Chargeback Management: 3 Keys to Managing Chargebacks Effectively
By Brian Radford on May 29, 2020
Not every merchant takes chargebacks as seriously as they should. The idea that chargebacks are just one of those unavoidable costs of doing business doesn’t hold up when you look at the numbers. When you factor in bank fees and other costs, each chargeback can cost you up to three times the transaction amount. When a merchant allows their chargeback problem to grow out of control, they could lose as much as 40% of their revenue.
What makes chargebacks especially dangerous is that they don’t just threaten your financials—they can cut you off from the payment processing services required to keep your business running. If your chargeback-to-transaction rate gets higher than 1%, you could end up on the card networks Terminated Merchant File or MATCH—blacklists prevent you from opening MIDs. Once you end up on one of these lists, you could be stuck there for five years.
Very few merchants could survive without electronic payment processing services for five years. Chargebacks aren’t just an annoyance you can ignore and absorb—they can represent an existential threat to your business, and merchants who understand what’s at stake know that chargeback management is an essential business function in today’s payment environments.
The catch is that chargeback management can be a lot of work, especially for small businesses with limited staffing. Managing chargebacks effectively involves analyzing data, identifying product and operational problems leading to them, and implementing fixes to those problems. It also means fighting friendly fraud chargebacks and maintaining up-to-date defenses against true fraud. That’s a lot to take on, and many merchants don’t have the time or ability to develop a functional chargeback management system on their own.
Whether you’re dealing with chargebacks in-house or outsourcing to a chargeback management firm, there are three keys to managing your chargebacks in the most effective way possible.
Streamline & Automate Your Processes
Chargebacks can happen for a wide range of reasons, and they all require different ways of managing them. Some chargebacks are entirely legitimate and can’t be fought after the fact; you can only figure out why they happened and how to stop additional chargebacks from recurring in the future. Other chargebacks are deemed “friendly fraud” because the customer has filed their dispute under false pretenses. It’s essential to fight these chargebacks by representing the dispute with evidence disproving the false claims. Fighting a chargeback will help to recover your revenue and to discourage further abuse from the not-so-friendly fraudster.
Analyzing chargebacks, correcting problems, and fighting friendly fraud are data-driven processes prone to mistakes and inaccuracies when done manually. A chargeback management solution that automates your various chargeback processes can save you time and produce better results.
Timely responses are crucial to fighting and deflecting chargebacks. To manage your chargebacks and keep your chargeback rate down, you need to track and monitor them. If you have multiple MIDs, this can quickly become overwhelming as you have to log in to various portals, pull chargeback data, and lookup transaction details.
A management dashboard is a must-have element in any chargeback management solution. By integrating via API with your payment processor, CRM system, and other platforms, you’ll have easy and immediate access to the most pertinent information. This information includes chargeback alerts, chargebacks you’re fighting, your chargeback rate (updated in real-time), and everything else you need to know about your chargeback situation. You’ll also be able to seamlessly import transaction details and data from your CRM when you need to respond to queries or represent a charge.
A rising chargeback rate should never sneak up on you. If you’re monitoring your chargebacks, you’ll know when you’re getting close to those dangerous thresholds even so, if your rate suddenly rockets upward, how will you know what to do about it?
Chargeback analytics can be a long and painstaking process that involves examining your past and current chargebacks to identify the common causes behind them. When chargebacks can be traced to a specific vulnerability or error, you can correct it and prevent future occurrences of those chargebacks.
Analytic tools can help by doing a lot of the heavy lifting in this process. These tools will identify and sort the relevant data, generate reports that make sense and show a clear picture of the steps you need to take to protect your MIDs.
You can’t get ahead of a chargeback problem by reading summary reports at the end of the month. Logging into multiple portals to collect chargeback data in a spreadsheet or accounting software isn’t something every merchant has time to do every day.
The answers to your chargeback problems are in the data, and chargeback management solutions that provide real-time reporting can give you a shortcut to those answers. The right solution can take your raw data and turn it into reports that everyone in the company can easily share, read, and comprehend.
Integrate & Consolidate Your Systems
A chargeback management system can consist of many parts, especially if you build it from the ground up as you go. You might have anti-fraud tools from various vendors, subscribe to one or more chargeback alert services, and have a home-brew spreadsheet for tracking and managing chargebacks. It’s different for every merchant, and few have the resources to build an in-house system that’s both efficient and effective.
One of the first things an excellent chargeback management service will do is help you consolidate all your chargeback management tools and processes into one integrated system. Merchants with limited resources can do a much better job of managing chargebacks when they can work from a central platform that has API integrations with their CRM, payment processor, gateway, and third-party providers.
Payment Processor, CRM, Gateway & Alerts Providers
When it comes to collecting relevant chargeback data for reporting and analysis, consider your payment processor to be your primary source. They get the most up-to-date data, and they determine the health of your MID, so their information is the most authoritative for these purposes.
The optimal integration is for your chargeback management platform to pull data directly from your payment processor and connect with your CRM to allow for immediate resolution and updating of customer records. If a direct API link to the payment processor isn’t possible, the platform should pull chargeback data by downloading a CSV file and uploading it daily into the system.
Relevant transaction data comes from your gateway. These details include transaction amounts, BINs, refunds, declines, and other responses and authorization messages. This information can enrich your chargeback data and allow for a more insightful analysis of your chargeback situation and MID health.
Monitor & Know Your Numbers
High chargeback rates can mean higher processing fees, and if you exceed the maximum threshold, you can get blacklisted by the card networks and lose your right to have a MID for up to five years. That’s a worst-case scenario for any merchant, so the number one goal of any chargeback management system must be to keep that rate safely below 1%.
To do that, you must know your actual chargeback rate, up to the minute, for every MID you have. You also need to monitor the tools and services you’re using to manage your chargebacks to make sure they’re working effectively and worth what you’re paying for them.
Monitoring Chargeback Management Effectiveness
Whether you’re hiring a chargeback management company or using software to manage it in-house, no system for managing chargebacks can be effective without useful data. Data is what allows you to evaluate the performance of your various solutions, and the only measure of success that matters is whether your chargeback rate is going down.
What you want is simplified tracking and analysis of all chargeback activity, so you can easily see what’s going on and what’s working. Chargeback management software can give you the visibility and insights you need to make these determinations by providing both real-time monitoring and summarized reports. These reports can help you see the common denominators behind disparate chargebacks and give you insights into how to stop them.
Keeping Merchant Accounts Safe
When you have an excessive chargeback rate, you can get dropped by your payment processor and blacklisted from opening a MID with a new one. Protecting your MIDs is vital if you want to stay in business, so you need to be able to see your rate and day-to-day chargeback activity in real-time—not when it’s too late to take action to halt an emerging problem.
The big challenge is for merchants who hold multiple MIDs because they have different brands or storefronts to keep separate. These merchants will benefit from chargeback management software that can aggregate data into a single interface for top-level overviews but still track them separately for reporting and analysis. The right software will make it easy to switch between the big picture and the granular details.
The Right Chargeback Management Company
The right chargeback management solution won’t just provide you with the tools you need; they’ll also provide the information and insights that tell you how to put those tools to best use. Most importantly, it should never leave you in the dark when it comes to knowing your chargeback rate and how your solutions are measuring up.
MidMetrics provides all these keys to chargeback management with a full suite of our proprietary chargeback management tools. These include Management Dashboards, In-Depth Analytics Tools, and On-Demand Reports. (including CDRN Alerts, Order Insight, and Rapid Dispute Resolution). MidMetrics gives you a single powerful platform from which to manage your chargebacks and protect your merchant accounts.
You could try to put together all these attributes from a bunch of different providers, but how much would it cost—and would it be as effective? MidMetrics is expertly designed to be easy to use and integrate with your existing systems. It is also sophisticated enough to generate actionable insights for merchants in some of the toughest and most complex chargeback situations.
Want to see MidMetrics in action? Book a demo with one of our chargeback specialists today.
Whether managing chargebacks in-house or outsourcing to a chargeback management firm, there are some fundamental essentials for business growth and sustainability. Check out our latest guide, Chargeback Management Essentials for Growth & Sustainability.