Chargebacks offset your revenue goals and destroy your profit margin—and sometimes your very business. If you’re in doubt about whether you should fight every single chargeback you get, this article has useful answers to help you plan your moves.
With the complicated nature of chargeback mediation nowadays, many merchants don’t always know whether or not they should engage in any form of representment.
To add gasoline to an already raging flame, credit card companies conveniently accept chargebacks, without recourse to assessing their merit. Many online shoplifters are aware of that unfortunate loophole. And they continue to gleefully exploit it.
According to research by the Aite Group, 60 to 70 percent of chargebacks are the result of fraud.
The challenge for many vendors is, if you choose to fight the chargeback, there’s an extra fee you have to pay, regardless of the outcome. More so, you could end up losing an important client in the process. Plus, if chargebacks become more than one percent of your total monthly volume, you could lose your merchant account entirely.
“So what’s a poor e-commerce vendor to do with the bane of chargebacks?” You might ask.
We shall take a moment and splash some light on the dark tunnel to help you make data-driven decisions on whether or not you should fight all chargebacks that come your way. Review the tips below and decide how best to plan your chargeback response to secure your company’s growth prospects.
Here are the decision keys:
What is your chargebacks key performance indicator?
The first decision point is to evaluate your chargebacks representment Win Rate -- which is the measure of your effectiveness at fighting fraudulent chargebacks.
If your chargeback Win Rate is under 25%, it makes no sense to represent. But if your chargebacks Win Rate is above that percentage, then ensure that your Return on Investment (ROI) index is over 50%. Otherwise, you'll end up wasting your precious time and money fighting the chargeback. Again, if your win rate is above 30% but below 50%, you could proceed to fight the chargeback with some caution.
The ideal point to aim at is anywhere from a 50% chargeback win rate and above.
What goes into these calculations, you ask? It's simple. The general formula for calculating your chargebacks Win Rate is to divide the total chargebacks you received in a given month by the number of chargebacks you’ve won. That will provide you with an optimal win rate.
However, suppose you are still new in business and haven’t won any chargebacks yet. In that case, you should focus on your chargeback win/loss probability, which is a measure of the likelihood of your winning the case. Here, you consider indices such as your compelling evidence for representment, the type of merchandise you sell, and other elements that we explained further in this article.
What is the transaction value of the chargeback?
Fighting chargebacks take time and resources -- two critical assets of an e-commerce business owner.
Before you proceed, you want to first decide whether each chargeback is worth spending that real estate on.
Suppose the transaction amount involved in the chargeback is a large sum of money, and you have compelling evidence to prove the chargeback is illegitimate. Then, by every means necessary, put a tail on those scoundrels. But if the transaction value is negligible and you might wind up losing more money by fighting the chargeback, then you might want to let it slide.
However, the fork in the road is that if you continue to ignore those small chargebacks, they can quickly wind up affecting your bottom line and relationship with your processor. Further, fraudsters can take it as a sign of weakness.
So the decision metric is, you either choose to use each chargeback incident to send a strong message to the industry that you don’t tolerate being a victim of chargeback fraud or aim for the big tickets that's worth the time. As we've already established, getting excessive chargebacks will do significant damages to your business in the end.
That brings us to the third issue to consider when deciding whether or not to fight all the chargebacks you get.
What is the chargeback reason code?
Chargeback reason codes are alphanumeric codes developed by banks to help cardholders select the reasons for filing chargebacks. Credit and debit card issuing networks created chargeback reason codes for merchants to understand why customers dispute purchases and fight those disputes the right way.
For each claim, you must craft your representment to suit the reason code under which the bank filed the chargeback. The process is often troublesome; most times, reason codes do not show the actual basis why customer is disputing a transaction.
It gets worse. The major card networks have unique reason code systems, and banks use separate tools for placing a reason code. In the end, you might have issues of wrongly-applied reason codes. And fraudsters easily exploit vendors because of this limitation.
Thankfully, the card networks have now started streamlining their chargeback reason codes. So, before you set out to fight chargebacks, make sure you understand and plan your case in line with the designated reason code. Even if that code is inaccurate, misleading, or false, it's advisable that you work with what you have.
Enters Chargeflow, the world’s first PayPal dispute and chargebacks automation system
As a smart e-commerce business owner, you want to get the best chargeback management results possible as there's no avoiding the issue of chargebacks. But to achieve that objective requires that you should always keep your win rates at a record high, not flush your earnings down the pre-arbitrations stream. And you should still have your corporate image untainted among industry peers. And in that regard, Chargeflow comes out head and shoulders high above all chargebacks management systems out there!
We designed a comprehensive crisis mitigation tool to help you recover more money, without sucking you into the chargeback fighting vortex. We do all the work. We provide you real-time statistics to help you manage and understand your chargebacks, gain deeper insights.
We help you forecast your business cash flow and generate the world's most comprehensive chargeback and dispute responses, and submit them on your behalf. Also, our service is 100% automated, no intervention needed from you. Contact us today and see what Chargeflow can do for your company. Start here.