Chargeback Prevention: Prevent Chargebacks & Protect Merchant Accounts
By Brian Radford on May 22, 2020
When chargebacks can be prevented, how can you afford to write them off as just another cost of doing business? More and more chargebacks get filed every year, and they can have a devastating impact on a merchant’s bottom line. A chargeback isn’t equivalent to a lost sale or a refund—when you get hit with one, you’re not just losing the transaction amount, but also the cost to produce and market whatever was purchased. Add in the chargeback fees, and your total revenue loss for a single chargeback can be three times the amount you initially charged the customer.
Merchants are losing more than $4 billion to chargebacks each year. Chargeback fees vary from processor to processor; however, they can cost as much as 40% of the transaction amount. It’s true that many chargebacks that are filed are friendly fraud, or because the customer was confused. The good news is they can be fought and won, however fighting chargebacks is time-consuming and not guaranteed to succeed.
The problem with chargebacks isn’t limited to revenue loss alone. Payment processors keep track of how many you’re racking up. Thresholds may vary, however, if your ongoing chargeback rate exceeds one per every 100 transactions, you might suffer penalties that include being blacklisted from opening a merchant account for up to five years.
For merchants of all sizes, chargeback prevention can be a critical factor in whether you’re earning enough revenue to keep going—especially for high-risk industries or merchants who have multiple merchant accounts (MIDs) to maintain. Putting together a chargeback prevention strategy that affords enough protection can be daunting, as many different issues can lead to chargebacks, and no two merchants are the same.
Not sure where to begin? We’ll walk you through the essentials of chargeback prevention.
Chargeback Prevention Services
In partnership with third-party providers like Verifi and Ethoca, the major card networks offer chargeback prevention services that can give merchants a chance to resolve disputes before they become a chargeback. These services will cost you; however, when used correctly, they can make a huge difference.
Chargeback Prevention Alerts
When a cardholder files a dispute, there is a brief window of time before that dispute results in a chargeback to the merchant’s account. Chargeback alert services notify merchants when a dispute enters this stage, allowing them to take some action that will eliminate the need for a chargeback. Most often, this means issuing a refund to the customer. If the merchant takes corrective action in time, the chargeback will never happen. Verifi and Ethoca work with various bank networks; Verifi focuses more on domestic transactions, and Ethoca focuses on domestic and international transactions.
Fees for chargeback alerts average about $40 per alert, but they can bring a merchant’s chargeback rate down by up to 30%—that’s very significant if you’re trying to lower it to avoid having your MID shut down.
Chargeback alerts only benefit you if you’re able to receive them and respond in real-time. In most cases, they need to be resolved within 24 to 48 hours, or they become chargebacks. That means to get your money’s worth out of alert services, you need staff available to respond to chargeback alerts daily, including holidays. Some merchants outsource this process to chargeback management companies.
Chargeback Prevention Software
Chargeback prevention services work by intercepting disputes before they become chargebacks. These services can reduce chargebacks; however, the fees are expensive, and stopping chargebacks often means issuing a refund with no expectation of a product return.
The ideal scenario is avoiding disputes from being filed; however, it’s not always easy to identify the underlying causes behind preventable chargebacks. The best way to find them is through a comprehensive analysis of your chargeback data, and that’s where chargeback software comes to the rescue.
By reporting and analyzing your chargeback data, chargeback software can help you determine which products and processes are linked to your chargebacks. That way, you can address those underlying causes instead of dealing with disputes after the fact.
Chargeback software can also automate various aspects of your chargeback process and monitor your chargeback activity across all your accounts in real-time.
Simplify Chargeback Prevention
It takes a wide range of tactics to prevent chargebacks effectively. One way to simplify things is to look for a single solution for handling the tasks, monitoring, and analytics related to chargebacks.
The ideal solution will integrate with the tools and platforms you already have in place, like your gateway, payment processor, and CRM. With API connections, they can receive alerts and transmit transaction data instantly and automatically resolve disputes before they become chargebacks.
Protect Your MIDs
When you exceed the chargeback rate threshold established by the card networks and payment processor, you may get classified as a “high-risk” merchant and be put in review by your acquiring bank and card networks. That means you pay higher fees for the same services, and if your chargeback rate stays too high for too long, you could end up on card networks blacklist like the Terminated Merchant File or MATCH list. That means you wouldn’t be able to open a new merchant account for up to five years.
Being on the blacklist can be especially problematic for merchants who have more than one account. Many merchants maintain separate MIDs for different storefronts or product lines, so they must have a reliable way to monitor their accounts in real-time and respond quickly to any chargeback problems that begin to develop.
Good chargeback management software can help by combining all the data from your various merchant accounts into a single interface.
Insightful, Actionable Analytics & Reports
Real-time monitoring and reporting are important because a sudden increase in chargebacks can happen at any time. Often, the causes of these surges in activity are merchant errors or other easily addressable issues; nonetheless, they can do tremendous damage if you do not resolve the issues.
Live reporting and analytics can give you insights into product issues, coordinated fraud, misleading marketing, and other common causes of unexpected chargebacks, enabling you to act as quickly as possible.
The Right Chargeback Prevention Company
To do chargeback prevention right, you need the right services, real-time visibility into what’s going on with your chargeback activity, and a way to measure how well your chargeback prevention solutions are working. You’ll know your chargeback prevention strategy is working when your chargeback rate is going down, and your MIDs are well clear of any dangerous thresholds.
MidMetrics provides all of this: a full suite of our proprietary chargeback management tools (including Management Dashboards, In-Depth Analytics Tools, and On-Demand Reports). MidMetrics gives you a comprehensive platform for reducing your chargeback rate and monitoring your merchant accounts’ health.
Instead of trying to put together a patchwork of chargeback services from various providers—or trying to build your own setup from scratch—you can purchase them all together in one seamlessly integrated package.
MidMetrics is expertly designed to be easy to use, and it requires minimal IT effort for merchants to implement. It integrates with payment processors, gateways, CRMs, and service providers via API, and uses secure credentials to establish direct connections with card networks and banks. On the user end, MidMetrics automatically gathers and aggregates relevant data from all available sources, normalizing and presenting it in readable reports that present clear and actionable insights to merchants.
Want to see MidMetrics in action? Book a demo with one of our chargeback specialists today.
Putting together a chargeback prevention strategy that affords sufficient protection can be daunting, as many different issues can lead to chargebacks. Not sure where to begin? We've got answers for you in this helpful guide, Chargeback Prevention: A Recipe for Healthy Merchant Accounts.