Chargebacks are a major risk for companies big and small. You may strive day in and day out to build up your business and serve your customers to the best of your abilities. Yet chargebacks could sink even the best-laid plans if you don’t proactively manage them. The good news is that services like Ethoca Alerts make it easier to reduce chargebacks, combat fraud, and resolve disputes.
Did you know that all Ethoca and Mastercard chargeback and dispute solutions are available through ChargebackHelp? This makes us a one-stop-shop for all merchant chargeback prevention needs! Contact us today.
A Quick Look at Ethoca Alerts
Ethoca Alerts are a collaborative tool that benefits merchants, card issuers, and cardholders alike. Crucially, merchants can enjoy lower operational costs, and disputes can be resolved in hours rather than weeks.
Ethoca can be used with chargebacks and disputes on various card networks, including American Express, Visa, Discover, and of course Mastercard. Further, Visa offers similar tools through their own subsidiary, Verifi. While there are differences between Ethoca and Verifi, and their product offerings, both offer effective tools for combating chargebacks, fraud, and other threats.
Understanding Chargebacks and Why Alerts Can Prove Crucial
Chargebacks stem from good intentions. In the United States, chargebacks were enshrined into law back in the 1970s as credit and debit cards started to proliferate, becoming a favored payment method for both cardholders and merchants. Lawmakers worried that credit and debit card transactions would be ripe for fraud and that many cardholders would end up defrauded.
As such, laws were put in place to limit cardholder liability for fraudulent activity and to ensure that consumers could dispute transactions. The Fair Credit Billing Act of 1974 paved the way for credit card chargebacks, while the 1978 Electronic Fund Transfer Act (EFTA) extended some protections for debit card transactions.
Unfortunately, however, while chargebacks protect cardholders, they are a major burden for merchants, banks, and card networks. Resolving disputes is a labor-intensive process, so banks levy chargeback fees that can cost up to $100 or more. Card networks can also hit merchants with fees and other penalties (we’ll cover this in the next section).
With chargeback alerts, among other tools, it’s possible to dramatically reduce the number of chargebacks you’re hit with. Ethoca Alerts warn merchants of pending chargebacks. The merchant can then preempt them by refunding the customer or otherwise resolving the issue. Let’s take a closer look.
Here’s How Ethoca Alerts Work
Ultimately, Ethoca Alerts can be thought of as a powerful communication tool that dramatically speeds up the dispute process. We’ve outlined the general process that unfolds when Alerts are used.
- First, a card issuer notifies Ethoca of a dispute or suspected fraudulent transaction.
- Ethoca then passes this information on to the merchant in question.
- Once the merchant receives the alert, it can take proactive steps to resolve the issue before a chargeback is filed. This often includes offering the customer a refund.
- If an order is in the process of being filled or shipped, the merchant can try to stop it, thus recovering inventory.
- The merchant informs Ethoca of the steps taken to address the issue, such as issuing a refund.
- From there, Ethoca passes the outcome to the issuer.
Ultimately, Ethoca Alerts provide merchants with an opportunity to resolve a dispute without having to go through representment and without being hit with a chargeback. Of course, it’d be better to avoid disputes altogether but sometimes that’s simply not possible.
Ethoca Alerts: A Great Bargain
Few things worth having come free in life. That happens to be the case for Ethoca Alerts as there are fees, which can vary depending on specific circumstances. That said, given how much chargeback fees, lost inventory, and a rising chargeback ratio can cost, Ethoca Alerts offer a great bargain.
Further, operational costs are a major concern for practically any business. Especially amid a tight labor market, keeping costs low and increasing productivity offers significant dividends. By avoiding the lengthy representment process, Ethoca Alerts and other tools free up a merchant’s employees and resources, allowing them to focus on other tasks.
That said, managing Ethoca Alerts can be a bit cumbersome. Since Ethoca is only one of many tools that merchants use to fight chargebacks, logging into their platform and managing the alerts themselves can be a nuisance if not a burden. The good news is that RESOLVE brings Ethoca Alerts, as well as solutions from other providers like Visa’s Verifi, under one roof. This makes it easier to manage each tool which in turn results in even higher productivity.
Recover Inventory and Stop Fulfillment
Additionally, since Ethoca Alerts speed up communication, they may afford merchants opportunities to stop fulfillment and shipments. Lost inventory can be a major cost for businesses, especially if tacked onto chargeback fees and other penalties. Unfortunately, since the chargeback phase is rather slow, many merchants end up filling orders before they realize that there is a dispute.
Alerts can be especially effective at uncovering fraud. If a cardholder notices that someone made an unauthorized purchase and contacts their bank, resulting in an alert being sent out, the merchant may be able to stop the fraudulent order from being fulfilled. This not only saves the merchant money but makes fraudulent activity less profitable for criminals.
Ethoca Alerts Can Help Merchants Avoid Mastercard’s ECM Program
It’s crucial that merchants pay close attention to their chargeback ratio. If a merchant’s chargeback ratio gets too high, they will be placed in a monitoring program and will have to pay increased penalties. With Mastercard, if you’re placed in an Excessive Chargeback Merchant program, you’ll have to pay flat fees that start at $1,000 per month but can reach $200,000.
Unfortunately, it doesn’t take that many chargebacks to draw the ire of card networks. With Mastercard, if your chargeback ratio meets or exceeds 1.5% and you rack up 100 to 300 chargebacks, you’ll be placed in an Excessive Chargeback Merchant (ECM) program. If your ratio exceeds 3% and you suffer 300 or more chargebacks, you’ll be placed in the High Excessive Merchant chargeback ratio. Mastercard often expresses the chargeback ratio as “basis” points, but at the end of the day this simply reflects the percentage of transactions that result in chargebacks.
Chargebacks that occur through other card networks, like Visa, won’t impact the chargeback ratio computed by Mastercard. (Visa also only considers chargebacks accrued on their network.) Ethoca Alerts have helped many merchants steer clear of Mastercard’s Excessive Chargeback Merchant programs.
Avoid Issues With Acquiring Banks
Even though they collect fees, banks typically don’t want to deal with chargebacks. Managing them is a pain, card networks can hit banks with penalties, and disputes result in disgruntled cardholders, among other things. As such, if a merchant is racking up a lot of chargebacks, their acquiring bank may hit the company with increased chargeback fees.
Further, in some cases, the bank might also simply drop the client altogether. This could leave merchants cut off from credit and debit card transactions. Merchants may turn to high-risk payment processors, but these companies typically charge higher fees.
Add it all up and it’s clear that companies need to take proactive steps to reduce and manage chargebacks. Otherwise, they could be on the hook for hefty penalties and increasing costs will eat into their bottom line.
Does Visa/Verifi Offer Similar Tools to Ethoca Alerts?
Verifi, a Visa Solution, offers the Cardholder Dispute Resolution Network, which is often simply referred to as CDRNⓇ. This tool also allows merchants to resolve a dispute before a chargeback is officially filed. Merchants will have 72 hours to take proactive steps, including refunding the customer. As with Ethoca Alerts, this can protect your chargeback ratio and help you avoid chargeback fees and other costs.
A Brief Look at Ethoca’s Company History
Ethoca was founded in 2005 and is currently based in Toronto. When Ethoca was founded, Internet shopping was fast growing and credit and debit cards were gradually displacing cash. These trends increased the threat posed by chargebacks, ultimately creating a need for services like Ethoca Alerts. These days, online shopping is a favored activity for millions, and credit and debit cards now account for more transactions than cash.
Ethoca’s founders believed that communication systems between financial institutions, merchants, and cardholders were fundamentally broken, noting that resolving disputes often took between 4 to 6 weeks. The traditional representment phase is laborious for every stakeholder.
By increasing communication through Alerts and other product offerings, Ethoca aims to improve outcomes for everyone involved. Having already formed a strong partnership with Mastercard, Ethoca was purchased by the card network in 2019.
Alerts were Ethoca’s first product and remain the company’s flagship offering. That said, the company has expanded its lineup, now offering other tools, such as Consumer Clarity, a solution that can automatically transmit transaction data and details to clear up misunderstandings. Ethoca also offers Fraud Insights, a platform that gathers and presents data covering fraud. More products and services may be forthcoming.
Conclusion: Maintain Your Competitive Edge With Ethoca Alerts
Misunderstandings, fraud, and ultimately chargebacks are a grave threat for merchants. If a particular merchant is hit with more chargebacks and is forced to pay more in penalties compared to competitors, that company could find itself at a severe disadvantage. Over time, this could erode the merchant’s position and may even push them out of the market. Ethoca Alerts, among other tools, can reduce chargebacks and risks.
Using Ethoca (and Verifi) can be rather tricky, however. Some merchants have so many chargeback and fraud tools at their disposal that they struggle to wrangle them all. With solutions like RESOLVE and DEFLECT merchants can manage many of the most effective chargeback mitigation tools from one platform. This will further increase productivity and allow merchants to more easily manage and reduce chargebacks.
