Published September 02nd, 2016 by

Using Alerts to Prevent Chargebacks

By now, most online merchants are painfully aware of chargebacks.

Although intended to protect consumers from unscrupulous business practices and fraudulent activity, chargebacks have since developed into a merchant’s worst nightmare. Between consumers requesting chargebacks as a means of engaging in friendly fraud, identity theft cases and seemingly minor merchant errors, chargebacks prove to be a costly and time-consuming source of revenue loss.

Many merchants, exasperated by the process of challenging chargebacks, simply accept these disputes as just another cost of doing business. At the same time, there are plenty of other merchants who want to take a stand against chargebacks, but are simply at a loss for how to handle the process.

The High Cost of Chargebacks

Modern eCommerce merchants face mounting fees, revenue loss, and may even be in danger of losing their merchant account as a result of excessive chargebacks. While verification technologies intended to prevent chargebacks can be effective, they aren’t foolproof. Even then, cardholder verification only goes so far.

“More than 80% of all chargebacks are actually the result of what’s called ‘friendly fraud,’” says Monica Cardone. “Because friendly fraud is conducted by seemingly loyal customers making legitimate purchases, traditional fraud detection technology can’t predict the resulting illegitimate chargebacks.”

In addition to prevention, disputing chargebacks is another widely used tool in the fight against credit card fraud; however, the chargeback dispute process is still costly and complex. As a result, merchants looking for a method of stopping chargebacks altogether often turn to issuing banks for assistance.

Using Chargeback Alerts

As a way of helping merchants combat chargebacks, issuing banks have joined into alert networks to notify merchants of pending chargebacks.

With alerts, any time a cardholder disputes a transaction with their bank, the bank sends an alert to the merchant. This gives them 24-48 hours to issue a refund, and although the merchant may lose revenue from the sale, they will at least prevent the additional fees, reputational damage and other negative impacts of a chargeback.

Of course, while this is an effective method of preventing chargebacks, there are still drawbacks to the solution:

Managing alerts from multiple networks demands significant resources. Managing alerts from more than one network means logging into multiple portals to monitor the situation. Each alert network has different processing requirements and effective management will be time consuming.

Some banks are in multiple networks. Especially in the case of larger banks, many issuers are registered with multiple networks. This creates the potential for duplicate alert notification, resulting in confusion and extra work for the merchant.

Merchants have little time to act on their alerts. Pre-chargeback alerts must be solved within the allotted time frame or they convert to chargebacks. Because merchants only have 24-48 hours after an alert is issued in which to act, the alert may pass before a merchant can even move to take action.

Alerts don’t solve the reason for the transaction dispute. To create long-term protection from chargebacks, merchants need to determine why transactions are disputed. True prevention demands identifying the cause of chargebacks.

Third-Party Alert Management

For the most part, merchants just don’t have the resources to fully capitalize on chargeback alerts. However, third-party companies which collect and monitor alerts can make effective alerts management a reality.

These organizations can screen for duplicates to ensure that merchants aren’t paying for protection they didn’t receive, as well as offer an easy-to-use portal that streamlines management in one place.

If you’d like more information about compiling all alerts in one portal and possibly arranging for automatic refunds, read more here.

Alerts Are Just One Part of the Solution

Merchants with high chargeback rates will benefit from this early notification system, as alerts can be another avenue of defense for merchants who wish to protect their revenue.

This can be an essential element in merchants’ fight against credit card fraud. However, alerts are only one small part of a larger fraud and chargeback strategy. Merchants need to adopt a comprehensive plan of action in order to challenge a problem as dynamic and quick-to-evolve as eCommerce fraud.

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