4 things to consider when selecting a chargeback prevention solution
As ecommerce transactions continue to soar, so does the number of costly chargebacks. Whether resulting from true fraud, purchase confusion or first-party fraud, merchants and issuers are dealing with a rising wave of disputes and chargebacks—and it’s an expensive problem.
In fact, global chargeback volume is expected to reach 250 million in 2023, a whopping 50% increase over 2019 levels, according to Coveo.
So, how can merchants and issuers prevent chargebacks and all of the damage they can do? The best way is to use a chargeback prevention solution that can help them reduce disputes and chargebacks before they happen.
What is a chargeback prevention solution, and why do businesses need one?
A chargeback prevention solution is essentially just that—a tool designed to help businesses take measures to avoid chargebacks before they happen.
It’s critical for businesses to reduce chargebacks due to how prevalent and costly they’ve become. Beyond just the cost of refunding the cardholder’s transaction amount and losing that revenue, merchants also typically pay a chargeback fee that can range anywhere from $5 to more than $200 and may have to forfeit the actual goods and services they sold to the customer. There are also operational costs to dealing with the lengthy chargeback process.
Another reason to care: Chargebacks are often linked to poor customer experience. Consumers will dispute a transaction directly with their issuer in situations where they aren’t satisfied with the product or service they received, or in some cases because they don’t recall a purchase they’re seeing on their bank statement. These disputes are unnecessary and can often be avoided altogether by providing the customer with more detailed transaction information, so they can either contact the merchant directly to resolve a service issue or more easily recall a confusing line item.
Inevitably, when businesses take steps to tackle the root causes of disputes and chargebacks, they’re also improving their customer experience.
Choosing the right chargeback prevention solution
Many options exist and they all take a different approach. It’s important to understand how they work, along with their features and benefits, and to choose the one that best fits your needs. Here are four things to consider when choosing a chargeback prevention solution:
1. Speed of dispute alerts
Most chargeback resolution tools work by receiving confirmed dispute information from an issuer (or cardholder's bank), and then notifying the merchant so they can refund or cancel the order—avoiding the need for a chargeback. However, the faster these notifications (called alerts) can be sent, the more time merchants can refund and stop the incoming chargeback, giving them the opportunity to resolve more disputed transactions.
What to look for: Look for a collaborative chargeback prevention solution in which issuers and merchants are connected and have a data-sharing system in place to provide dispute alerts in real-time—within seconds after they happen. Ethoca’s network, for example, connects thousands of the world’s largest merchants and issuers to enable better—and faster—data sharing. Moreover, you want a tool that sends alerts based on both authorized (“pending”) and already processed (“cleared”) transactions. This means you will get more opportunities to prevent potential chargebacks before they happen.
2. Size of the network
No solution can prevent 100% of all chargebacks. However, the best providers will send as many dispute alerts as possible to help businesses to prevent the highest possible number of chargebacks. Chargeback solutions that offer brand-agnostic data—that is, dispute data from all card brands—are also generally the better choice because they will provide stronger defense against disputes, giving you more opportunities to prevent chargebacks.
For merchants, the more issuers a network has, the more dispute data they will have access to. For issuers, the more merchants on the network, the higher likelihood of disputes getting resolved before a formal chargeback is needed.
What to look for: Check that a solution provides dispute data and alerts from all card brands and is transparent and clear about the size of its network.
3. Ease of implementation
When choosing a chargeback prevention tool, you’ll want a solution that is quick and easy to set up and use so you can start fighting chargebacks ASAP. When a tool is intuitive and simple to use, your business will avoid a big learning curve, saving your business time and money.
What to look for: Consider a provider that offers its solution via an online, cloud-based portal. This is the fastest way to get started, with set-up often possible in less than 48 hours. Moreover, because it’s a cloud-based solution, any updates to the solution happen automatically and seamlessly without the business needing to make time-consuming manual software upgrades.
4. Opportunities for automation
Automated features can provide significant time savings to your operations while reducing manual errors. Depending on the volume and complexity of your fraud operations, your business may want to automate as much of the dispute-resolution process as possible—such as by enabling rules-based decision-making and automatically processing incoming alerts.
What to look for: Seek out a provider that offers API-based integrations so that you can infuse your existing software and tools with dispute data to automate the chargeback resolution process.
Preventing chargebacks
Keep in mind that no matter what solution you choose, it should be part of a multilayered approach—helping you reduce fraud and chargebacks at every step of the customer journey.
Beyond using a chargeback prevention solution like Ethoca Alerts that provides dispute alerts in real-time, preventing disputes before they occur can reduce the risk of chargebacks even further. This can be done by providing more detailed purchase information in consumers’ digital banking channels—such as a clear merchant name and logo and full digital receipts. Learn more about how Ethoca Consumer Clarity can help you prevent disputes before they happen.
