Chargebacks are omnipresent and can become the ruin for an online business if left unchecked. But there are several reliable methods for disputing chargebacks, like using the power of AI at the KYC stage to ensure chargebacks never happen at all (and those that do can be disputed in your favor).
Here at Covery, we have ample experience with fraud prevention, using chargeback solutions like Ethoca and VMPI for disputing chargebacks that have already occurred. But most importantly — our anti-fraud system helps stop chargebacks from happening.
Let’s take a closer look at how it happens.
What is a chargeback?
Chargeback is a forceful return of funds from a merchant’s account to the source of payment. What was intended to be a means of protection in case of merchant delivering a sub-par product or service, chargebacks became a scourge of online merchants, as fraudsters widely use them to extort money from lawful businesses.
How does a chargeback occur?
- If a customer is dissatisfied with the product or service they purchased, they can request a refund directly from a merchant or file a chargeback claim with their credit card issuing bank. This actually means they can do it at any time, provided they have any proof of their claim — the product was not delivered or the package was damaged, the merchant charged more than expected, etc.
- If a bank finds customer claims to be justified (which happens about 80% of the time), they credit them for the required amount and pass the chargeback claim to the payment processing network, like Visa, Mastercard, or AmEx.
- The network starts a chargeback dispute and informs the merchant about it. This is the first time you, the merchant, actually hear of the issue in most cases.
- Should you so desire, you can provide proof that you upheld your end of the bargain — the final delivery costs included delivery fees, the product was delivered on time due to a signed receipt, etc. This will start the dispute resolution process. Should you have no such proof at hand, you can just pay the chargeback body+dispute resolution fee ($25 per case usually, even if the sum in question was $4 or $1.5)
- Should you prove you are not at fault, the chargeback costs will be returned to you by the credit card network and the credit will be withdrawn from the customer. Keep in mind, fees for disputing chargebacks are non-refundable.
Different stages of this process have different names with different banks and credit card networks, which might be confusing a bit, but the core logic remains the same. However, even if you paid the chargeback body and dispute processing fee, your troubles have not yet ended, as both successful and failed disputes affect your chargeback ratio
Can you dispute a chargeback?
Every credit card network issues its own thresholds to how many chargebacks a merchant can have per month. If you have below 1% of your total transactions become chargebacks — you are a low-risk merchant and enjoy reduced payment processing fees. If you have more than 1% but below 3% — you are a high-risk merchant and have to endure hire payment processing fees. Some industries are high-risk by default due to various factors.
Should you have an above 3% chargeback ratio, your merchant account can be put into Visa/Mastercard redemption program. There you will be forced to pay $25,000 to $50,000 and be put under scrutiny for several months to ensure you removed the reasons that lead to such a high chargeback ratio. Non-compliance with these terms can lead to your merchant account closure.
Thus said, every merchant should do their best to keep the chargeback ratio as low as possible. Disputing chargebacks can be a time- and effort-consuming process, not to mention the need to keep some funds in reserve to be able to pay the chargebacks, greatly reducing your turnover.
But as they say, an ounce of medicine is worth a pound of cure. Fraud prevention is much more preferable than disputing chargebacks, and below we describe 3 ways Covery anti-fraud tool helps you with that.
VMPI chargeback prevention
If a Covery customer uses integrated VMPI services, the moment the chargeback inquiry is registered with the issuing bank, a request is sent through Visa Resolve Online. Covery processes this request and provides all the details of the transaction in question, complementing them with details of client behavior and previous history of transactions (and chargebacks).
Providing this cohesive and comprehensive information to the issuer bank helps with successfully disputing chargebacks in your favor and reduces the number of consequent chargebacks by at least 70%. The dispute resolution fees must still be paid and your chargeback ratio is affected, but the numbers of chargebacks will decrease substantially with time.
Ethoca chargeback prevention
Should you decide to go with Ethoca chargeback prevention services instead, you are alerted automatically as soon as the issuing bank receives a chargeback inquiry. You then have a chance to pay all the expenses before the issuer bank starts a dispute. This way you lose money, on the chargeback body and any other applicable fees, but there are no disputing chargebacks, so your chargeback ratio is not affected.
Using AI for fraud prevention
The simplest decision here might be to avoid possible chargebacks by not accepting those transactions in the first place. Covery uses a wide range of features like KYC automation, IP screening, Trustchain, device screening & fingerprinting, and AI-powered behavioral analysis to identify potential fraudsters at the registration stage or during their attempt to pay. This way, you can decline the transaction and block this account.
With time, the system trains to identify fraudsters so well that you can reduce their amounts by up to 80%. This, in turn, results in lowering the amounts of chargebacks by up to 70% and relieving the pressure on your account, allowing you to reroute chargeback reserves to business growth and increase turnover by more than 200%.
Disputing chargebacks can be a daily toil or an automated process that you keep under control. As an anti-fraud tool, Covery prefers to remove fraudsters as the cause of fraudulent chargebacks instead of dealing with their consequences. Since 2016, Covery has helped customers from the USA, wider Europe, and Germany, in particular, to analyze more than 5 billion transactions, preventing more than 300 million risky actions.
With above 500 million records in the Trustchain global reputation knowledgebase, Covery is able to identify potential fraudsters on the fly and alert the rest of the community automatically. This ensures a better customer experience and smooth business workflows for online merchants. Reduced fraud rates make disputing chargebacks much easier and more manageable.