There’s two ways a transaction can go: a good way, and a bad way. The good way is where you make a sale, get the money and move on. Then there’s the bad way, when for whatever reason, a dispute arises and your revenue is in jeopardy. This is known as a chargeback, which allows cardholders to obtain refunds for products and services by side-stepping the merchant and going through their card-issuing bank. Chargebacks are expensive and can even cost merchants their ability to process credit cards altogether.
Visa and Mastercard are about to fundamentally change the dispute process. They have bought up Verifi and Ethoca respectively, the mechanisms which merchants rely on to resolve disputes. In doing this, they’re aiming to delete chargebacks altogether for merchants. ChargebackHelp is right on top of these changes with our premier dispute management platform, ChargebackHelp Plus (CBH+). In concert with a wide adoption of these changes by Visa/Mastercard issuers, CBH+ could very well usher in the death of chargebacks as we know them. We’ll explain exactly how this will likely shake out, and how merchants can position themselves to reap the benefits. But first, some context…
And as anyone who has worked with the card schemes knows, when they want you to do things a certain way, they’re not asking.
THE BIRTH OF CHARGEBACKS AND ALERTS
The chargeback was first introduced in the U.S in 1978, as part of the Electronic Fund Transfer Act (EFTA). This disco-era concept has endured largely unchanged into the internet age; and like disco, the chargeback is crudely adapted to today’s world, and is widely abused. A cottage industry of solutions providers have spawned to help today’s merchants manage disputes with yesteryear’s tools; two of the most prominent being Verifi and Ethoca.
Both founded in 2005, Verifi and Ethoca blew up on the idea that they can alert merchants to pending chargebacks when a dispute is raised with an issuing bank. By law, issuers can not issue a chargeback until 15 days after a cardholder initiates a dispute. During that interim, Verifi and Ethoca alert the merchants who subscribe to their services that they must issue a refund, or face a chargeback. Merchants lose the revenue just the same with a refund, but save themselves from the fees and penalties of a chargeback.
If a merchant does not agree with a dispute, they can fight it through representment—a process where the merchant submits “compelling evidence” to the issuing bank that further ties the cardholder to a purchase. These are things like delivery confirmations, signatures, and device fingerprinting to name a few. But the merchant has to let the dispute escalate to a chargeback in order to fight back. And even if they win, the fees and penalties of the chargeback remain on the ledger.
Verifi and Ethoca came up with excellent solutions to the merchants’ representment problem: a streamlined data-sharing infrastructure that sends compelling evidence to issuers and cardholders in real time. If a customer or their bank need more information, it would appear on their bank statements, as an up-front representment. Verifi’s Order Insight and Ethoca’s Eliminator were ahead of their time, but issuers have not hitherto adopted these tools on a scale that merchants can rely on.
THE CARDS DEAL IN
While many issuers slept on Verifi/Ethoca and their innovative products, Visa and Mastercard were wide awake. In 2019, amid dueling acquisition sprees, Visa scooped up Verifi and Mastercard bought Ethoca. The cards are now all-in on the dispute management game, merging Verifi/Ethoca capabilities into their extensive networks and stimulating adoption with their influence. And as anyone who has worked with the card schemes knows, when they want you to do things a certain way, they’re not asking.
With the Verfii/Ethoca infrastructure now running on the Visa/Mastercard networks, dispute management may significantly change for the better. Order Insight and Eliminator are now bundled into Visa/Mastercard processing. Both schemes are expecting the majority of their issuers to automate the dispute process over their networks.
This automation will give merchants a direct line of communication to resolve disputes, in real time. With participating issuers, merchants can now deflect friendly fraud disputes by sending compelling evidence immediately, so cardholders and their banks can see exactly what/when/how they purchased and received goods and services. Merchants can also automate resolutions for fraudulent transactions by integrating and customizing fraud data, to better qualify those instances where a refund is warranted.
Merchants will not passively receive these benefits; there are steps they must take to deflect or resolve disputes and recover revenue. First, merchants must automate the delivery of their transaction data. There are roughly 250 data points to integrate for transaction data capture and transmission. This requires a platform to integrate their payment gateway, CRM and other transaction data for timely and secure flow of information.
Secondly, merchants must integrate into the dispute ecosystems of each card scheme, including Verifi and Ethoca. This integration is extensive and labor intensive to create from scratch, in house. There are also frequent maintenance updates to sustain the connection and ensure its security.
As a chargeback management company, ChargebackHelp had already been working with Verifi/Ethoca, integrating their Order Insight and Eliminator products into our dispute management platform, ChargebackHelp Plus (CBH+). With the recent maneuvers by Visa/Mastercard, CBH+ is now the premier solution for merchant dispute management.
THE DEATH OF CHARGEBACKS?
The new Visa/Mastercard system creates a 1:1, adoption-to-reduction probability. If 100% of issuers get on board, it is probable that CBH+ can reduce close to 100% of chargebacks. This is the death of chargebacks as a friction point in merchant processing!
While the ball is in the issuers’ court, get in position with us to take full advantage. As of right now, ChargebackHelp can resolve and deflect disputes automatically with participating issuers, and more banks are coming on line everyday.
If you have a chargeback problem and you’re serious about dealing with it, then ChargebackHelp Plus is right up your alley. When you integrate your processing and CRM onto CBH+, we will be able to deflect disputes entirely, refund alerts immediately, and reduce chargebacks more effectively than ever before.