What is Chargeback Protection?

Chargebacks have increasingly become a severe problem for merchants. What was intended to protect cardholders from unfair online transactions and increase the usage of credit and debit cards in e-commerce has essentially become a means of draining revenue.

Chargeback protection refers to any strategy, service, or technology a merchant employs to protect themselves and their business from excessive reimbursements. It is a paid service (similar to insurance) offered by different platforms to “protect” your business and reduce the liability of these chargebacks.

According to Mastercard, 615 million global chargebacks were expected in 2021, which is far from being an insignificant number. And even more worrying is the fact that $25.3 billion (stated by NRF) were spent in return frauds in the US. This is essentially a result of customers getting away with fraud, therefore, keeping the purchased goods and getting a refund.

With this in mind, most merchants would opt to ensure the sustainability of their business by protecting it against chargebacks using any of these platforms or service providers. Each of these service providers has varying methods, protection levels, and costs.

Some would offer a chargeback guarantee using an automatic process that monitors and inspects pending transactions and refunds the merchant if it eventually results in a dispute. Others would fight these disputes on your behalf when they arise. Regardless of the exact service, the concept is the same — shifting the responsibility from the merchant to a dedicated service provider.

How Does Chargeback Protection Work?

You should already understand the purpose of chargebacks in the e-commerce industry, but here is a brief explanation. Chargebacks are essentially a means to protect consumers who purchase goods and services online using credit and debit cards. With this scheme in place, these buyers can get their “cash back” in the case of stolen card information, unauthorized transactions, criminal activity, devious merchants, etc.

Although chargebacks are effective for the purpose they were created, there is a reduction in the efficiency of the process because the number of fraudulent cases and disputes opened by customers is increasing.

To stay ahead of this and protect their revenues, merchants employ a chargeback management strategy from service providers, who take a percent from each chargeback they resolve.

Every tool or service falls under one of the three phases in the chargeback process. It can either aid in preventing a fraudulent sale, solve the issues that arise from a customer’s complaints before an actual chargeback is requested, or settle the costs of qualified reimbursements.

Chargeback protection encompasses all the strategies, services, and tools employed in the process before and after the customer opens a dispute. In all circumstances, pre-transaction prevention is always better because even when resolved before an actual dispute, the chargeback still counts. The best way to address these concerns is to use several approaches made up of prevention and other aspects of chargeback protection.

To help you understand better, let us explain these three categories of chargeback protection, the tools you can utilize in these cases, and how they help solve problems in their respective phases.

Pre-Transaction Chargeback Prevention

In this phase, a merchant can still recognize and prevent a phony transaction from processing. To do this, you have to be able to identify and put a stop to the fraud before it occurs.

Merchants can use various services and tools designed for this process to combat the rising problems. There are three primary forms of pre-transaction chargeback protection tools we would address: fraud screening, fraud scoring, and merchant practices.

Fraud Screening

This involves using tools or systems before a transaction to inspect a buyer in a bid to determine whether they are fraudulent. This process helps minimize issues that may lead to difficulties in the future. Tools used in this process include:

• 3D Secure 2.0 (3DS2): the technology all fraud detection systems use. It uses tons of data related to payment histories like billing addresses and background information, like transaction histories to verify the cardholder. 3D Secure adds extra security to online transactions with credit and debit cards using a form of authentication.Participating providers like Visa and MasterCard prompt users to enter authentication details before processing the transaction on the merchant’s payment page. The comprehensive fraud prevention screening tool has benefits such as customer assurance and reduced chargebacks because the liability shifts to the issuing bank.
• Address Verification Service (AVS): an automated tool that merchants use to verify whether the billing address for the transaction is the same as that provided by the issuing bank. The merchant receives an AVS code once the transaction is complete. There are some flaws in this background fraud screening solution, so it is necessary to back it up with other tools for accurate customer verification.
• Velocity Checks: scans the payment card for limits, and spending history, including the duration between one transaction and another.
  Card Verification Value (CVV): a security code you can only find on a credit or debit card. If the customer cannot provide it, then they are not the actual cardholder.
• Fraud Blacklists: blocks sales to known and possible swindlers using any data marked as “identifiers” on the blacklist. This could be IP address, location data, billing location, email address, etc.

Fraud Scoring

Merchants can use this tool to measure the risk level of an order before the system processes it. The tool uses machine learning to make data-driven decisions based on the history of the traits and trends it identifies in the context of suspicious and fraudulent behavior.

This information supplies results that determine whether the transaction should be processed or flagged as suspicious. You can set the fraud scoring tool to reject flagged transactions or submit them for manual evaluation automatically.

Merchant Practices

There are several ways merchants can improve their relationships with customers to improve fulfillment and loyalty. By improving and optimizing aspects of the business, like customer service and logistics, you can reduce the chances of repayments in business. Some practices you can implement are:

• Responsive 24/7 customer support by well-trained staff
• Offering returns
• Personalized and optimized customer experience
• Creating reliable evidence by sending confirmation emails before and after a sale
• Tracking your deliveries and ensure the buyer signs off for it
• Simplifying your return policy

Post-Transaction Chargeback Prevention

This phase comes after a customer opens a dispute at their bank. You can use some tools and strategies in this phase, but it is not ideal because a conflict is already open and counts towards your record. There are two tools merchants can use here:

• Chargeback Alerts are initiated when a service provider with partnerships with local banks gets notified about a dispute.
• Automated Probe is one tool that helps merchants to refund transactions. Merchants can use this tool to handle fraud issues by getting participating banks to request further customer information; this data determines whether the bank would issue an automatic refund.

Post Chargeback Protection

Using chargeback protection services, merchants can avoid excessive chargebacks. Some platforms such as eBay, PayPal, Stripe, and Shopify offer protection services.

When selecting a service to use, it is crucial to find out the exact terms of the job and its description. These platforms offer various plans, so you may need to employ more than one.

How Can Chargebackhit Help?

It is practically impossible to avoid all issues associated with your business as a merchant, but there are ways to prevent the excessive ones from crippling your business.

At Chargebackhit, we take chargeback prevention and protection seriously. We offer three different solutions that can help you reduce your ratio. We help you prevent disputes and save your revenue, resolve disputes quickly, and recover lost revenue in the long run.

Boost your efficiency and ROI with Chargebackhit and grow your business using our flexible chargeback prevention tools, strategies, and platform. We offer a comprehensive service for chargeback management that would suit your specific needs. Reach out for a free quote today!