Merchants tend to invest a lot of time and money in chargeback management. The same goes for the financial institutions who work with those merchants, though, which is a fact that tends to go overlooked.

Data from Chargebacks911 suggests that the average chargeback filed in 2020 cost acquirers $26. This was primarily through card network fees and processing costs. Considering that global annual chargeback volume is projected to reach 615 million by the end of 2021, that means banks have close to $16 billion on the line every year.

For a financial institution, helping merchant customers prevent more chargebacks isn’t only a value-add—it’s also a boon to their own bottom line.

Part of this comes in the form of education. You should try outlining best practices for merchants, providing educational materials, and recommending resources to help stop disputes. So, what chargeback prevention tools can you recommend to merchants?

First, it’s important to note that different chargeback prevention tools target different issues at different points in the chargeback lifecycle. Therefore, it’s helpful to segment chargeback prevention tools into three different categories: post-transaction, pre-transaction, and source detection. We can think of these like a three-phase process.

Phase One: Post-Transaction Tools

It sounds counterintuitive, but many merchants find it helpful to start this process by examining post-transaction chargeback tools. This is because these tools work like stop-gap measures. They don’t address the causes of chargebacks, but they can prevent disputes in the short term. This gives the merchant more wiggle room to more effectively deploy longer-term solutions.

These post-transaction tools intercept disputes before they become chargebacks, letting merchants resolve issues with the buyer directly. The two primary examples include chargeback alerts and network inquiries.

If a merchant is enrolled in chargeback alerts, they will receive advance notification before a chargeback if a cardholder attempts to dispute a charge with a bank that is in the merchant’s alert network. Network inquiries are similar to alerts, but are offered directly through Visa and Mastercard.

The data from Chargebacks911 found that merchants who used chargeback alerts reported an average 19% reduction in chargebacks. For network inquiries, the reduction was 17%.

Phase Two: Pre-Transaction Tools

Pre-transaction chargeback tools let merchants identify and block potential chargeback triggers, like fraudulent purchases.

Merchants can deploy fraud screening tools to try and pick up on red flags that suggest fraudulent activity. They can then deploy fraud scoring technology to examine the transaction based on these indicators. This lets them profile the risk presented by each transaction and allows for simple, up-or-down decisioning as to whether or not to accept a purchase.

Commonly-used tools for screening include:

• Address Verification Service (AVS)
• CVV Verification
• 3-D Secure
• Fraud Blacklists
• Geolocation
• Velocity Limits

As for fraud scoring, there are a number of third-party service providers on the market, including Kount, Riskified, and Ravelin, to name a few. You can refer merchant customers to one of these to help sift out fraud attempts.

Phase Three: Source Detection

Chargeback and fraud prevention is not a one-time affair. It’s an ongoing practice.

Your clients have to keep pace with ongoing changes in technology, industry rules, and criminal behavior patterns. They can’t rely on chargeback reason codes to provide the necessary insight to pinpoint recurring chargeback sources and trends.

Chargebacks911 offers tools like Intelligent Source Detection and Error-Risk-Threat (ERT) Notifications. These can help merchants eliminate the guesswork behind identifying chargeback sources by deploying a proprietary combination of machine learning and human oversight. This is the only reliable way to identify potential chargeback sources and offer guidance on how to eliminate them.

Hands-On Experience Meets FI Expertise

Many different tools, strategies, and best practices have a role to play in protecting merchants against chargebacks and fraud. However, merchants will require some guidance to get the most out of the resources at their disposal.

Most sellers simply don’t have the expertise or insight necessary to prevent chargebacks. But, with support from financial institutions, merchants can make chargebacks a thing of the past.