Essential Chargeback Protection for Merchants: What You Need to Know
By Brian Radford on May 15, 2020
In a world where cash and check payments lose more ground to credit cards with every day that goes by, many merchants are discovering the pain of chargebacks. It’s easy to ignore them or tell yourself it’s just one of those costs of doing business, but they’ll get your attention sooner or later. It might be when you realize how much they’re eating into your revenue, or worse—you get a notice from your payment processor warning you that your merchant account might be shut down if you don’t reduce your chargeback rate. What can merchants do to stop chargebacks and protect themselves?
When you first start looking into a chargeback problem, you might not be able to see why they’re happening or how much the cost you. Getting a handle on the scope and origins of your chargebacks can take time; however, it’s essential to do so. If you don’t act, a growing chargeback problem can put you right out of business.
Every year, chargebacks claw billions of dollars in revenue out of merchant’s businesses. Often, these chargebacks are based on friendly fraud and misinformation. An individual merchant stands to lose as much as 40% of their revenue to friendly fraud and valid chargebacks if they don’t have an adequate protection plan.
If you have an “excessive” chargeback rate—which could mean either a rate of one chargeback for every 100 transactions or 100 total chargebacks per month—you could end up on the card networks blacklist. This blacklist is known as the MATCH or the Terminated Merchant File, and it prevents you from opening a new merchant account for five years.
When you add up these considerations, it’s clear that a solid chargeback protection plan is essential, and the best time to put one in place is long before your chargeback rate starts edging up to that 1% threshold. The question is, what is a good protection plan against chargebacks? What components does it need to have, and how can you tell if they’re working effectively? We’ve got some answers for you.
Chargeback Protection Services
You get two chances to stop any given chargeback. First, by preventing them before they hit your merchant account (MID). When chargebacks do get through, you have a second chance to beat them by contesting the dispute. To protect yourself, you need to stop preventable chargebacks and fight ones that can’t be avoided.
Merchants can get early warnings about disputes in progress that haven’t yet become chargebacks; however, you need to pay around $40 for each alert. These alerts are provided by Verifi and Ethoca, partners with Visa and MasterCard, respectively. When a merchant receives an alert, they can resolve the dispute immediately by issuing a refund, preventing the chargeback from being filed. Using these alert services can reduce chargeback rates by as much as 30%.
The catch with alert services is that you must respond within 24 to 48 hours, or the chargeback will go through. That means you always need somebody on staff to watch for alerts and provide appropriate responses. Chargeback management companies often include 24/7 alert monitoring as one of their core services.
Verifi is also releasing a service called Rapid Dispute Resolution (RDR), which will automate the process of responding to Visa, fraud and non-fraud claims at the pre-dispute stage; preventing a chargeback from being filed. Both merchants and issuing bank systems will integrate with RDR and use pre-defined business rules to resolve the dispute immediately. For other card brands merchants can continue to take advantage of CDRN alerts which are resolved within 48 hours.
To fight a chargeback, merchants must “re-present” the charge, along with evidence that proves the chargeback isn’t valid. This only works if the facts are in your favor; however, merchants should always do their best to fight friendly fraud chargebacks.
Representment is an especially important option for merchants who sell goods and services at a high cost. It can be challenging to navigate the representment process, so it’s not uncommon for merchants to look for chargeback management companies to handle it for them.
Chargeback Protection Management & Performance Testing
To use your chargeback protection tools effectively, you must know which alerts to refund, which chargebacks to represent, and what data to pass along to deflection services. You need to understand where your chargebacks, and the underlying causes.
Chargeback management is the big-picture process of monitoring your chargebacks, analyzing the data, and taking the necessary actions to keep them under control. For most small to mid-size merchants, this isn’t something they have the time or resources to do effectively.
One way to make chargeback management more manageable is to get all your essential protection services (Prevention, Deflection, and Representment), plus your tracking, reporting, and analytics from a single platform. That way, you can monitor, resolve, and fight your chargebacks from one central place.
You can also streamline many platforms and services related to chargeback management by integrating them with your other critical systems (like your CRM, payment processor, and gateway) to resolve disputes faster by receiving transaction data in real-time.
To receive payments through credit and debit card transactions, you need a merchant account (MID). Excessive chargebacks can cause you to lose your MID and freeze your ability to open a new one. Protecting your MID is vital to the health of your business.
The last thing you want is to look at your monthly statements and be surprised by a nasty spike in your chargeback rate. To protect yourself, you need to be able to see your chargeback rate in real-time. Once again, this is a lot for most merchants to take on by themselves, and it often ends up getting outsourced to chargeback management companies. Larger merchants who have multiple MIDs to manage can have an especially hard time finding solutions that work.
Using the right chargeback protection software can be a more straightforward way to track and analyze your chargeback activity, no matter how many MIDs it needs to monitor. With real-time visibility into what’s happening with your disputes, you can also identify patterns and root causes more easily. These actionable insights can help you strategize and take the right steps to address the problems that make your customers unhappy.
Best Chargeback Protection for Your Business
A good chargeback protection plan requires the right tools and the right data-driven insights to tell you where and when to use them. It requires up-to-the-minute visibility into where your chargeback rate stands, and ways to reliably measure whether your methods are working or not.
MidMetrics provides all of these critical attributes—a full suite of our proprietary chargeback management tools, including Management Dashboards, In-Depth Analytics Tools, and On-Demand Reports, Order Insight and RDR. MidMetrics gives you a comprehensive platform for fighting chargebacks and defending your merchant accounts.
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.
A solid chargeback protection plan is essential, but what is a good chargeback protection? What components does it need to have, and how can you tell if they’re working effectively? We’ve got answers for you in this helpful guide, How to Protect Your Business Against Chargebacks & Fraud.