Ask any online direct-to-consumer merchant, and they’ll tell you that dealing with chargebacks is one of the most challenging aspects of the business. Online sales are always “card not present”, which makes it easier for friendly fraud and chargebacks to occur. Many direct-to-consumer merchants sell subscriptions or trials for their products, which adds to the chargeback risk. Chargebacks result in lost revenue in addition to fees. If your chargeback ratio or counts are too high, your account could be terminated. Put short, chargebacks are an existential threat to your merchant account, and even to your business.
When a customer initiates a chargeback with their bank, the merchant is the last to know. By the time the merchant receives the chargeback notice, the chargeback has already been accepted by the customer’s bank. At that point, the merchant has two options: 1) accept the chargeback or 2) fight the chargeback.
What if there were a third option? What if you could stop a chargeback from occurring in the first place? You could avoid the chargeback fee and the blemish the chargeback creates on your record as a merchant. This is the power of alerts. Ethoca (owned by MasterCard) and Verifi (owned by Visa) are chargeback alert systems that listen to the card brand networks for chargebacks associated with your merchant account. They do this by ‘listening’ for chargebacks that have a transaction descriptor matching yours.
When the consumer initiates a chargeback, an alert is sent to the merchant, providing a window of time for the merchant to respond to the chargeback before the issuing bank has decided to initiate the chargeback. If a refund is made (or the consumer rescinds the chargeback) before the chargeback process is initiated, then there will be no chargeback. While the merchant may lose revenue due to the refunded transaction, there will be no chargeback fee and most importantly, no chargeback.
The chargeback ecosystem continues to evolve as the major card brands search for ways to reduce the financial and reputational strain that chargebacks put on the system. Visa launched Order Insight back in 2017 as an additional way to prevent chargebacks. Visa Order Insight allows customer service reps at the customer’s acquiring bank to locate transactional detail from the merchant’s CRM when a customer opens a dispute. By reviewing the transaction with the customer, a chargeback may be avoided if the consumer recalls making the purchase.
In an ideal world, the consumer would be able to call the merchant’s customer support team and have any issue resolve. While this does occur sometimes, it is often easier and more familiar for the customer to call the bank for a refund. With Visa Order Insight, the customer doesn’t have to call the merchant. The bank can access the transaction details and provide it to the customer instantly, and during that critical moment when the customer is asking to open a chargeback.
As a merchant, your credit card processing history becomes your de facto resume to the acquiring banks. Too many chargebacks, and your chances of getting additional processing volume or an account with a new bank can be put in jeopardy.
The fee for alerts like Ethoca and Verifi is usually around $40 per alert. Some merchants chose not to use alerts due to the cost. They view the alerts as an unnecessary cost. This short sighted approach invariably ends in merchant account terminations. If only someone had told these merchants that the real threat, the real cost is the termination. When a merchant account is terminated, reserve funds and batches are held (sometimes to the tune of tens of thousands of dollars) and the merchant may not be able to get another merchant account. Whats more, if you sell subscription products and lose your merchant account due to chargebacks, you could be left holding the bag with a pile of payables and no revenue to take care of them. Smart merchants on the other hand use alerts, CDRN and ever other tactic they can to prevent chargebacks
Be smart, use alerts.
