Chargeback — A merchant’s nightmareWhile issuing banks take great care of their cardholders by keeping them safe from fraud, the do precious little to protect the merchants. The biggest threat merchants face is so-called friendly fraud—when a cardholder tries to get money back from a purchase that they made, claiming the transaction was fraudulent. Once the chargeback is approved, financial transaction is canceled, and the customer gets a refund. Even in the cases where merchant fights the chargeback successfully there are still considerable fees for the representment.
Consequences of chargebacks on merchant businessesThe Big Three of credit card networks (Visa, MasterCard, and American Express) supervise their merchants’ chargeback ratios. If the chargeback ratio by transaction gets too high, acquiring banks tend to close their clients’ accounts and put them in the TMF (Terminated Merchant File). Alert networks like Verifi were created to help merchants avoid this outcome.
How can VERIFI help merchant businesses?Verifi is an LA-based company, founded in 2005, providing payment protection and management for merchants running an online business on eCommerce platforms. Their chargeback management program is called the Cardholder Dispute Resolution Network™ or CDRN. This program enables real-time communication between the merchant and issuer, to resolve disputes and prevent chargebacks. CDRN receives immediate notifications about cardholder disputes from issuing banks, so they can alert the merchant before an eventual chargeback is put into action. By freezing the chargeback process, CDRN enables the merchant to resolve the issue with a customer via refund to avoid a chargeback or fight the chargeback later through representment.
Benefits of CDRN notificationsBy notifying the merchants about pending cardholder disputes, Verifi CDRN gives them a chance to resolve the issue directly with the customer before it becomes accepted as a chargeback by the payment processor. Merchants have two options in this case:
- Settle the dispute via refund and avoid a chargeback
- Let the chargeback stand, collect evidence, and fight it through representment to recover the revenue
Timeline of chargeback interceptionsThe time it takes CDRN chargeback alerts get to the merchant depends on their transaction volume and their history alerts networks. Merchants are alerted in the following time frames:
- 45-60 days (if the merchant has no previous transactions; a brand new business)
- 20-30 days (if the merchant hasn’t enrolled in an alert network before)
- Immediately (If the merchant is enrolled in prevention alerts and has alert history)
How effective is Verifi?The number of prevented chargebacks depends on the following factors:
- Transaction count (more transactions mean more alerts)
- Location of customer’s bank (Verifi has better U.S. coverage than overseas)
- Years in operation (established merchants have better coverage than newbies)
- 41% for digital goods
- 21% for physical goods
- 19% for the subscription industry
- 17% for digital services
Is Verifi the only alert network?No. Another one is Ethoca, based in Canada. These two companies overlap each other programs and services but still differ. Verifi covers most of the US, while Ethoca covers Canada, Asia, and Europe. Both charge fee per alert and give 24 hours to the merchant to decide on his or her next action (issue a refund or fight the chargeback). If the merchant doesn’t react within the time frame, a chargeback is issued. Working with both networks provides better coverage. It can also get expensive because there is some overlap between the networks, and merchants can end up paying twice for the same alert.
Benefits for merchants signing with chargeback management companiesChargeback management companies can enhance the benefits of using both networks, and also help reduce the overlap. If the merchant doesn’t work through a chargeback management company, the weight of alerts resolving falls solely on him or her. As a chargeback management company, ChargebackHelp specifically provides:
- A single endpoint to track all their alerts.
- Chargeback guarantees: if your refund still becomes a chargeback, we cover the expense
- Fees structure is comparable to dealing direct with alert networks, as seeks to add value by reducing overlap.
Are alert networks the only option for keeping eCommerce safe for merchants?A CDRN is a great solution and a necessity for merchants with serious chargeback problems. Though alerts can help reduce a merchant’s ratio of chargebacks to sales, they don’t address the root causes of chargebacks. There are simple steps you should follow to reduce the chances of chargebacks organically:
- Provide an exact description of the products and services
- Provide easy to reach customer service
- Quickly respond to customer contacts
- Provide clear and comprehensive terms of service before transactions are made
- Timely address internal issues such as fulfillment, descriptors or quality assurance gaps that may trigger chargebacks
(featured image source: https://www.verifi.com/ )