Dispute management is a balancing act. You want to protect your bottom line from fraud and chargebacks, but you don’t want to add to the cost by throwing time and resources at the problem that could be better spent elsewhere. To strike the right balance, know what you can do in-house and what can be more effectively managed by outsourcing.

As a dispute management company, ChargebackHelp certainly has an interest in the outsourcing vote. But more importantly, we want your strategy to be successful. Your dispute management strategy can only be a success when built on a sound understanding of the problems disputes pose to your business, and the tools available to deal with it. Here we’ll give you the framework to make that informed choice, with five things you should know:

  1. Know the “dispute ecosystem”.
  2. Know the problem.
  3. Know the cost.
  4. Know your resources.
  5. Know your goals.


The payments industry is fond of flowery language to describe what might otherwise be rather drab, complicated processes. Hence, the “dispute ecosystem” is the process from the initiation of a dispute through all its pathways to resolution.

Here is a simplified overview of the dispute ecosystem:

  1. Cardholder initiates a dispute with their issuing bank
  2. Issuing bank reports dispute to alert network
  3. Merchant refunds dispute or it becomes a chargeback
  4. Issuer takes transaction amount back, fees & penalties assessed on merchant
  5. Merchant can choose to fight chargeback with representment

Merchant options for disputes

A merchant has three options for managing disputes. They can try to prevent disputes. They can refund disputes before they become chargebacks. And they can fight to reverse chargebacks.

It must be said that in order to deal effectively with fraud and chargebacks, no merchant can be completely autonomous. Chargebacks source from disputes raised by cardholders contacting their banks. Intercepting those disputes before they can become costly chargebacks requires subscribing to at least one chargeback alert service.

Ethoca and Verifi are the primary alert services. Each service has relationships with various issuers that send them these alerts. Verifi is a Visa company, so most Visa-issuer disputes go to them; likewise, Ethoca is a Mastercard company and covers their issuers. Note that there is some legacy crossover; you may see Visa alerts from Ethoca and Mastercard alerts from Verifi.


With access to Visa/Mastercard infrastructure, Verifi and Ethoca offer prevention services; Order Insight and Eliminator respectively allow merchants to send deeper transaction information to cardholders and prevent disputes altogether. Transaction data like delivery confirmations can be sent in real time to issuers and the cardholder statement to answer their inquiries before they escalate to a dispute.


If a dispute is not deflected, before it can be charged back, merchants can receive a dispute alert through Verifi or Ethoca. Merchants can avoid the chargeback by refunding the transaction at that point.


Representment is the process by which merchants can fight chargebacks. If you have information that can prove a chargeback was unwarranted, this “compelling evidence” can be sent to the issuing bank to argue your case. If successful, you can recover your revenue. The chargeback you reverse will still count against you, and you can not recover the chargeback fees.


The next step to determine your dispute management strategy is to understand the threat that fraud and chargebacks pose to your business. This is best quantified by the chargeback-to-sales ratio. Divide the total number of chargebacks by total transactions, then by however many months the data is pulled from. There isn’t an acceptable ratio of chargebacks, but anything over half a percent is definitely a problem. As you approach a 1% ratio, processors increase their fees and penalties; and if that rate persists, you can lose your processing altogether.

If you’re just starting out, and data is scarce, some indicators can predict the challenges you will face from chargebacks. Certain industries are considered more high-risk for fraud than others. Look up your industry in our MCC Code reference to see if you’re considered high risk. If your business is high risk, you can’t afford chargebacks as a cost of doing business; chargebacks can cost you your business.

In general, ecommerce merchants are far more likely to be targets for fraud. EMV chips have drastically curtailed fraud in card-present environments, which has driven fraud into the ecommerce space. Certain products and billing models attract fraud more than others. Digital goods merchants in particular can lose nearly 9% of total revenue to fraud, and may have to divert up to 20% of their operational budget to dealing with the problem.

Finally, what is causing your chargebacks? Each chargeback comes with a reason code explaining the underlying cause. Fraud is the classic cause of the chargeback, but it isn’t the most common. Chargebacks can be caused internally from processing or authorization errors. They may also stem from more qualitative customer service issues. Friendly fraud is suspected to be the leading cause of chargebacks, and requires an entirely different response than true fraud. Understanding the cause of your chargebacks will inform how you deal with them.


Ratios and industry averages may indicate the volume of chargebacks you’re facing, but nothing drives the pain point home quite like the cost. Your ratios might be low, but each chargeback comes with its attendant costs and fees, which add up.

Chargebacks cost you the revenue, the product and whatever fulfillment expenses went into the sale. Your processor will also charge a fee; those fees increase with your ratio as you approach that 1% threshold. You can end up in a monitoring program with the card networks, which assess further penalties.

Then come the costs of managing dispute outcomes. Refunding disputes requires subscriptions to Ethoca/Verifi. They also offer integrations to prevent disputes and automate resolutions, so there’s a labor cost to maintain those connections as well.

Once you factor in management costs, each chargeback can represent a net loss of up to three times the transaction value. If you’re not careful, the costs of prevention can eclipse the outcome you’re trying to avoid. Javelin Strategy & Research quantifies the high-end of fraud prevention and chargeback management can cost merchants up to 20% of their operational budget.


To understand what an in-house chargeback management strategy might cost, you have to look at what resources you have to allocate. If you’re already dealing with chargebacks in-house, you have a good idea of the resource cost.

Whether you’re outsourcing or you have your fraud shop in-house, these are the questions you should be asking to understand your resources:

  • Are you diverting significant resources from your core business?
  • How much experience do they bring to the problem?
  • Is your solution differentiating between fraud and friendly fraud?
  • Can you manage disputes securely?
  • Are you capturing transaction data to fight disputes and chargebacks?
  • Are you seeing results?


The best way to know if your dispute management resources are effective is to set out clear and realistic goals. If the strategy is to save money and reduce chargebacks, your goals are how that is achieved.

  • Capture your transaction data
  • This is the fundamental step towards getting chargebacks under control. Your dispute management solution should be able to access your gateway data, your CRM and any other fulfillment data associated with a dispute. This information will help you understand if your disputes are true fraud or friendly fraud, which in turn tells you if you should refund the dispute or fight it. This data will also help you to prevent disputes and win

  • Diversify your dispute coverage
  • You should be getting dispute notifications from each payment method you accept. Verifi sends alerts for most Visa issuers. For Mastercard, it’s Ethoca. American Express and Discover are both a payment network and card issuer, with their own notification systems. Your dispute management must be capable of receiving and responding to alerts in a timely manner from each method you process, regardless of your volume on that method.

  • Fight friendly fraud
  • Friendly fraud is the most common cause of chargebacks, but it is also the one type of fraud that merchants can prevent and fight. Prevention means sending adequate information to the cardholder so they recognize their purchases. If your transaction data contradicts the chargeback reason code, that information should be sent to fight the chargeback. Prevention and reversals are the best outcomes for disputes.

  • Reduce unforced errors
  • While friendly fraud does get a lot of attention, there are other disputes you can prevent by reducing merchant errors. Even if you do outsource your dispute management, only you can fix issues like products not as described, or charging incorrect amounts. Make sure you’re finding those errors and fixing them.

  • Manage your expectations for prevention
  • Dispute management is a game of loss reduction. Not all disputes are preventable. If a cardholder finds their information was used fraudulently to make a purchase from you, they’re going to call their bank — they have to prevent that card from being used again. The fact of the matter is you are going to lose some money to disputes. The best strategy keeps those losses to an absolute minimum.


Hopefully, we’ve explained what goes into a successful dispute management strategy in an objective manner. Whether you execute that strategy in-house or with outsourcing, you need to understand how disputes work, how they’re affecting your business, and what you need to accomplish to control the problems posed by disputes and chargebacks.

ChargebackHelp can provide you with deeper insights into the disputes your business faces. We offer a free chargeback analysis and we can demonstrate for you how our solution addresses those issues. Send us an email, call us at 1.800.975.9905 or contact us here.