Chargebacks are inevitable as death and taxes, as any online merchant knows. However, the instrгment intended to protect customers from fraudulent traders became a nightmare for law-abiding businessmen who lose money, as scammers defraud online merchants. How to minimize losses from chargebacks then, and is it possible at all?
At Covery, we can assure you it is possible and can provide you with a variety of chargeback solutions aimed at keeping your bottom line safe. As an end-to-end antifraud system, Covery has ample hands-on experience with helping online merchants minimize their chargeback losses. Read on to learn about the three most powerful chargeback management and prevention techniques.
How do chargebacks occur?
Let’s start by describing a typical chargeback case. A fraudster (or a legitimate customer) contact their card issuing bank and demand to revoke the payment made to you, on the premise of not receiving the expected product or service. The bank initially trusts the customer and revokes their payment with the bank’s own money.
Then the bank files a chargeback request and forwards it to the PSP or payment service provider, who performed the transaction. The PSP opens a chargeback case, deducts a one-time processing fee from your account along with the chargeback body, and forwards all the available details to you. It is only then a merchant finds out about the chargeback.
You then have some time to gather any proof you can that the product or service was indeed delivered in full. Should the proofs suffice, the bank takes the refunded money back from their customer, the payment processor returns the chargeback body back to your account. But the dispute resolution fee is non-refundable, so you lose money in any case.
As it stands, most merchants don’t have all the details at hand and can’t prove their ground in chargeback disputes. This results in only 20% of them resolved in the merchant’s favor. Besides, such cases affect your chargeback ratio negatively, and when you exceed the thresholds for chargebacks — Visa and Mastercard can put you into the high-risk category, increase your payment processing fees, and put you in a redemption program, forcing you to pay $25,000-$50,000 fee before you can even appeal. In most cases, this is a death sentence for a business.
Chargeback fraud prevention
How do you prevent chargeback fraud then? There are three main approaches:
- decline the risky transaction that can result in fraud
- use Ethoca chargeback prevention with Covery
- use VMPI chargeback prevention with Covery
Let’s take a closer look at each of these chargeback prevention strategies.
You can use an anti-fraud system like Covery to analyze your traffic, determine potentially risky customers, and decline transactions from them. Yes, you will lose some payments – but you will also get rid of all the massive headache that comes with chargebacks.
Also, to prevent chargebacks from legitimate customers, you should clearly inform them of refunds policies, require proof of delivery, ensure your product/service descriptions on the website are exact and make your billing details match your brand name. All of that is common knowledge, yet it is quite a solid approach to chargeback fraud prevention.
Alternatively, let’s say a customer has already filed a chargeback inquiry to their issuer bank. Using the VMPI chargeback prevention tool integrated with Covery, you can address this inquiry by providing the needed transaction details at once, so the bank does not send the request to the PSP and your chargeback ratio stands unaffected.
Yet another chargeback prevention strategy is to go with Ethoca chargeback alerts. This way, you can refund the chargebacks immediately after the customer files the inquiries with their bank. Both VMPI and Ethoca are available as standalone chargeback solutions, yet using them through Covery anti-fraud tool ensures you don’t need to integrate them separately and benefit from instant access to all the needed risk management details.
As you can see, there are several ways to ensure you don’t lose money on chargebacks (well, minimize losses from chargebacks, even while they can’t be totally avoided).
Why use Covery anti-fraud solution
As you can see, an ounce of prevention is worth a pound of cure. Thus said, it’s best to detect fraudsters early and disable them from filing scam chargeback inquiries with banks. Covery is built directly for this purpose and has made quite a name for itself amongst online merchants in the USA and Europe, who want to minimize losses from chargebacks.
With IP screening, device fingerprinting, Trustchain global database of reputation records, in-depth logs analysis, automated ongoing KYC, and other tools, Covery can guarantee at least a 70% reduction in fraud and chargeback cases. This will help you lower your chargeback ratio and open up more revenue streams instead of fighting chargebacks endlessly. Contact Covery for a free demo and take a look at all the value it can deliver for your business!