Chargeback Prevention Tools

Chargebacks affect a merchant’s reputation and profits, so it’s no surprise that you are looking for the best chargeback prevention tool. Unfortunately, the sheer number of chargeback prevention tools makes it difficult to pick the right solution.

We’ve prepared a guide on chargeback prevention tools to shed light on the matter. We distinguish between the different categories of prevention tools and explain what different products offer.

Let’s dive into it.

How chargeback prevention tools work

Chargeback prevention tools are designed to address specific threat sources, including policy missteps, buyer’s remorse, and unauthorized charges. Individual chargeback prevention tools perform well within their design scope, but they aren’t sufficient against the numerous potential chargeback triggers.

Your best bet is to develop a chargeback fraud prevention strategy around these tools. Every tool implemented adds a layer of protection and yields better chargeback prevention results. However, using the wrong tools or having too many layers will do more harm than good.

Chargeback prevention tools are categorized into:

• Pre-transaction prevention tools – these tools identify possible chargeback triggers and resolve issues before a transaction takes place.
• Post-transaction prevention tools – these tools are designed to intercept and resolve disputes in progress before they escalate into chargebacks.

Post-transaction chargeback prevention tools

Merchants use these chargeback prevention tools as a last line of defense. Instead of addressing the causes of chargebacks, they help protect merchants from disputes. They are the first tools merchants apply when they are working on reducing their chargeback ratio.

Post-transaction chargeback prevention tools can be split into two categories:

Chargeback alerts

These chargeback tools help reduce the chargeback ratio without impacting a cardholder’s experience. If a cardholder disputes a charge with their issuing bank (which is part of the alert network), the merchant will get a notification of the pending dispute. At this point, a merchant can opt to issue a refund instead of fighting the dispute.

The two main alert networks are:

• Verifi (Visa) – Verifi Cardholder Dispute Resolution Network (CDRN) provides chargeback notifications in real-time. These notifications help merchants prevent losses sustained through chargebacks.
• Ethoca (Mastercard) – Ethoca Alerts send notifications to merchants before the issuing bank escalates a dispute into a chargeback. This allows merchants enough time to resolve disputes on healthier terms.

Network inquiries

Network inquiries also allow merchants to intercept disputes before they go into the chargeback phase. Suppose a cardholder contacts their issuing bank regarding a transaction they don’t know about. In that case, the issuing bank can get more information on the transaction if they are part of the network inquiry program. These tools help reduce the number of friendly fraud disputes before filing the dispute.

Mastercard and Visa provide inquiry programs including:

• Verifi Order Insight – it functions as a plugin for Visa Resolve Online. The tool empowers the issuing bank with a merchant’s CRM and real-time Visa transaction details. The details help the parties involved to remember and validate Visa transactions.
• Consumer Clarity by Ethoca – it works like Verifi Order Insight but only applies to Mastercard transactions. It provides the issuing bank and cardholders with transaction details, including purchase location, name, and digital receipts.

Aside from chargeback alerts and network inquiries, look into Verifi Rapid Dispute Resolution (RDR). RDR allows merchants to develop rules and apply parameters for all pending disputes. These presets determine which disputes a merchant would like to accept automatically and refund the transaction amount. Overall, RDR helps to prevent chargebacks by dealing with disputes.

Pre-transaction chargeback prevention tools

These chargeback prevention tools help merchants identify fraudulent charges before processing. Fraudulent charges always result in disputes, so detecting them before processing is the best practice. Some of these tools include:

Address Verification Service (AVS)

AVS automatically compares the billing address on the charge with that registered with the cardholder’s issuing bank. If the two don’t match, the service flags the charge as potential fraud.

Card Security Codes

This authentication tool helps to ascertain the shopper has the card they’re using at hand. The security codes are printed on the credit card, and processors or merchants aren’t allowed to store them. The cardholder is required to re-enter the code during every purchase.

3-D Secure 2.0 (3DS2)

This tool provides cardholders with an added layer of security against fraud. 3-D Secure 2.0 requires cardholders to enter a code during transactions. 3DS2 operates like online PIN codes, and fraudsters cannot know the code unless a cardholder shares it with them. Entering the wrong code stops the transaction.

Blacklists

Fraud blacklists help ban potential or known fraudsters engaging in friendly or criminal fraud. The blacklist helps to ensure that the fraudsters cause trouble only once. Merchants can use the blacklist to block orders by various parameters, including the customer’s country of origin or IP address.

Visa Account Updater

This tool helps in preventing chargebacks caused by incorrect credit card data. It does this by notifying the merchant of any changes to a cardholder’s account. Overall, it helps merchants better handle recurring transactions and ensure that account information is up-to-date for smoother transactions.

Velocity limits

Velocity limits check for possible fraud judging by the rate a purchaser completes multiple transactions. This tool allows merchants to pick out suspicious transactions and identify situations where a fraudster might be involved in card testing or trying to complete multiple transactions with correct card details.

Still losing money?

Implementing the above chargeback prevention tools should help you reduce the number of chargebacks you receive. However, if the chargebacks already happened to keep what you earned requires a chargeback department or using a chargeback mitigation company like Justt.