If you want to be effective in your chargeback mitigation, you must know the sources and causes of the disputes. If you don’t know that, you might as well be chasing the wind - no strategy you deploy will be meaningful.
Yet, to achieve that objective requires you have actual data about each dispute to track down the causes. And where to look is not difficult to figure out.
You evaluate abandoned carts, review the reasons for refund requests, dig into your manual review rate, decline rate, and false declines, and track your overall fraud-to-transaction ratio.
Those are standard KPIs used for crafting an efficient chargeback mitigation framework. And businesses that understand how to excavate insights from those crucial data sources make the most of their chargeback mediation.
The actual gamechanger, though, is when you understand how to forecast your chargeback recovery rate. That’s how you ensure you’re not fighting a losing battle.
Per readers’ requests, this installment of our thought leadership pieces will be looking into how to forecast a chargeback recovery rate.
Let's start with the fundamentals.
What is a chargeback rate?
In basic terms, a chargeback rate is a metric that indicates the ratio between the overall original transactions an e-commerce business processes and the total number of chargebacks the business receives.
The card networks have different ways of calculating a merchant’s chargeback rate for credit card chargebacks. For example, Visa derives a merchant’s chargeback rate by dividing the number of chargebacks the merchant received in a month by the number of purchase transactions processed during that same month. But over at Mastercard, they evaluate your chargeback rate by dividing the number of chargebacks you got in a given month by the number of transactions in the previous month.
As we explained in this article, a chargeback rate beyond 1% is a sign of trouble as per industry standards. It’s in your best interest to keep your chargeback ratio as low as possible. Not only should you aim to stop chargebacks from happening, but you should also fight ALL illegitimate chargebacks.
Further, improving your chargeback win rate requires a firsthand understanding of the chargeback process and the evolving industry rules. And the factors that influence your acceptable chargeback rate include your business type, your fraudulent chargeback recovery process history, the card brand involved, the acquirer, and much more.
An insight into the chargeback representment process
Consider this, a customer placed an order from your e-commerce, and you satisfied the order as quickly as possible. The next thing you know, they file and credit a chargeback fee for some confabulated reason.
You know they received the order in good condition because their previous communications with you indicate so. And you have other crucial compelling evidence that shows a successful delivery.
That is a typical example of friendly fraud.
Although some friendly fraud chargeback cases result from forgetfulness, family members making unauthorized transactions, or misunderstandings of a merchant’s return policies, the ability to file a chargeback out of convenience makes it possible for consumers to complete a transaction and then falsely file a transaction dispute alleging they never received their order.
It’s a huge problem in the industry today. And to regain your money, you have to engage in a lengthy mediation process known as representment.
Essentially, chargeback representment is a highly-regulated process that allows merchants to contest a meritless chargeback. The concept is such that the merchant is “re-presenting” the transaction to the bank, hoping their supporting evidence will invalidate the chargeback.
If provided sufficient evidence may overturns the chargeback fraud, you will win the case and regain your money. Therefore, your chargeback win rate measures your effectiveness at recovering chargebacks through representment. Your chargeback win rate is the number of disputes you fight and win divided by the number of chargebacks you represented.
For example, suppose you fought and won 100 chargebacks and represented 500 transactions. In that case, your chargeback win rate is 20%.
That said, it’s helpful to point out that industry records put the average merchant’s chargeback recovery rate at just 12%. A similar research highlights that about six in ten type of chargeback filed by 2023 will be cases of friendly fraud. If you’re like many businesses that think chargebacks are a cost of doing business, you should rethink that stance.
But, of course, many merchants don’t bother to fight chargebacks because of the limited chances of winning and end up losing their merchant account due to exceeded chargeback limit.
You need better data to forecast your chargeback recovery rate
Chargeback representment requires a well-thought-out strategy to send a proper chargeback response.
Because you have a short timeframe to investigate the customer’s claim, gather evidence, prepare appropriate documentation and respond, merchants are often pressured into submitting haphazard responses that fall short of expectations.
Again, due to the lack of comparable data insight such as would be provided by a system like Chargeflow’s ChargeScore®, all you have, for the most part, is your gut feeling and internal data with no benchmark. Therefore, it’s challenging to isolate suspicious chargebacks – you’re more or less flying in the dark, so to say.
Staying on top of your disputes game and tracking down the correct chargeback reason code for each chargeback dispute demands sufficient transaction data. If you have such insight, you can quickly evaluate a customer’s transaction history data, analyze behaviors patterns before the chargeback, and isolate touch points associated with chargeback occurrences.
Besides building an airtight case that helps you win disputes, forecasting your chargeback recovery rate also has other essential benefits. You can understand you current status against the platform chargeback threshold.
For one, you get a better understanding of your business cash flow and forecast it by calculating how much money you expect to recover from ongoing disputes.
Again, you can equally enhance your business processes and design a more compelling framework for preventing disputes that result from merchant errors such as weak order return policy or poor fraud detection protocols.
By analyzing millions of disputes and using our proprietary algorithms, ChargeScore® can determine the chances of recovering each dispute with high accuracy and based on that you can decide either you need a chargeback recovery service or not with a chargeback strategy.
Forecasting disputes success rates has never been more seamless
In today’s hyper-competitive digital economy, insightful data is vital for businesses, big or small, to thrive. By analyzing millions of disputes and using our proprietary algorithms, our system can determine the chances of recovering each dispute with high accuracy.
While you can manually track this data, as stated earlier, our automated system gives you a more excellent tool to get a clearer picture of your chargeback situation.
Use the drag and drop chargeback and disputes calculator to get just-in-time results and exposure level on your chargebacks and disputes. And how much money and hours you could recover every month with Chargeflow chargeback management service with proven chargeback prevention.
What factors determine the success of chargeback recovery?
A chargeback recovery rate is dependent on several factors such as the type of chargeback, the reason for the chargeback, and the evidence available to dispute it. Using a chargeback prevention company like Chargeflow can help reduce the number of chargebacks by proactively identifying and resolving potential issues.
Can a chargeback recovery rate be accurately predicted?
It is difficult to accurately predict a chargeback recovery rate as it is influenced by several variables and can fluctuate over time. Utilizing chargeback prevention measures provided by companies like Chargeflow can help mitigate the risk of chargebacks and improve recovery rates.
What steps can merchants take to increase their chargeback recovery rate?
Merchants can increase their chargeback recovery rate by implementing effective fraud prevention measures, providing clear product descriptions and return policies, and promptly resolving customer disputes. Utilizing a chargeback prevention company like Chargeflow can help implement these strategies and optimize recovery rates.
Are there any legal or ethical considerations for chargeback recovery?
Yes, it is important to adhere to legal and ethical considerations when pursuing chargeback recovery. This includes following the rules and regulations of the card networks, as well as ensuring that evidence used to dispute a chargeback is accurate and not misleading. Chargeflow provides compliance support and guidance to ensure that all chargeback recovery efforts are in accordance with the law.
What is the average chargeback recovery rate for merchants in different industries?
The average chargeback recovery rate varies by industry and can range from less than 10% to over 50%. Chargeflow provides data-driven insights to help merchants understand their chargeback rate, as well as industry benchmarks for comparison.