Chargebacks are bad for business owners both in short and the long run. They incur fees, and they also negatively affect the relationship you have with your payment processor and customers. In the long run, excessive chargebacks can result in the closure of your merchant account, making it impossible for your business to accept and process credit card payments.
But what are chargebacks, and how do they occur?
According to the Fair Credit Billing Act of 1974, any customer who makes a payment using a credit card has the right to dispute the transaction if it was an unauthorized transaction, or if they aren’t satisfied with the product or service offered. Once the customer disputes a transaction, the issuing bank will reverse it after determining its accuracy. Reversing the transaction means granting a chargeback where the card network withdrawals the payment from the merchant and returns it to the cardholder’s account.
Unfortunately for the merchant, chargeback disputes do not only result in the loss of revenue from the transaction but also come with costly fees which are levied by the payment processor. Also, too many chargebacks may disrupt your business operations as you may lose the ability to process electronic and card payments.
Since chargebacks are harmful to business profitability and growth, it’s important to address them by using tools such as chargeback alerts.
How Do Chargeback Alerts Work?
A chargeback alert is a service that a merchant signs up for such that they get a notification every time a buyer lodges a complaint with the card issuer. You, as a merchant, can then review the details of the customer’s dispute and decide whether to offer a refund or gather evidence that can help you dispute the chargeback.
A chargeback alert list provides you with adequate data detailing the reason and source of the dispute. This enables you to resolve the dispute just in time before it ends up becoming a chargeback. In this case, merchants are required to issue a refund to the disputed transaction within 24 hours.
Pros of Chargeback Alerts
Chargeback alerts have numerous benefits. For starters, they lower your risk of getting a high chargeback ratio as they enable you to resolve customer complaints before they become chargebacks. Other benefits you enjoy while using a chargeback alert solution include:
- Lowers chargeback fees – Chargebacks often cost the merchant more than double the price of the original transaction due to chargeback fees. A chargeback alert system cost is much lower than chargeback costs.
- Help lower the chargeback ratio – Since chargeback alerts help resolve customer disputes before they become chargebacks, they help merchants maintain a low chargeback rate. Having a reduced chargeback ratio also means that you won’t have to worry about your payment processor suddenly closing your merchant account
- Better relationships – A chargeback alert system notifies you of customers’ disputes immediately after they occur. This enables you to deal with customer issues promptly, which helps improve customer experiences. Besides, this solution also improves the relationship between you and card networks.
- Time-saving – Ultimately, when you use a chargeback alert system, you’re able to save time and resources you would otherwise spend on a costly and lengthy chargeback process. You can use the time saved to attend to more important business matters.
Cons of Chargeback Alerts
A chargeback alert system is an effective chargeback prevention tool.
However, there are some limitations to what this service can and can’t do. Here are some of the limitations of chargeback alerts.
- Short-term solution – It’s important to note that although chargeback alerts can help reduce chargeback ratios, they aren’t a long-term solution to customer disputes. As a merchant, if you’re receiving a significant number of chargeback disputes from customers, you need to find their root cause and a permanent fix.
- Costs – chargeback alerts are an added expense to your business costs as every time you receive an alert, you have to pay for it. Over time, using chargeback alerts can become costly, especially for merchants receiving a high number of disputes.
- They don’t prevent all chargebacks – Chargeback alerts don’t intercept all chargebacks. Sometimes a chargeback alert company may not have a relationship with the chargeback issuing bank, meaning that the merchant won’t know about the chargeback until it happens.
How to Know If the Person Needs Chargeback Alerts
Chargeback alerts are a good chargeback management tool, and although they shouldn’t be used as a long-term solution to customer disputes, they’re effective when it comes to the prevention of chargebacks in the short run.
If you’ve been experiencing lots of chargebacks lately, then you may need a chargeback alert service. This solution is also ideal for merchants who want to keep their chargebacks to a minimum.
However, a chargeback alert service should be used with a comprehensive chargeback management strategy to help prevent chargebacks in the long run. Chargeback alerts should act as supplements to other dispute prevention tools.
It’s also advisable that merchants work with a third-party service provider when it comes to chargeback alerts. This is because alerts do require lots of attention. For instance, most alerts need to be responded to within 24-72 hours, which means the alerts require round-the-clock management
Fraud Notifications and Chargeback Notifications
Chargeback notifications aren’t similar to chargeback alerts. The former is a notification sent to a merchant by a customer’s issuing bank to notify them that they have filed a chargeback. The notification lets you know that the customer disputed their original transaction.
Notably, you shouldn’t offer a refund to the customer once you get a chargeback notification as the money is returned to them by their issuing bank. As a merchant, you can always dispute the chargeback if you feel the transaction was valid. In case you win, then you get the payment amount back.
Chargeback notifications are also different from fraud notifications. The latter is an alert sent by the issuing bank in case they suspect a certain transaction to be fraudulent. This means you should investigate the transaction and the customer to know if they’re involved in fraudulent activity. In case you find out that the transaction was fraudulent, you should refund the payment amount to prevent a chargeback.
In closing, chargeback alerts are effective chargeback prevention tools. However, they should be used as a part of a comprehensive chargeback prevention strategy.
At eMerchant Authority, we offer merchants a comprehensive chargeback prevention strategy that incorporates chargeback alerts. If your business is facing lots of chargebacks, we use our reliable chargeback strategy to help you fight chargebacks and also prevent them from occurring in the future. Talk to us today, and let us help you shield your business from chargebacks.