Evaluating Chargeback Management Solutions: A Helpful Guide
By Brian Radford on May 6, 2021
Many retailers make the same mistake: they don’t take chargebacks seriously enough. It’s easy to overlook them as yet another cost of doing business, but any company that’s totted up how much revenue they’ve lost to disputes will know better. After accounting for additional costs like bank fees, the losses from chargebacks can add up to more than twice the value of the original transaction. They’re no triviality. In fact, retailers that fail to get to grips with their chargeback defenses can end up losing up to 40% of their profits.
As if the prospect of lost revenue wasn’t bad enough, chargebacks threaten more than just financials—in some cases, they can also result in businesses losing access to their merchant accounts. Most payment processing services set a chargeback threshold, which determines how many disputes a retailer can receive before being put on the Terminated Merchant File (or MATCH), meaning the account holder is blacklisted. Generally, if 1% of transactions result in chargebacks, it could be enough to end up on the list—and it can take five years for the penalty to be lifted.
Five years with no debit/credit payment processing services is enough to take practically any merchant out of business, so chargebacks aren’t a matter to take lightly—they could literally make the difference between whether a retailer is able to continue operating or not. Therefore, chargeback management is a necessity and not just a nice-to-have.
Unfortunately, it’s often easier said than done—chargeback management is a labor-intensive business process involving data analysis, finding the root causes behind disputes, and fixing the problems encountered. Then there’s fraud to worry about, which makes up a large proportion of all chargebacks. Ultimately, most retailers can’t carry out their chargeback management system in-house and need to bring in external help.
Some firms opt to outsource to a chargeback management company, while others can introduce the right systems internally. Either way, implementing suitable chargeback management processes and tools is non-negotiable for running a sustainable, profitable business. For more advice on how to choose the right services, keep reading.
Chargeback Management Services
Although some retailers have the resources and staff needed to run their chargeback management solutions independently, it’s rarely the most efficient option. By outsourcing, firms can remain competitive and direct their valuable resources elsewhere—all while keeping their chargebacks under control. Below are the three crucial chargeback management services to bear in mind: prevention, deflection, and representment.
The best way to avoid the repercussions from chargebacks is to prevent them from ever taking place. How? Chargeback alerts can give merchants real-time alerts when customers file disputes, meaning it’s possible to reverse them before they progress to full-on chargebacks. Visa provides Verifi CDRN alerts, while MasterCard offers Ethoca alerts—both charge fees of around $40 per alert, however it’s usually best to purchase through a chargeback management firm who can maximize your coverage and minimize having to pay for duplicate alerts.
When retailers receive an alert, they can issue customers a refund instead of a chargeback, which avoids the additional costs and complications. Taking advantage of these alerts can reduce a merchant’s chargeback rate by up to 30%.
However, it’s easier said than done—retailers have to take action on alerts within 24 to 72 hours to reverse chargebacks, so there must always be someone on call to respond. Fortunately, chargeback management firms tend to offer a service that includes 24/7 alert monitoring, ensuring that no alert will go unnoticed. Verifi also provides a Rapid Dispute Resolution (RDR) service, which offers automated alert responses—eliminating the need for manual involvement.
When retailers opt to fight back against a chargeback, they must go through the representment process; this involves providing evidence a chargeback was illegitimate and should therefore be reversed. It’s not always possible to fight chargebacks, even if they were filed inappropriately, but merchants should always take action in the case of friendly fraud.
Representment is particularly important for retailers that sell high-value goods and services since they have the most to lose. In this case, merchants often choose to outsource the task to chargeback management firms.
Chargeback Management System
A chargeback management system offers a range of tools to help manage, prevent, and fight chargebacks while also allowing merchants to monitor their chargeback rate in real-time and analyze the effectiveness of other tools. Let’s examine both aspects in greater detail.
Chargeback management encompasses everything related to monitoring, analyzing, and controlling chargebacks. Since it involves so many complicated tasks, most mid-sized businesses (and even larger enterprise firms) simply don’t have the capacity to carry out everything themselves.
To ease the workload, these merchants should turn to a chargeback management solution instead. This handles the three key services of Prevention, Deflection, and Representment—allowing retailers to track, resolve, and combat their chargebacks in one place.
Firms can also integrate other tools and solutions with their chargeback management system to streamline operations further, making it quicker and easier to manage disputes. Common integrations include payment processors, CRMs, and gateways.
As discussed already, receiving too many chargebacks can result in a merchant account being closed or even frozen, stopping a retailer from being able to handle card transactions and therefore threatening their ability to continue in business.
To stop this from happening, merchants need to be smart and monitor their chargeback rate constantly instead of waiting until they receive their monthly statements to check it—at this point, it’s too late to take action. Although it might sound simple, this level of monitoring requires a lot of resources, so many merchants outsource it to chargeback management firms instead—especially if they have multiple accounts.
Even for retailers running various merchant accounts, a good chargeback management system is the perfect way to analyze and monitor chargebacks. They provide real-time insights into the current state of disputes, plus sophisticated analytics regarding the patterns and root causes of chargebacks, making it easier to implement preventative strategies. Often, simple problems make customers unhappy and lead them to file chargebacks, which can be easily fixed.
The Right Chargeback Management Firm
The right chargeback management firm 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 what your chargeback rate is and how your solutions are measuring up.
MidMetrics provides all of these key chargeback management solutions (discussed above) with a full suite of our own proprietary chargeback management tools that include Management Dashboards, In-Depth Analytics Tools, On-Demand Reports, and alerts. This gives you a single powerful platform from which to manage your chargebacks and protect your merchant accounts—all for one price.
You could try to put together all of these attributes from a bunch of different providers, but how much would it all cost—and would it really be as effective? MidMetrics is expertly designed to be easy to use and integrate with your existing systems, but 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.