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Chargeback Prevention in Real-Time: Myth or Truth?

chargeback prevention

Sad but true: no merchant is 100% safe from getting chargebacks. In the world of all-encompassing online financial services, chargebacks are bound to happen – whether they are legit or fraudulent. Other chargeback-related issues are also rising: fraud cases grow, and new regulations are being implemented, putting businesses in jeopardy.

A timely question follows: is there such a thing as real-time chargeback prevention? There is, actually! Our team knows first-hand how these services benefit merchants, and we are ready to share the knowledge.

Who needs chargeback prevention services?

Any merchant, really. High chargeback ratios are associated with high-risk industries. But nowadays, even an insignificant number of disputes can damage any company in the long run.

First of all, chargebacks are costly. In the case of refunds, you return the client’s money. But chargebacks are more complicated. For each chargeback, the payment provider will demand a fee. For instance, one of the popular financial providers will charge you $20 for each case. And $20 bills can add up quickly.

If the chargeback percentage from the total pool of transactions exceeds a specific number – the business will likely fall under the high-risk category. It can damage the cooperation with the acquirer and the company’s reputation. Some merchants will have to deal with high-risk providers that have higher rates. And recently, Visa and Mastercard have lowered the acceptable chargeback ratios even more.

So, Maxpay has tested and can recommend some chargeback prevention services to any merchant that wants to minimize this issue.

Automatic refunds

When talking about real-time chargeback prevention, this is the first thing that comes to mind. Specifically, the Rapid Dispute Resolution (RDR) was brought about by the joint efforts of Verifi and Visa. At its core, this is an automatic refund solution. Meaning instead of dealing with a transaction dispute, you refund a client right away. And as we established prior, it is better to deal with those than chargebacks.

The control over this feature is in merchants’ hands, as they establish the conditions under which the refund is issued. Therefore, we recommend utilizing RDR when you are sure about specific categories of disputes you are ready to refund.

For instance: a big-league e-commerce store that takes thousands of orders daily. Keeping track of all chargebacks is time-consuming and unnecessary for this type of company. So, the business can set an automatic refund for each chargeback under 10 euros. For one, not all chargeback claims can be disputed, and the merchant risks losing more than 10 euros. And also don’t have to waste time manually checking said transactions.

Based on experience, Maxpay’s experts usually recommend refunding everything under 30 euros margin. If the chargeback exceeds 30-50 euros, we will dispute it if the code is appropriate.

Merchants can apply the automatic refunds option not only to transaction amounts but to other metrics: currencies, purchase identifiers, issuer BINs, transaction dates, dispute categories, and condition codes.

Getting the RDR is simple: our clients describe the rules they want the automatic refunds to fall under. Then Maxpay’s team forms and finalizes their requests and sends them to Verifi.

From there, merchants don’t have to take part in the process. Instead, they will be getting reports on all the refunds issued to better understand how to make their refund rules more effective if necessary. The only downside is that the Rapid Dispute Resolution is only available for Visa issuers.

Here’s how one of Maxpay’s clients benefited from RDR. Before that, in October of 2021, its chargeback ratio from clients that use Visa cards amounted to 4,15% (100+ chargebacks per month as long as 50 000 USD Visa monthly volume ). Once they started utilizing RDR, the chargeback ratio decreased to 0% the next month and remained the same to this day.

Alert services

Another essential tool for real-time chargeback prevention is Ethoca Alerts. Ethoca has a network that unites multiple banks and merchants worldwide, which enhances the payment experience for all parties involved.

The network is an essential part of Ethoca Alerts. When the issuing bank receives the dispute request, it uses the network to notify the merchant. The process takes minutes. Without the alert, the company would find out about the chargeback days and sometimes weeks later.

Thanks to the prompt dispute notification, the merchant in question manages to issue a refund before chargebacks occur. Not only that, but during this short time, the business also manages to cancel any shipping operations and return physical goods.

The Alerts mainly work for Mastercard issuers in confirmed fraud cases, but the way they save merchants’ funds from multiple expenses is difficult to overestimate.

Let’s take a look at the above-mentioned case once again for an example. As of October 2021, its chargeback ratio was 1,17% from customers that used Mastercard to make payments. Ethoca Alerts’ implementation subsequently reduced the chargeback ratio to 0,44% – the acceptable rate for low-risk companies.

In-house assistance and other services

Looking back at the two real-time chargeback prevention methods described, let’s sum up. Our experts recommend that you try using both RDR and Ethoca Alerts. Each service has its advantages. The solutions complement each other and make a massive difference if the business bears significant dispute losses.

A compelling number of chargebacks are complicated, however. And before using any anti-chargeback service, keep in mind the following: 

  1. Not all chargebacks can be disputed by merchants. Sometimes, the company doesn’t have enough proof to win the dispute, or the chargeback reason itself is hard to dispute. But it can be hard to estimate if your business will succeed in disputing. It is better to refer to your financial provider for situations like this. Maxpay, for instance, assists merchants in disputes: our team evaluates all-pro et contra points of making a dispute and helps businesses in decision making.
  1. The fraud issue is always pertinent. Fraudulent transactions are something any business needs to address to prevent revenue losses, data breaches, and, of course, chargebacks. Thus, anti-fraud solutions are necessary to cut off scams before they occur. For this, our team recommends using the Covery platform, or similar services, that use advanced analysis of customers’ reputation records and prevent potentially fraudulent transactions based on this information.

 

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