment in the case of friendly fraud chargebacks or high-cost transactions.
Since the process can be complicated and confusing, turning to a chargeback management company for support often makes sense.
Chargeback Deflection
Resolving disputes involves lots of back and forth between banks and merchants, but some programs help both parties collaborate. There are tools that provide banks with relevant transaction information for when a cardholder contacts them to arrange a chargeback. This helps the bank instantly decide whether the dispute seems legitimate, rendering the lengthy representment process unnecessary and fighting fraudulent chargebacks.
Chargeback Management
Chargeback management is an umbrella term that encompasses various elements of tackling chargebacks. These include monitoring disputes and alerts, combing through analytics, and taking action to fight disputes. Since most smaller merchants don't have the internal staff to handle these processes, it's best for them to turn to an external chargeback management firm.
Although it's possible to get different elements of chargeback management from different providers, the smoothest option is to get all the essential services in one place. This means relying on a single firm to look after the core services of prevention, deflection, and representment, in addition to analytics and reporting.
Another way to make chargeback management as efficient and straightforward as possible is to integrate core services with other systems, such as a payment processor, or gateway. It's yet another way to help chargeback management companies act faster by giving them easy access to relevant information.
4 Key Considerations When Evaluating Chargeback Services
Both preventing and fighting chargebacks are difficult processes to handle. Prevention requires consistent data analysis, plus a comprehensive understanding of how chargebacks work; representment takes a long time and needs someone to discern which disputes are worth fighting.
That's why, for most merchants, getting a chargeback management services provider is a far better option than trying to train staff to become chargeback specialists on top of their usual tasks. Why bother doing everything manually and independently when it's possible to put tasks into the capable hands of certified chargeback experts? After counting the employee hours lost, the investment pays for itself easily.
However, not all chargeback services are created equal. Avoid making the wrong choice by evaluating providers regarding their cost, performance, expertise, and simplicity.
Cost
It’s advisable to look out for transparent providers that reveal prices upfront rather than advertising a string of add-ons and up-sells along the way—especially if those add-ons don't reduce chargebacks. Don't be afraid to ask questions about anything that seems unclear
Bear in mind that, although chargeback services do offer some return on investment, it's fairly limited. No matter how many chargebacks are prevented or fought, therefore saving money, they will never create revenue. It's therefore crucial to be mindful of cost and to evaluate how much value a provider offers. If they can't explain or justify their value, that's a definite red flag.
In some cases, it's not even a case of "good" and "bad" providers—it's just that some providers don't have the right features or approach to help a specific firm. To make the right choice, merchants need an awareness of their needs and how they fit into their budget.
Performance
It goes without saying that chargeback services aren't worth the money unless they're achieving results. But how can merchants tell high-performance and useless chargeback services apart? Look for these key features.
Since chargebacks are time-sensitive and best to be dealt with as quickly as possible, chargeback data is no use unless it's always reliable and recently updated. That way, retailers can always see if they're approaching the chargeback threshold, if the total number of chargebacks is increasing, and how much impact disputes are having on revenue
It's no exaggeration to say these measures affect all aspects of business. After all, surpassing the chargeback threshold can lead to being blacklisted or losing a merchant account, which is the very cornerstone of continuing to operate. If anything goes wrong or begins to approach the danger zone, knowing (and acting) as soon as possible is the only way to avert disaster
This is hard enough to monitor and tackle with one merchant account, but it becomes practically impossible when multiple merchant accounts are involved. Having one provider to monitor and analyze the data from all these accounts is a game-changer.
Expertise
At first, chargebacks seem simple enough, but they're like icebergs—a lot is going on beneath the surface. Disputes can arise for a seemingly endless number of reasons and come from a vast array of sources, so effective chargeback management should be anything but generic.
Instead, look for a provider that's willing to offer tailored support and get to the root of a merchant's particular business operations. Depending on their customers, industry, card network, and other variables, the chargeback landscape could be very different.
The best chargeback service providers have often developed solutions for their own use—this signals a real depth of understanding rather than an empty attempt to attract customers.
Good providers also offer support throughout the chargeback process rather than just at the beginning—including solutions for prevention, advice about getting the most out of their services, and help at the representment stage. They should see chargeback rates as their responsibility and not just their clients' burden since these metrics demonstrate their performance as a provider. This means letting clients know when things go wrong, too.
For the best chance at mitigating chargebacks, look for representment and chargeback prevention expertise, alongside crucial tools for chargeback management. Merchants shouldn't have to compromise on any of these aspects—it's possible to have everything in one package.
Simplicity
Chargeback services should be making life easier—if it's not simple to set them up, figure out how fees work, and manage them over the long run, it's time to consider a different solution.
Vetting for simplicity starts with the on-boarding process. If a service is difficult to integrate with a merchant's current system, it's an immediate red flag. And since many merchants only start looking for providers once they realize they have a problem, good ones will start monitoring and protecting those merchants right away, not make them endure weeks of continued losses. Another red flag is service providers that charge set-up fees, which is no longer best practice.
To avoid problems, merchants should ensure they know how long the on-boarding takes, what it entails, and how to obtain answers to any queries along the way. They certainly shouldn't sign a long-term contract before they're confident that they can rely on a service provider to look out for them and their business. Once that contract has been signed, there's no longer an incentive for the provider to go the extra mile, so it's not a step to take without being 100% sure.
At the bare minimum, a good chargeback management software should handle tasks like pulling transactional data for disputes, responding to alerts, tracking chargeback numbers, managing account details, and fighting against chargebacks—all in one platform.
To make life even more comfortable, it should also have API connectivity to integrate payment processors, and other apps the merchant uses. This makes it far easier to carry out the above tasks with no extra steps, creating a smooth process to prevent fraud and manage disputes.
The Right Chargeback Services Partner
Resolving chargebacks can be a tough process for merchants to navigate. Fighting them means knowing which ones you can fight and how to fight them, and then overseeing that whole process from start to finish. To prevent them from happening in the first place, you have to know why you're getting them, and that means analyzing large amounts of chargeback data.
Very few merchants have the time or resources to become chargeback defense experts on top of doing everything else they need to do to stay competitive in today's marketplace. That's where outsourcing chargeback services and having the right management software that can automatically and intelligently handle your chargeback-related tasks can be such a great help.
MidMetrics provides all of the essential chargeback services (discussed above)—along with a full suite of our own proprietary chargeback management tools, including Management Dashboards, In-Depth Analytics Tools, and On-Demand Reports. This gives you a comprehensive platform for fighting chargebacks and defending your merchant accounts, all for one price.
How much would it cost to cobble all these services together from different providers—and how effective would they be? MidMetrics is expertly designed to be easy to use, easy to integrate with your existing systems, and robust enough to provide actionable insights for every merchant's chargeback situation.
Want to see MidMetrics in action? Book a demo with one of our chargeback specialists today.
Every merchant needs some kind of strategy for preventing, fighting and dealing with chargebacks. If you don't have the resources or wherewithal to handle in-house, it may be time to consider chargeback services. Check out our comprehensive guide, A Merchant's Guide to Chargeback Services & What to Look For today.
