Covid-19 has affected the way people do online shopping.

Can Chargebacks be Prevented in Real Time?

One of the inevitable difficulties that comes along with accepting credit
and debit transactions, particularly in an eCommerce setting, is the
problem of chargebacks. When a cardholder disputes a charge on their
card directly with their issuing bank, rather than contacting you as the
merchant to resolve their issue, a chargeback is filed. Inexperienced
merchants sometimes shrug off the issue of chargebacks, reasoning
that they make up a small percentage of their overall sales, and thus
aren’t worth the time and effort of confronting in a systematic way –
after all, you can’t please everybody, right? In this view, chargebacks
are seen as an unavoidable fact of eCommerce.
Unfortunately, chargebacks are more than simply a refund or return;
the bank or payment processing company that provides your merchant
account is a risk-averse institution, and chargebacks expose them to
risk – which they mitigate by imposing penalties on the merchant
targeted by the chargeback, in the form of chargeback fees. Worse still,
if your business experiences too high a volume of chargebacks, the
bank may impose more restrictive terms onto your merchant account,
withholding funds in a cash reserve, increasing processing fees, or even
suspending or canceling your account. This doesn’t even touch on the
deeper, indirect costs resulting from chargebacks; in total, the financial
losses your business experiences from chargebacks could easily be
between two to three times the dollar value of the disputed charge, if
not more.
In fact, a 2021 LexisNexis study revealed that every $1 of a successful
fraud attack cost US merchants $3.60, which represents a 15 percent
increase relative to fraud costs before the COVID-19 pandemic. As more
consumers have chosen eCommerce and delivery apps over shopping
trips and dining out, the opportunity for fraud has soared – and
merchants need the ability to respond rapidly to these issues as they
arise in order to protect the health and profitability of their businesses.
The traditional method for handling the problem of chargebacks

involves waiting to be notified that a chargeback has been filed, and
then challenging the claim within the 45-day window allowed by the
issuing bank. This approach has the disadvantage of being slow and
reactive; however, there are now tools available to merchants that
offer the ability to create a proactive chargeback defense, responding
to chargebacks in real time.
One of the simplest ways to increase your responsiveness to
chargebacks is through the use of chargeback alerts. A chargeback alert
service functions like an early warning system, sending you advance
information when a cardholder initiates the chargeback process. When
you use a chargeback alert service, the card issuer informs a third-party
service that a chargeback is pending, but has not completed the
process of being filed, and the alert service notifies you, the merchant,
of the details of the disputed transaction. At that point, you have a
window of 24-72 hours in which to resolve the issue with the
cardholder (most likely by refunding the transaction), giving you the
opportunity to prevent the chargeback from being filed. Even if this
results in the loss of a sale or merchandise, a refund is essentially
always less expensive than a chargeback.
What’s even faster than responding to a chargeback before it’s filed?
Stopping fraudulent transactions that will result in chargebacks before
they can be completed. This is where fraud detection software comes
into play. These programs analyze large sets of data and utilize machine
learning to detect patterns that indicate fraudulent behaviors in real
time, noticing and blocking fraudsters, payment abusers, and bots
without any direct action on the part of the merchant. Automated
payment fraud monitoring and prevention tools can help filter out not
only traditional fraud attacks by identity thieves, but can also reduce
so-called “friendly fraud,” in which legitimate transactions initiated by
authorized cardholders are subjected to chargebacks, either mistakenly
or with fraudulent intent. By using machine learning, fraud detection

software can block fraudulent transactions with great accuracy – less
than 1 percent false positives – and without the need for a manual
review process. The pattern recognition abilities of these machine
learning systems also help to provide legitimate customers with a more
personalized and frictionless shopping experience.
With the tools available to eCommerce merchants today, disputing a
chargeback filed with a cardholder’s issuing bank should be the last
resort, not the first line of defense, in chargeback prevention. By using
automated fraud detection software to stop fraudulent transactions
before they can be completed, and working with a chargeback alert
service to resolve disputes before chargebacks are fully processed, you
can dramatically reduce the number of chargebacks on your merchant
account’s record while reducing the amount of time you need to
devote to gathering evidence and disputing chargebacks. Instead, you
can invest that time where it belongs: building and growing your
business. Please contact Durango Merchant Services now to learn more
about our chargeback prevention services!”