A chargeback alert system is a very powerful solution for merchants. It notifies the merchants and their payment processor whenever a cardholder initiates a dispute with their card-issuing bank. This happens before it officially becomes a chargeback case. How it works is very simple to understand.
Cardholders, they contact their card-issuing bank to dispute the transaction. Then, the issuing bank sends an alert to the chargeback alert network. The network then notifies the merchant, and this is usually done within 24 to 72 hours. Then, the merchant can choose to either refund the transaction proactively or prepare himself to fight the chargeback dispute case. If the merchant refunds the transaction amount in time, then the chargeback is deflected. It will never hit the merchant’s record.
Chargebacks can actually be very costly. They can be beyond just the disputed amount. They carry some fees, which is usually between $20 to $100 for each chargeback instance. High chargebacks damage the chargeback ratio and can also trigger the processor to initiate a review on your account and also result in the termination of your account.
For businesses operating in the high-risk sectors, it is important to keep the chargeback ratio below 1%. It is extremely critical for the survival of the account. When you use chargeback alert services, it helps you to stay below the threshold without the dispute ever being formally recorded.
The major providers for chargeback alert services are Ethoca, which is basically a MasterCard-owned company, Verifi CDRN, which is a Visa company. You may also explore Chargeback 911, which is a third-party solution that basically aggregates both the networks listed above and there is one more, which is Kount, which is now part of Equifax.
For high-risk merchants that we work with, we recommend them to use chargeback alert services as a part of the onboarding stack. We think that it is a very strong value addition. This is because we think that chargeback alert services can extend the merchant account longevity. It can also help in reducing the processor friction. Along with that, it can also strengthen the positioning of the merchant in front of a potential payment processors, which they will approach when their transaction volume increases or when they need additional merchant ID. Many high-risk payment processors will actually require merchants to immediately enroll in Ethoca or Verifi solutions at the time of the approval of merchant account.
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