Chargebacks continue to be a challenge for many merchants. While some might slough them off as just the cost of doing business, chargebacks can ruin a company, not just its bottom line.
Merchants must consider investing in fraud detection and other preventive measures to ensure that excessive chargebacks do not occur.
During a recent PaymentsJournal webinar, Justin Clements, Director of PR & Media Relations at Chargebacks911, Jarrod Wright, VP of Marketing at Chargebacks911, and Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research, discussed key findings from Chargebacks911’s 2023 Chargeback Field Report.
Roughly 300 merchants participated in the survey, which offers a glimpse into the current chargeback landscape and illuminates some of the biggest concerns. In addition to surveying merchants, Chargebacks911 also polled consumers about their concerns to gain an accurate understanding of the trends.
How Companies Are Tackling Chargeback Representments
Chargeback representment is the process of fighting a false payment card chargeback. It involves providing evidence to the bank to establish not only that the transaction was valid but also that the cardholder’s claim should be overturned.
According to the 2023 Chargeback Field report, 70.1% of businesses manage their chargeback representments in-house. That’s a substantial increase from a year prior, when just under 50% of businesses indicated as much. By contrast, 15.7% of respondents said they used software solutions, while slightly fewer, 13.4%, said they fully outsource chargeback representments.
The majority of chargeback representments are delegated to accounting and finance departments—or, in many cases, a dedicated team.
“From business to business, it varies wildly,” Wright said. “The people responsible for chargebacks changes from almost every organization.”
Biggest Challenges to Chargeback Management
There are many reasons chargebacks are not mitigated head-on. Some businesses don’t see them as a problem, while others find that tackling chargebacks takes too much time and resources away from other business strategies.
According to Chargebacks911, one of the biggest obstacles identified by merchants was winning chargebacks.
“Even when you come in the representment process with all the evidence that you can, it’s still an uphill battle,” Clements said.
Identifying false positives is yet another issue. “Identifying friendly fraud and false positives are two sides of the same coin,” Wright said. “And the merchants that that we speak to, that’s the sort of problem that most of them realize they’re having. They have a bucket of chargebacks, and they’re not 100% sure whether the chargebacks are being caused by criminal fraud.
“It’s sort of a shared hybrid merchant error, friendly-fraud type of chargeback, or it’s a classic case of first-party misuse or friendly fraud. One of the things that merchants can do to reduce chargebacks is increase the scrutiny for transactions and pre-transaction filters.”
Wright warned that merchants can be too aggressive when it comes to mitigating potential fraud, an approach that can produce a surge of false positives. Identifying the underlying causes that are contributing to the chargeback problem is important. Some common causes can be attributed to shipping delays, a fault within the customer service process, or having a fraud liability.
“I’m particularly interested in the focus on wanting to win more, which I think is very reasonable,” Keyes said. “No one likes to lose in any situation, certainly not on chargebacks. But it makes a lot of sense. You ask merchants, what do you want the most? You’d like to win more of your cases. And I think that’s often a misunderstanding of how chargebacks function from the merchant perspective. Merchants want to have no chargebacks, they want no fraud, and to win every chargeback that does pop up the same way.”
“When you’re operating as a merchant, it’s unrealistic not to have some chargebacks,” Keyes added. “It’s unrealistic not to have fraud. And you need to accept that sometimes those things happen and sometimes you lose because things go wrong, and that’s normal. Your priority should be minimizing them in the first place and making sure they’re handled as effectively as possible.”
Chargeback Reduction Solutions
Three pre-chargeback resolution solutions are typically used on the market today: Chargeback Alerts, Network Inquiries, and Rapid Dispute Resolution (RDR).
Chargeback Alerts is a legacy system that enables merchants to avoid a chargeback, provided they’re willing to refund the transaction. Merchants using this tool reported an average reduction of 27% in chargebacks.
As a newer tool—and provided that the merchant is enrolled—Network Inquiries ensures that the issuing bank can send a request to the merchant to provide additional transactional information that can help the merchant refute and represent the transaction. This information can be submitted in real time. According to Wright, the tool is very effective in reducing chargebacks, with an average reduction of 24%.
RDR uses the Visa network to automate refunds instead of receiving a chargeback. The merchant can set up rules and set up specific parameters, dictating which disputes to automatically accept and issue refunds to the cardholder. It’s a less expensive solution and is widely available to all issuers on Visa transactions. The average reported reduction after using this solution was 42%, the highest of the three chargeback reduction solutions.
Why Businesses Should Consider Chargeback Reduction Solutions
Although one can argue that fraud, and especially chargebacks, cannot be completely avoided or mitigated, it is important to implement solutions to reduce the incidences of chargebacks.
A chargeback mitigation plan can help businesses put effective solutions in place that lower the incidences of fraud, regain losses, and prevent ongoing chargebacks.