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Chargebacks were originally designed to protect consumers — but in today’s ecommerce landscape, they’ve become a significant source of revenue loss for businesses.
The laws surrounding chargebacks were created decades ago to bolster consumer confidence when paying with credit cards, at a time when the public was understandably wary about paying with this new method.
The pre-digital era where consumers were reluctant to even own credit cards, let alone use them, seems unimaginable from our current Ecommerce landscape, where 80% of Canadian consumers shop online.
Today, chargebacks represent a growing operational and revenue challenge for ecommerce businesses. However fair and balanced the intentions were when the laws were written, today’s chargeback environment can put pressure on margins, operations, and merchant account health.
To manage that risk, businesses need systems that help reduce, prevent, and recover chargebacks across the entire payment lifecycle.
Automated alerts preemptively help avert the impact of chargebacks. Fully-Managed Representment Specialists increase a company’s win-rate because the platform’s multi-tiered security reduces and prevents chargebacks from happening in the first place, and significantly lessens their impact when they do.
Finally, several features designed to improve aspects of an ecommerce company’s everyday business — such as billing optimization — also reduce chargebacks.
Let’s take a deeper look at the many cutting-edge ways today’s best online merchants use ecommerce platforms like sticky.io to stop chargebacks from harming their business, by streamlining operations and preventing fraud from draining revenue.
How Chargebacks Impact Revenue
Chargebacks were introduced to build trust in early credit card adoption, when consumers needed reassurance against fraud. They needed assurance that if fraud was committed, they wouldn’t be left holding the bill at the end of the day.
Today, customers can bypass merchants entirely and go directly to their bank to dispute a transaction. If chargebacks were filed only when fraud actually occurred, this process would not be a problem.
But that’s not at all the case.
Today, chargebacks cost businesses $80 billion annually, and online merchants can’t rely on other external sources for help. Governments can respond to cybercrime with legislation very slowly or not at all, even when a scammer drains significant money out of a high-profile company.
Even if governments wanted to prevent all cybercrime, they aren’t on the frontlines themselves, so they just aren’t in the right position to act.
Online companies need to fend for themselves when it comes to averting the impact of online fraud, and there is no sign of it slowing down any time soon. As much as 82% of chargebacks are filed wrongfully against subscription merchants, and chargebacks drain ecommerce businesses too.
Digitally native vertical businesses without a connected revenue platform must bear the financial and operational burden alone.
Whether a chargeback is filed by a cybercriminal intent on committing fraud, or a genuine customer in a dispute that ends up being resolved amicably enough, it’s still a drain on the merchant’s time and money. Businesses pay labor costs to employees so they can focus on their primary jobs at work, not to resolve chargebacks disputes. Plus, there’s the threat of fines and fees from credit card processors to navigate.
Chargeback disputes are structured unfairly against ecommerce businesses, who start out at a disadvantage because the burden of proof is on the merchant to disprove the allegations against them.
This, despite 60-80% of chargebacks being “friendly-fraud,” a debilitating species of fraud which can be successfully fought with the right protection!
Chargebacks are a complex problem, and to combat them effectively requires multiple tiers of protection at different operational levels.
Chargeback Alerts
Sometimes online merchants don’t even find out about chargebacks until a significant amount of time has already passed — this doesn’t have to be the case anymore! The best ecommerce platforms can send an alert in real-time when a chargeback is initiated against an online retailer, so they can reverse it right away.
Chargeback alerts allow businesses to take action before disputes escalate. Once a merchant receives an alert, they can choose to initiate a refund within 72 hours or allow it to proceed. If merchants ignore the alert, it goes directly into the chargeback flow. This allows merchants to take proactive action and minimize lost revenue to chargeback fees as well as protect their MIDs.
The sticky.io platform can catch approximately 25-30% of chargebacks using automated alerts, reducing their financial and operational impact early. This is vital, because half of cardholders who file an illegitimate chargeback do so again within about three months.
The threats from chargebacks go beyond extra labor costs or headaches, or even theoretical financial drain: real money is immediately lost in the moment. Chargeback Alerts help companies avoid fees paid to their credit card processor, so no funds are withdrawn from their bank account and held by the processor in escrow.
Of all the revenue ecommerce businesses lose to fraud, just under half is due to chargebacks. Automated Alerts help companies save funds and time from where the threat is largest. With chargebacks off their books, online merchants can enjoy Monthly-Income Debt Securities that are nice and healthy.
When chargeback alerts are automatic, merchants can operate with greater confidence and visibility into dispute activity.
Fully-Managed Services Increase Win-Rates
Not all chargebacks can be prevented before they occur, but when they do, we will help you fight them.
Every online retailer encounters fraud to some degree eventually, so it’s best to have a comprehensive anti-fraud plan in place from the beginning. A patchwork solution where employees put their primary tasks aside to frantically stop sudden bleeding is not remotely sustainable or scalable!
Companies can win representment cases on their own, but many don’t even try because they feel like the odds are stacked against them and it’ll just be an expensive waste of time. Even for companies that do succeed, the process can consume a lot of time and energy especially if your operation doesn’t have fully-managed representment specialists.
In the end, companies won’t be as successful fighting chargebacks on their own as they would be partnering with genuine chargeback specialists. This greater protection can also be had without distracting a company’s own employees.
Ecommerce businesses and brands need the backing of a connected revenue platform with fully integrated partnerships with expert third parties. When third-party experts also have full access to all the info from your ecommerce platform’s account, you’ll have the industry’s best support possible to win any chargeback disputes filed against you.
It’s understandable that companies feel gloomy about the effect of chargebacks, but don’t lose hope: on average, sticky.io wins 80% of representments! Specialized experts handle all the time-consuming paperwork and processes, so online entrepreneurs can focus on running their business.
Online merchants receive a better negotiated rate when they go through us than they’d receive if using these third-party integrations on their own. The best protection possible comes from industry leaders teaming up together — sticky.io’s experts will already be deeply familiar with the merchant’s business, while the third-party’s access to our platform’s profiles ensures they have all the information they could ever need to do their best work.
Security Features
An ecommerce platform’s overall security features are also a vital way to prevent chargebacks and reduce their impact. With security that complies with PCI-DSS Level 1, the highest level there is, you’ll never have to worry about business security or the safety of customer data.
Chargebacks will be reduced organically with enterprise-grade tokenization, advanced user permissions, and high levels of authentication. Risky profiles can be screened and blocked in advance, so their potential harm is neutralized before these bad actors have a chance to get a foot in the door.
To ensure all transactions are genuine, the best ecommerce platforms gather and leverage millions of data points using advanced artificial intelligence. Behaviors like cancellations, chargebacks and refunds identify customers who end up being bad actors down the road, and the platform stops their sales from getting processed right at the point of purchase.
Merchants can also be empowered to cancel a subscription or blacklist a customer who the platform has deemed suspicious.
Stopping chargebacks before they start reduces the amount of money required to fight them, and helps businesses process sales and operate confidently. Plus, because the system constantly refines and updates its own procedures, so it gets smarter and more effective as time goes on.
Crucially, this improved security won’t reduce conversion rates. Authentication takes milliseconds, so consumers can’t even perceive the amount of time security takes let alone feel frustrated by it.
The ecommerce platform’s innate security features are powerful and agile. In addition to total business security, companies can enjoy chargeback protection as a trickle-down effect.
3D Verify
The sticky.io platform has 3D Verify, which is embedded into the checkout process. The card issuer’s onsite display page authenticates cardholders.
It’s extremely easy to integrate this robust security measure with third-party Payment Gateways in ways that will thicken the web of security. It also works too quickly for consumers to even notice.
Billing Optimization Reduces Chargeback Naturally
There are features on the best ecommerce platforms which naturally reduce the number of chargebacks because they are designed to smooth out potential sales-related or delivery-related hiccups before they happen.
For example, the Address Validation feature confirms that a package will be sent to the correct address. With the high expectations of today’s consumers who are used to ultra-fast shipping, delays in arrival are a common sore spot.
Ecommerce platforms designed to meet the needs of consumers accurately help to lower shipping costs and consumer complaints, which in turn reduce the number of chargebacks. Chargebacks are never good for business, but chargebacks caused by genuine customers with innocent intentions are salt in the wound.
These situations should foster loyalty and long-term sales, not headaches and financial drain.
Analytic Dashboards
The best ecommerce platforms have order analysis and affiliate analysis dashboards showing the most important statistics related to chargebacks, so it’s easy for ecommerce businesses to understand the effect chargebacks are having on their company.
It’s not enough to know that you’re backed by automatic and personal chargeback protection; zoom in to see comprehensive details at the per-customer level, or zoom out to see the macro perspective on how chargebacks impact business.
Flexible Security
With a true enterprise-grade, large-scale platform, every company can set their risk-levels for each campaign or product however they see fit. Choose from six unique measures across Customer and BIN Profiles in the sticky.io platform.
There are times when too strong a security setting will negatively impact genuine customers, and of course security that isn’t strong enough permits bad actors inside. Ecommerce platforms put control back in the hands of business leaders by balancing robust security with flexibility.
Companies that operate with security that is both agile and powerful can keep their customers satisfied and safe, which in turn reduces chargebacks.
Third-Party Partnerships
Our platform has its own security experts and representment specialists, but to complement our services and add yet another additional layer of security, we have teamed up with other industry leaders in detecting and managing fraud such as Equifax.
Working alongside the largest network powered by data and intelligence from 6,500 digital businesses and payment providers, as well as leading Artificial Intelligence, we have teamed up with to deliver real-time fraud prevention and personalized customer experiences.
Equifax offers multiple levels of chargeback security and protection:
- Supervised and unsupervised machine learning
- Device fingerprinting
- Business intelligence tools
- A robust policy and rules engine
- A web-based case-management and investigation system
In addition to Equifax, we have third-party relationships with many other leaders in chargeback protection:
- Chargeback 360
- Chargeback Gurus
- Chargebacks911
- Concept Payments
- Ethoca
- Merchant Lifeline
- Midigator
- Verifi — Activity Export
- Verifi — Customer Service Data Pull
Companies receive the best combination of smart automation and the personal attention of experts working together for maximum protection in the minimum time possible, all while leaving employees free to focus on where they’re most needed.
All online merchants will eventually encounter fraud in ecommerce, and they must be prepared. But that’s not the same thing as accepting chargebacks as an inevitable cost of doing business online!
Chargebacks started out as a commendable consumer protection, but they don’t need to drain ecommerce businesses today. All that’s needed is smart, robust chargeback protection offered by modern connected revenue platform that also have deep third-party partnerships with experts in fraud detection and management.