Should You Invest in a Chargeback Team?
What is a chargeback team and what do they do?
Think of a chargeback team like firefighters. They hope fires never happen and aim to prevent them, but it’s inevitable that they will. And when there’s a fire, they must go out and fight it. Not doing so and relying solely on prevention would be catastrophic. But before taking on any fires, they need proper training and a strategy for how to best fight them in different circumstances.
Similarly, chargeback teams must understand how best to approach fighting a chargeback with various processors, acquirers, and issuers. Because there is little standardization within the industry, it’s not a one size fits all and the requirements and processes can vary.
Just like fighting fires, fighting chargebacks is a full-time job. If you belong to an industry that frequently deals with chargebacks, such as the hospitality industry, having people and resources dedicated to disputing illegitimate claims is crucial.
What does a typical chargeback team do?
- Communicate with customers, banks, and processors throughout the chargeback representment process
- Develop strategic insights and best practices on fighting chargebacks
- Develop and analyze metrics to measure performance
- Provide guidance during the chargeback process, build trust in payments, and resolve merchant and buyer discrepancies
In a chargeback case, the merchant is automatically liable. If they do nothing, it will be decided in favor of the cardholder and result in lost revenue for the merchant.
However, every merchant has the right to dispute the claim in what is known as a chargeback representment. The chargeback representment process is a way for merchants to challenge illegitimate chargebacks and restore both lost revenue, and their reputation.
Without a team at your disposal, the odds of winning such disputes are low. But while it may seem like a time-consuming and costly venture, it’s much better than the alternative. Not fighting a chargeback is an automatic loss of revenue and even worse, could be seen as an admission of guilt by the banks.
If you have a chargeback team, your chances of winning are much greater since you have dedicated and knowledgeable resources available to you that can execute the process properly.
How do they help fight chargebacks?
First, let’s distinguish between two types of fraud – true fraud and friendly fraud. True fraud occurs when a fraudster makes a purchase on a credit card without the cardholder’s knowledge. When the real card owner becomes aware of the transaction, they will request a chargeback.
Friendly fraud is when a person unknowingly commits fraud by asking for a chargeback from their credit card company or bank after a transaction has taken place. It’s generally associated with people who don’t realize they purchased something or that they didn’t understand what they were agreeing to.
Your chargeback team must be aware of the difference between the two so they can provide compelling evidence that the charge was legitimate, and the dispute was fraudulent. It some cases, it may be that the individual simply didn’t understand what a chargeback meant. If they can provide proof of sale, identity, delivery of service, etc., they have a much higher chance of winning.
Disputing a chargeback is by no means an easy task. However, there are things merchants can do to better their chances.
Tips for how to best approach a chargeback representment case:
- Know the process – before you begin to fight a chargeback, make sure you have a clear understanding of the process, rules, and requirements involved – be aware that the chargeback representment process has very strict deadlines.
- Keep records – create a list of paper trails and evidence to prove your case. Make sure to save any relevant records from the very beginning of the transaction.
- Understand reason codes – every chargeback is given a reason code to help the merchant understand why the chargeback was filed. Determining which codes are the most frequently abused can help you build your defense and fight the chargeback.
- Write, write, write – with each chargeback you dispute, you must also provide a rebuttal letter. As you write more of these, be sure to pay attention to which types of letters get better results and continue to enhance your rebuttal skills.
- Do your research – avoid a pre-arbitration chargeback (commonly referred to as a second chargeback) by doing your homework the first go-around and taking the time to make your case as foolproof as possible. A second chargeback will only serve to increase your costs and losses without recovering additional revenue.
- Know the regulations – because there is little standardization in the industry, each processor, acquirer, and issuer can process representments differently. Therefore, documentation requirements can vary greatly, and failing to adhere to a certain entity’s requirement could result in the representment being automatically denied.
- Pick your battles – while most chargebacks can and should be disputed, it’s important to differentiate between what is fraud and what’s a legitimate complaint. By having a deep understanding of the reasons behind reason codes, you can ensure that you’re challenging the right claims.
Is a chargeback team worth investing in?
According to Chargebacks911, merchants typically win about 21% of disputes. This number is a testament to how difficult representments are to win – even if the merchant is in the right.
So, is it even worth it to fight them?
The answer is yes. Despite these odds, you should still fight chargebacks at every turn.
Winning a chargeback dispute is by no means easy, but it is possible. If you want your best chance at succeeding, you need to understand that it’s a full-time job and set yourself up for success by creating a chargeback team.
By investing in a dedicated team to help fight chargebacks, you can save your company money, and reduce the risk of fraud and the inconvenience chargebacks bring.
Remember, a chargeback isn’t just the one sale you risk losing but also the shipping costs, processing fees, and all the fees for the chargeback itself. These costs can add up quickly and letting chargebacks slide sets you up for failure. If people begin to see your company as an easy target for fraud it can be difficult to ever recover.
It’s also worth noting that merchants with too many chargebacks run the risk of having their account terminated and losing their ability to process transactions. If that happens, they could go out of business entirely.
At the end of the day, there’s no foolproof way to eliminate chargebacks, just as there is no way to ensure a fire never starts. Nor is it possible to win every single representment case even if the merchant is right.
However, it’s important to have a team to dispute false claims. When a company fails to challenge chargebacks, they are essentially encouraging fraudulent behavior by showing that the fraudsters won’t face repercussions for their actions. According to Chargebacks911, nearly half of friendly fraud offenders will file another illegitimate chargeback within 90 days if the first chargeback wasn’t disputed.
With nearly 80% or more of all disputes a result of friendly fraud, prevention methods can only get you so far. The only way to fight back is to have a team responsible for the representment process and overall chargeback management strategy.
Want to learn more about chargebacks and fraud? Be sure to sign up for our fraud webinar on October 15th! You won’t want to miss it.