Let’s state it clear and open — chargeback risks are inevitable, just like Thanos. However, it’s in your power to ensure they don’t become a snap that puts your company out of business. While customer chargeback is a necessary evil and merchant chargeback is most often a case of fraud, you can still combat them quite efficiently and avoid their devastating consequences. Read on to learn how to prevent chargebacks from damaging your bottom line and threatening your long-term success!
What is a chargeback?
A chargeback is a forcible refund to the source of payment (bank account, credit\debit card, credit line, etc.) of the money you received for a product or service, performed by your payment service provider.
It was intended to protect consumers from shady online merchants and enable them to get their money back in case they receive a subpar service or malfunctioning product. However, just as many other things, chargebacks are totally misused today and don’t work as intended, whether they happen in the USA, Europe, or worldwide.
Now, chargeback fraud involves a deliberate usage of synthetic identities to perform a fraudulent activity and steal money from lawful merchants. This way, scammers combine fake personal details with real credit/debit card credentials to pass as legitimate customers and defraud lawful merchants. They can get products and then issue chargebacks to get the money back — but this is just the tip of the iceberg.
While losing money due to chargebacks is bad on its own, there are many more implications to this process.
Every credit/debit card provider, be it Visa, MasterCard, AmEx, or any other, has certain chargeback thresholds (usually, not more than 1% chargebacks per 100 transactions), and exceeding this ratio leads to several consequences:
- Your payment processing fees grow significantly
- You are added to a remediation program and might have additional fines to pay, like the program compliancer eview fee of $25,000.
- You have to bear these expenses for several months after resolving the issues before you are moved to a low-risk merchant category again.
As you see, chargeback risks are numerous and can result in quite severe expenses. How to avoid chargebacks then?
Covery solution: detection, prevention and remediation
There are several approaches allowing you to prevent chargebacks and remain on the good side of Visa and Mastercard:
- Detect chargeback claims as soon as they are filed and resolve them before they become full-scale chargeback disputes using VMPI chargeback merchant services through a seamless Covery integration. Once a customer sends a chargeback request to their issuing bank, a bank requests the details from Visa, and Visa requests them from the merchant. Due to using VMPI and Covery as an anti-fraud solution, the merchant is able to provide all the needed details automatically, which greatly improves the chance of winning the dispute and reduce the chance of future chargebacks by up to 70%.
- Integration with Ethoca chargeback merchant services offers an alternative approach. Under it, once the chargeback claim is filed, an appropriate alert is raised within Covery and the customer can pay the claims at once. This allows to prevent chargeback claims from becoming disputes without affecting the thresholds, chargeback ratios, payment processing fees, dispute resolution costs and program compliance fines.
While VMPI and Ethoca chargeback solutions help our customers deal with the claims, Covery helps prevent chargeback risks in their entirety — by detecting risky customers and blocking fraudulent transactions, before they can become a reason for a chargeback.
How Covery helps prevent chargebacks
The easiest way to deal with chargebacks is not to deal with them. But how to avoid chargebacks in their entirety? Well, while there will always be some legitimate chargebacks, the majority of the cases are comprised of fraudulent ones. And Covery, as an anti-fraud tool, helps detect synthetic identities, potential fraudsters and risky transactions and block them according to pre-configured risk logic engine rules.
This way, by detecting potential fraudsters early, Covery anti-fraud system helps save your products, money and ensures your good standing with payment service providers. In addition, account details reviewed during every transaction are checked against Trustchain — a global database of reputation records, shared by all members of the Covery community. Therefore, if any of your customers use any account details associated with known fraud cases, you are informed at once and can nip the fraudulent activity in the bud!
We’ve discussed technical details on how to avoid chargebacks or minimize their damage. However, there are multiple common-sense measures every merchant can take to ensure they take as few chargeback risks as possible:
- Ensure all the product/service descriptions exactly match the goods you ship to avoid customer frustration.
- Ensure your billing name matches your brand name, so customers know whom they are paying and don’t claim they were charged by an unfamiliar entity for a product they did not order.
Finally, and most importantly — use chargeback solutions as a part of bigger risk mitigation and transaction monitoring strategy. Covery can be a great choice, and if you want to know how else Covery can provide benefits for your business — give us a call, we are always ready to assist!