For better or worse, chargebacks are just a part of the game. For those merchants that are in denial or otherwise ignore the need to have a system for managing all aspects of chargeback disputes, they will continually be in the new MID – termination lifecycle. That is, they’ll spend time and resources setting up new MIDs, only to have them terminated within a few months. This is a very expensive way to run a business.
For those merchants focused on longevity, profit and building a resilient business, they put the time, money and energy in early on. The result is a more consistent way to operate, more MID cap and better payment processing rates. It is this latter group that we’re focused on here.
I’m a firm believer in the Japanese business principle of Kaizen. Kaizen is the iterative process of continual improvement. To manage your chargebacks in this business, you need to continually test and improve to build an unshakable organization.
Like many other problems in life, chargebacks are best dealt with before they are even chargebacks. Monitoring pre-chargeback indicators is the most cost effective way to keep chargebacks at bay and to preserve your hard earned revenue. Specifically, the following early indicators can help you spot bad traffic before that bad traffic turns into chargebacks, terminations and losses.
High Sales to Partials Ratio
The sales to partials ratio is simply the number of sales, compared to the number of partials (sales that were started, but not completed). A good baseline ratio is 1:10. This means 1 sale, for every 10 partials. It may seem counter-intuitive, but when your ratio goes below 1:10, it may be an indication that there is a problem with your traffic. Often, affiliates can mislead customers about your offer, resulting in orders that were placed without the customer knowing the true cost or product benefits. When this happens, refunds and chargebacks ensue.
High Refund Rate
A high refund rate can also be cause for concern. Typically refunds should be in the 10-15% range, if you are running affiliate traffic to your offer. When refunds go higher than this, you need to dig deeper and find out why. Find those refunded orders, listen to customer service calls and spot trends. You may find that affiliates have used a famous personality to help promote your product, or otherwise mislead the consumer.
As with the other KPIs we’re discussing here, and Part 1 of this series on chargebacks, drilling down through your data to spot trends on a per network or per affiliate ID basis is best. By doing this, you can weed out the bad pubs, without cutting off the profitably ones.
Alerts
Order alerts from Verifi and Ethoca have been used for years to catch chargebacks before they are filed. When a consumer contacts her bank to file a chargeback, Ethoca and Verifi intercept the chargeback at the issuing bank, sending a chargeback alert to the merchant. The merchant has 24 hours to take action in order to prevent the chargeback from being completed. Usually that action is refunding the transaction. With the transaction refunded, the chargeback cannot be filed and there is no black mark on the merchant’s record.
The cost of chargebacks to the banks and card brands has not been lost on Visa and Mastercard. The card brands acquired Verifi and Ethoca respectively, in 2019.
Visa Order Insight
In 2020, Verifi announced the launch of Visa Order Insight (formerly known as Visa Merchant Purchase Inquiry, or VMPI). Every year, millions of transactions are chargeback, simply because the consumer doesn’t recognize the charge. Visa Order Insight connects the consumer, the issuing bank and the merchant in near real-time with robust information about the transaction.
Visa Order Insight provides the transaction details from the merchant CRM to the customer’s bank in near-real time. The merchant’s address and contact information are also passed along to the consumer’s bank, to make it easy for the customer to contact the merchant (instead of the bank). Order Insight passes along the following information to the customer’s bank:
- Product description
- Order quantity
- Tracking information
- Delivery status
- Device used for placing the order
With more information about the order, the customer has a better chance of recognizing the charge. As a result, Order Insight promises happier customers, fewer lost sales and fewer chargebacks. If the customer still doesn’t recognize the charge and calls their bank, the bank’s customer service team is able to access the transaction information to help determine if the transaction should indeed be charged back.
While monitoring pre-chargeback indicators, using alerts and Visa Order Insight will prevent most chargebacks, there will still be some chargebacks that you will need to deal with. Specifically, when presented with a chargeback, you will need to compile the transaction data and send to your bank, to hopefully win the chargeback. You can learn more about this process in Part 1, The Causes of Chargebacks.
Chargeback Response
Chargeback response is largely a low-level data entry task. So why outsource it? The time to compile the information and submit it correctly is time that could be spent improving your chargeback systems, driving new traffic to your website or otherwise working ON your business. At $8-10 per chargeback response, outsourcing your chargeback response to a team like Midigator makes sense. Remember, work on your business, not in it.
So which type of merchant will you be? Will you let chargebacks slide and focus your efforts of building new websites, new companies, applying for more MIDs and fighting to have your reserves released? Or, will you build something more robust, profitable, and long term?
Have questions about dealing with chargebacks that weren’t discussed in our chargeback series? Contact us.