Merchants are always on the lookout for ways to reduce chargebacks. Whether legitimate or fraudulent, excessive chargebacks can lead to serious consequences, such as losing your merchant account or facing higher fees from payment processors. 

This article will break down the most asked questions about chargebacks and how to prevent them using chargeback alerts from providers like Disputifier.

Table of Contents

1. What Are the Effects of Chargebacks?
2. What is a Chargeback Prevention Alert?
3. What is Ethoca?
4. What Are the Benefits of Chargeback Alerts?
5. Is Ethoca the Only Company That Provides These Notifications?
6. Why Let a Chargeback Management Company Handle Alerts for You?
7. How Long Does It Take to Set Up Chargeback Alerts?
8. How Many Chargebacks Can Be Prevented by Alerts?
9. Are Chargeback Alerts the Best Way to Prevent Chargebacks?
10. How Much Do Chargeback Alerts Cost?

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What Are the Effects of Chargebacks?

Chargebacks not only result in lost revenue but also come with additional fees and penalties. Each credit card network tracks the ratio of chargebacks to transactions for merchants. If this ratio exceeds a certain threshold, merchants may face penalties such as:

• Increased processing fees
• Fines from credit card networks
• Enrollment in chargeback monitoring programs like Visa’s VDMP
• Merchant account closure
• Restrictions on monthly processing volume

Merchants with too many chargebacks can even be placed on the Terminated Merchant File (TMF), making it difficult to open a new merchant account. Acquiring banks might start taking preventive measures like holding funds in reserve or restricting processing limits even before a merchant hits the chargeback threshold.

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Why Are Chargebacks on the Rise?

One reason chargebacks are on the rise is the growing trend of "friendly fraud." Customers dispute charges for convenience instead of reaching out to the merchant first. These disputes might seem minor to customers, but for merchants, they can have severe long-term effects, particularly when they don’t have chargeback prevention in place.

What is a Chargeback Prevention Alert?

A chargeback prevention alert is a notification sent to merchants when a customer disputes a transaction. With this notification, merchants have the chance to resolve the issue before it becomes a full-fledged chargeback.

When a customer disputes a charge, the issuing bank notifies the chargeback alert provider, like Disputifier. This gives merchants time to:

1. Stop the order if it hasn’t shipped yet
2. Issue a refund to prevent a chargeback
3. Collect evidence if they choose to fight the chargeback

Refunds are almost always preferable because they don’t come with extra fees and don’t count against your chargeback ratio.

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What is Ethoca?

Ethoca is a company, now owned by Mastercard, that provides chargeback alerts to merchants. When a customer initiates a dispute with their bank, Ethoca sends a real-time alert to the merchant, giving them the opportunity to resolve the issue before it escalates into a chargeback.

Ethoca’s chargeback alerts act like a “pause button” on the chargeback process, allowing merchants to issue refunds or prepare evidence to fight the dispute.

What Are the Benefits of Chargeback Alerts?

1. Maintain a Healthy Chargeback Ratio

By preventing disputes from becoming chargebacks, alerts help merchants keep their chargeback ratios low. This is crucial for staying in good standing with acquiring banks and payment processors.

2. Avoid Chargeback Fees

Issuing a refund instead of facing a chargeback saves merchants from paying costly chargeback fees, which typically range from $20 to $100 per incident.

3. Preserve Merchant Accounts

Merchants with excessive chargebacks risk having their accounts shut down or restricted. Alerts give you a chance to resolve disputes and avoid penalties that could result in account termination.

4. Improved Customer Relations

Chargeback alerts allow merchants to engage with customers directly and resolve disputes faster, turning a potentially negative experience into a positive one.

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Is Ethoca the Only Company That Provides These Notifications?

Ethoca is one of two major companies that offer chargeback alerts. The other is Verifi, owned by Visa. While Ethoca focuses more on Mastercard disputes, Verifi’s network includes many U.S. banks and covers Visa transactions.

Both companies provide similar services, but there are slight differences in coverage:

• Ethoca: More coverage in Canada, Europe, and Asia
• Verifi: Stronger presence in the United States

Using both Ethoca and Verifi gives merchants comprehensive coverage across all major credit card networks.

Why Let a Chargeback Management Company Handle Alerts for You?

Managing chargeback alerts requires quick action. A chargeback management company like Disputifier can handle alerts for you, ensuring that no alert is missed, and every dispute is handled efficiently. Here’s why you should consider working with a chargeback management company:

• One-stop management: Disputifier integrates Ethoca and Verifi alerts into a single dashboard for streamlined management.
• Automated responses: Disputifier can automatically respond to alerts by issuing refunds or submitting evidence, ensuring you never miss a deadline.
• Increased win rates: Disputifier guarantees a higher win rate for chargeback disputes, giving you peace of mind.

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How Long Does It Take to Set Up Chargeback Alerts?

Setting up chargeback alerts depends on whether you’re a new merchant or switching providers:

• New Merchants: 45 – 60 days
• Existing Merchants Adding Alerts: 20 – 30 days
• Merchants Switching Providers: No delay

To get started, merchants need to provide basic business information, including their merchant account number, sales system access, and official business name.

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How Many Chargebacks Can Be Prevented by Alerts?

The effectiveness of chargeback alerts varies depending on your business type and transaction volume. On average, here’s how many chargebacks alerts can prevent:

• Physical Goods: 21% (Verifi), 17% (Ethoca)
• Digital Goods: 41% (Verifi), 30% (Ethoca)
• Subscription Industry: 19% (Verifi), 14% (Ethoca)

Are Chargeback Alerts the Best Way to Prevent Chargebacks?

Chargeback alerts are a powerful tool, but they are not the only solution. A comprehensive chargeback prevention strategy also addresses the root causes of chargebacks, such as:

1. Setting clear expectations for your products
2. Providing excellent customer service
3. Offering easy ways to resolve disputes before they escalate

How Much Do Chargeback Alerts Cost?

While Ethoca and Verifi both charge for each alert sent, these fees are generally much lower than the costs associated with a full chargeback, including lost revenue, penalties, and increased processing fees.

Chargeback alerts are a cost-effective way to manage disputes and prevent chargebacks from negatively impacting your business.

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Conclusion: Chargeback Alerts as a Strategic Tool for Merchants

Chargeback alerts from providers like Ethoca and Verifi give merchants the power to prevent disputes before they escalate, helping them maintain a healthy chargeback ratio and protect their merchant accounts. While alerts are an essential tool, they should be part of a larger chargeback prevention strategy to ensure long-term success.

Ready to prevent chargebacks and protect your revenue? 

Disputifier’s chargeback alert system integrates the best features of both Ethoca and Verifi to offer you maximum protection. Get started today and safeguard your business for 2024.

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