Chargeback Management Essentials

Sellers must bring together expertise, strategy, and tools to prevent and fight chargebacks. This article will dive into what a chargeback management strategy should comprise. We will also get into details about how it can be implemented from an internal and external perspective.

What Is Chargeback Management?

It is a part of a strategy to reduce the negative impacts of chargebacks. It can help a company manage and prevent disputes but also recover revenue from fraud. A chargeback management approach focuses on identifying disputes by the source, finding prevention solutions, and fighting them when a non-valid claim is the core issue. Solutions like the ones Chargebackhit offer will help you manage these disputes and avoid more revenue losses.

Chargeback Management Resources

SaaS solutions are becoming increasingly popular as they simplify chargeback management and give businesses total control and flexibility over the process. With a SaaS platform, businesses have direct access to the chargeback management tools and can monitor and respond to disputes in real-time. This level of control allows for quicker response times and the ability to tailor strategies and approaches based on individual business needs.

It’s important for merchants to consider factors such as budget, internal capabilities, industry complexity, and scalability when choosing a chargeback management solution. Each option has its advantages and challenges, so it’s crucial to carefully evaluate the specific needs and goals of the business to determine the most suitable approach for managing chargebacks effectively.

SaaS (Software as a Service)

SaaS solutions provide businesses with specialized tools and functionalities to streamline the chargeback handling process. These platforms offer various features to track, analyze, and respond to chargebacks efficiently including:

• Explanation and Tracking: SaaS chargeback management solutions provide a centralized dashboard to monitor and track chargebacks in real time. They offer clear explanations of the reason codes associated with each chargeback, helping businesses understand the underlying causes.
• Automation and Integration: These platforms often integrate with payment gateways, CRM systems, and other relevant software, allowing seamless data synchronization and automation of tasks allowing businesses to expedite the chargeback handling process.
• Reporting and Analytics: Businesses can generate detailed reports to identify patterns, trends, and root causes of chargebacks. 
• Dispute Management – They offer pre-built templates, documentation support, and automated workflows to facilitate the preparation and submission of compelling dispute responses quickly.
• Collaboration and Communication – Collaboration features enable multiple team members to work together on chargeback cases. These platforms provide internal communication tools, task assignments, and progress tracking.

Pros of SaaS Chargeback Management Solutions:

• Enhanced Efficiency – SaaS solutions automate manual tasks, streamline workflows, and provide real-time visibility into chargeback processes, saving time and effort.
• Improved Accuracy – By integrating with various systems and capturing data automatically, these platforms reduce the risk of manual errors and ensure accurate chargeback management.
• Data-Driven Insights – Advanced reporting and analytics help businesses identify chargeback trends, implement targeted prevention strategies, and optimize revenue recovery.
• Streamlined Dispute Handling – SaaS platforms offer tools to prepare and submit dispute responses promptly, increasing the chances of successful chargeback reversals.
• Scalability and Flexibility – These solutions can accommodate businesses of different sizes and growth stages, providing scalability and adaptability to evolving chargeback management needs.

Cons of SaaS Chargeback Management Solutions:

• Cost – SaaS solutions typically involve subscription fees or usage-based pricing, which may add to the business’s operational expenses.
• Learning Curve – Implementing and adopting a new chargeback management platform requires training and adjustment, which may temporarily impact productivity during the transition phase.
• Dependency on Service Provider – Reliance on a third-party SaaS provider means businesses are dependent on their system uptime, support availability, and data security measures.

Fully Managed

Fully outsourcing chargeback management involves entrusting the entire process of handling and resolving chargebacks to a specialized third-party provider. Here’s how it typically works and the pros and cons associated with fully outsourcing chargeback management:

• Initial Setup – The merchant establishes a partnership with an outsourced chargeback management provider. This involves setting up the necessary integrations and sharing relevant transaction and customer data with the provider.
• Chargeback Handling – The provider receives notifications of chargebacks, analyzes the reason codes, and gathers the necessary evidence and documentation to build a strong case for representing the disputed transactions.
• Dispute Response Preparation – The outsourced provider prepares and submits the dispute response on behalf of the merchant. This includes crafting persuasive arguments, gathering supporting evidence, and adhering to the specific guidelines.
• Monitoring and Tracking – Throughout the process, the outsourced provider keeps track of the status and progress of each chargeback. They monitor the chargeback lifecycle, from the initial dispute to the final resolution.
• Resolution and Recovery – The goal of the outsourced chargeback management provider is to maximize chargeback reversals. They work to resolve disputes in the merchant’s favor, either by successfully representing the case or negotiating settlements with the cardholders’ banks.

Pros of Fully Outsourcing Chargeback Management:

• Expertise and Experience – Outsourced providers specialize in chargeback management and have extensive knowledge of industry best practices and dispute resolution strategies. They use their expertise to handle chargebacks efficiently and maximize successful outcomes.
• Time and Resource Savings – By delegating chargeback management to an external provider, merchants can free up their internal resources and focus on core business operations. 
• Access to Technology and Tools – Outsourced providers often have advanced systems, analytics tools, and data-driven insights that merchants may not have in-house. 
• Scalability – Outsourced providers can handle high volumes of chargebacks, making them suitable for businesses with fluctuating transaction volumes or seasonal spikes in dispute activity.

Cons of Fully Outsourcing Chargeback Management:

• Loss of Control – Merchants that rely on the outsourced provider to handle disputes on their behalf, may have less visibility and direct control over chargeback activities.
• Costs – Merchants typically pay fees or a percentage of recovered funds to the outsourced provider. The cost factor should be evaluated against the potential benefits and ROI of the service.
• Dependency on the Provider – Businesses become reliant on the outsourced provider for chargeback management expertise which introduces a level of dependency.

Hybrid Solutions

Hybrid solutions for chargeback management combine the use of both SaaS platforms and outsourced services to create a flexible and tailored approach. Here’s how hybrid solutions typically work and the pros and cons associated with this approach:

• Combination of SaaS and Outsourced Services: In a hybrid model, the merchant utilizes a SaaS chargeback management platform alongside outsourced services provided by a third-party chargeback management provider. This creates a synergy between the merchant’s internal capabilities and the expertise of the external provider.
• Internal Chargeback Handling: The merchant’s internal team manages certain aspects of chargeback management using the SaaS platform. This includes monitoring chargebacks, analyzing reason codes and gathering evidence.
• Collaboration and Integration: The SaaS platform enables seamless collaboration and communication between the merchant’s internal team and the outsourced chargeback management provider. They can share information, exchange updates, and coordinate efforts to handle more complex or escalated chargeback cases.
• Escalation to Outsourced Provider: When a chargeback requires more specialized expertise or the merchant’s internal team is overwhelmed, the case is escalated to the outsourced provider. The provider takes over the dispute resolution process, preparing and submitting dispute responses and maximizing chargeback reversals.
• Reporting and Analysis: The SaaS platform provides comprehensive reporting and analytics capabilities, allowing the merchant to track chargeback performance, identify trends, and gain insights into the effectiveness of their chargeback management strategies.

Pros of Hybrid Chargeback Management Solutions:

• Flexibility and Customization – Hybrid solutions offer the flexibility to tailor chargeback management strategies to the specific needs and capabilities of the merchant. They can leverage the strengths of both internal teams and outsourced providers.
• Cost Optimization: By utilizing a combination of SaaS and outsourced services, merchants can optimize costs. They can allocate internal resources for routine chargebacks while outsourcing more complex or time-consuming cases to experts.
• Internal Control: The merchant retains a level of control over their chargeback management processes by utilizing a SaaS platform. They can directly monitor and respond to chargebacks.
• Access to Expertise: This enhances their ability to handle complex chargebacks and increases the chances of successful resolution.

Cons of Hybrid Chargeback Management Solutions:

• Coordination and Integration – Implementing a hybrid model requires effective coordination between the merchant’s internal team and the outsourced provider.
• Potential Complexity – Hybrid solutions can introduce additional complexity to chargeback management processes. It requires careful planning and execution to ensure a smooth transition between internal and outsourced handling.
• Cost Considerations – While hybrid solutions can optimize costs, they still involve expenses related to both the SaaS platform and outsourced services.

Chargeback Cost

Some chargebacks costs should be known by sellers, such as:

• Fees – the amount to cover banks’ costs resulting from processing these disputes
• Marketing – the cost of promoting the item
• Merchandising – the costs for a lost sale and the item
• Operations – costs from production until its delivery

Ultimately, the cost for merchants will be to have the debit and credit transactions blocked by the bank.

Why Do Chargebacks Happen?

Chargebacks happen when a cardholder disputes a commercial transaction. Its primary purpose is to refund the client with a valid claim, but there are numerous reasons for disputes, and sometimes they are not legitimate.

In theory, they exist to protect cardholders from fraud or merchant errors. Nowadays, everything seems like a reasonable reason for it. Friendly frauds are getting more frequent, representing 70% of credit card fraud (FIS Global, 2020).

Chargeback Management Strategy

It is essential to find the real reasons behind each case to identify the type of dispute and be able to adapt the strategy. This is the first step to reducing chargebacks, and merchants should not underestimate it. Only then can you match it to the source.

There are three primary sources of chargeback: criminal fraud, merchant errors, and friendly fraud. Criminal fraud happens when a third party uses a stolen payment card or account, whereas friendly fraud is an illegitimate claim from cardholders. In fact, according to FIS, 9 in 10 sellers lost revenue because of payment fraud. On the other hand, merchant errors are an internal issue of the company, related to how its operations and processes are handled.

For each one, sellers need to have a different strategy with specific tools and tactics:

• Criminal fraud – Many solutions are available here: fraud scoring, verification tools from card brands, internal processes review, and implementation of detection procedures.
• Friendly fraud – It is hard to prevent. Alerts are a great option to let merchants provide additional transaction information to try to stop the dispute. Another option is to reverse it through representment by fighting illegitimate claims.
• Merchant errors – Easy to prevent. However, a thorough evaluation of the business is needed, and it is more effective if done by a third party. In this case, policies and processes usually need to be reviewed.

Can I Handle Chargeback Management Internally?

Having an internal team responsible for chargeback management is always a possibility. This means that its structure is based on a framework built by the company, except for some technology infrastructure that a third party can eventually provide. The seller will be responsible for all the data collection and analysis, vulnerabilities evaluation, and decisions. Such an approach can reduce costs, and the company keeps total control of the process. However, it also means full responsibility for the management process with limited transaction data to make a decision.

On the other hand, if sellers outsource chargeback management, they can have a customized solution with access to a larger volume of precise data and an automated decision based on Artificial Intelligence. The service provider’s expertise also plays a big part in optimizing practices. Moreover, they are usually more informed about card network regulations. In this case, the main weakness can be that some providers may not have a complete offer that covers merchants’ specific needs.

In summary, in-house management is viable but not the most efficient option. If you are not contemplating completely outsourced chargeback management, combining both may be an excellent option for your business. You just have to find the existing solutions that fit your strategy.

Essential Aspects of Dispute Management

According to FIS, 55% of merchants have higher chargeback levels. Therefore, implementing dispute management is vital, but there are various aspects to consider, as highlighted below.

Chargeback Management Software

It is a platform to automate prevention, stop disputes and contest illegitimate ones. A chargeback management software is crucial to save time, recover revenue and lower the chargeback ratio. Incorporated in a management strategy, it will assist with analyzing data, identifying potential fraud, and discovering processing errors. Usually,​ the management software integrates tools such as Order Insight, Consumer Clarity, and Ethoca Alerts.

Chargeback Ratio

It is the number of chargebacks compared to the sales, and each card network calculates it differently. For instance, Visa and Mastercard have ratio limits fixed at 0.9% and 1% of monthly transactions, respectively. It offers insight into how well your business manages these disputes.

Net Win Rate

It is a KPI as necessary as the chargeback ratio because it gives the proportion of chargebacks you have fought and recovered through representment. Basically, it helps you understand if you have a successful dispute strategy to fight friendly fraud effectively.

Customized Chargeback Reporting

It is a crucial factor in mitigating risk. In fact, merchants should invest in an efficient reporting system to analyze all the available data from chargebacks and avoid future disputes. The data that can be included depends on each merchant and business necessities, but it is usually related to chargeback liabilities, as well as operational, fraud, and transaction variables. Some examples are reason codes, merchant ID, chargeback amount, transaction method, product/service type, and cardholder activity.

Policies

The reasons for refunding a client must be explicit and easy to understand. It should be at least outlined in your Terms and Services to help you prevent customer disputes.

Comprehensive Chargeback Management Services

Merchants can profit from tailored dispute management software to collect and analyze data. This software can then give automatic responses based on previously defined parameters and help you with operational improvements to reduce chargebacks.

A chargeback management software should include:

• Fraud detection tools – some options are geolocation, proxy piercing, device fingerprinting, address verification, velocity checks, biometrics, fraud blacklists, machine learning, 3-D Secure, and fraud scoring.
• Blacklist integrated with CRM – you can identify customers’ past behaviors related to chargebacks.
• Analytics and solution integration – you must choose the right tools and services for your business to ​​detect and prevent chargebacks.

Chargebaсkhit as a Part of Your Chargeback Management Strategy

Indeed, managing chargebacks is not free from costs. However, with a good strategy implemented, the benefits outperform them. Investing in management may be an adequate alternative for merchants that often have to deal with disputes.

Chargebackhit provides a complete set of solutions to prevent, resolve and recover chargebacks. It is essential for every management strategy so that you can prevent and fight chargebacks with reliable data. After all, good management reflects secure transactions and customer satisfaction.