How Chargeback Solutions Can Plug the Knowledge Gap Between Merchants and FIs

Merchants spend precious time and money building up their businesses, developing relationships with customers, and making plans for future growth. So when customers dispute transactions, and those disputes are escalated into chargebacks, it’s a bitter blow to take. Not only do chargebacks eat into profits, but they also risk everything the merchant has done to build up goodwill with their customers and acquirers.

It’s clear that as e-commerce sales continue to skyrocket, merchants will face a rise in chargeback issuances. They were already rising by around 20 percent per year even before the pandemic struck, and by the end of 2020 were estimated to cost around $130 billion. What makes the problem worse is that many chargebacks could be avoided, if only merchants had the right information and solutions to stop them.

While larger merchants may have the money and resources to tackle chargebacks, smaller merchants, and those new to e-commerce, are hamstrung by limited access to the data they need to identify and stop them at their source.

This knowledge gap is leaving space for the problem to grow even bigger, and it urgently needs to be addressed. Why? Because consumers have never been more clued-in about their rights, and are getting bolder about challenging merchant policies, terms and conditions to reclaim money, regardless of whether their claim is legitimate or fraudulent. Determining the nature of a chargeback can greatly influence the outcome in the merchant’s favor. However, without the right data or tools, merchants are on the back foot.

Our 2021 Chargeback Field Report illustrates the sheer scale of the problem — a third of merchants surveyed can’t identify whether chargebacks are genuine or fraudulent. A stark finding was that although merchants surveyed responded to 43 percent of chargebacks, the average net recovery rate was just 12 percent, clear evidence of how the knowledge gap is harming the fightback.

How Data Sharing Can Help Bridge the Gap

Merchants and financial institutions (FIs) need to work much more closely to share data that can pinpoint the source of chargebacks. A positive sign from the Field Report is that merchants that are aware of the dangers are much more likely to turn to a third-party solution to help address the issue — and when they do, they see immediate, revenue-boosting results.

Around 20 percent of merchants have outsourced chargeback management to a third-party specialist, enjoying a 23 percent average decrease in costs when compared to their in-house efforts. Third-party solution providers have access to data from a wider number of sources, and can drill into that data using dynamic artificial intelligence and machine learning technology to detect emerging threats in transaction patterns.

When combined with automated chargeback alert services, merchants get advance warning of looming chargebacks headed their way and can take swift pre-emptive action, such as offering refunds. While not a preferred option, refunds are far less costly to a merchant’s profits and reputation than a chargeback.

These intuitive solutions can empower merchants in the chargeback fightback, with the data they need to safeguard their businesses. Above all, they help to bridge the knowledge gap between merchants and financial institutions, and provide the foundation for stronger relationships, revenues and business growth.

Monica Eaton-Cardone is the COO and co-founder of Chargebacks911, a provider of comprehensive risk management solutions to the payment processing industry.