Relying on Early Alerts for Chargeback Defense

You have a chargeback problem. Your chargeback ratio is too high, and the amount of money you are losing from handling payment reversals is significant. What are you going to do? Call ghostbusters? No, but seriously, you should consider the early warning services operated by the two largest card networks, Visa-owned Verifi and the MasterCard-controlled Ethoca.

Both Verifi and Ethoca offer alerts immediately notifying merchants that a cardholder is disputing a transaction at a participating issuing bank. The merchant then has up to 24 hours for Ethoca and 72 hours with Verifi to resolve the issue, usually through a refund, before the issuing bank decides on whether to pursue a chargeback. If the merchant refunds the transaction that received an alert within the allotted time, then the issuer refrains from posting a chargeback and the transaction is not added to the merchant’s chargeback ratio. The Verifi solution is known as a CDRN, which stands for Cardholder Dispute Resolution Network. The equivalent Ethoca solution is simply called Ethoca Alerts.

The system isn’t perfect. Sometimes a chargeback will be filed after the merchant has issued a refund, in effect, leading to a double refund. These are sometimes referred to as “chargeback defects.” Alerts also cost money regardless of whether the merchant uses them, which means an added expense to the chargeback process. 

The main difference between Verifi and Ethoca is what issuing banks are in their networks. Verifi has better coverage in the U.S. Ethoca has a wider network in Canada, Europe and Asia. However, there is some overlap between the two of them. That means if you sign up for both services, there are times where you will pay twice for alerts on the same transaction.

It’s important to point out that while chargeback alerts can help significantly reduce the number of chargebacks you receive, they are a practical, short-term workaround, not a long-term solution.

If you are refunding a significant share of your disputes or are addressing a large share of complaints via alerts it means you have something broken in your sales organization or operational processes that needs to be fixed. Alerts can help you mitigate the damage these problems are causing in the short-term while you pinpoint the issues and find long-term solutions. However, relying on alerts in place of finding the issues and relevant fixes is an expensive proposition.

If most alerts coming in are for cases of friendly fraud, then in the medium to long term you really should be fighting those as chargebacks. It doesn’t make sense financially to issue refunds for chargeback cases that you are likely to reverse in re-presentment. By issuing refunds to friendly fraudsters before a chargeback has even been filed you are also encouraging repeat offenders. Lastly, it doesn’t make sense to pay for alerts for cases that you will fight as chargebacks. 

There are benefits to using chargeback alerts through Justt, an authorized reseller of both Verifi and Ethoca.  For starters, Justt will conduct an analysis of whether or not chargeback alerts can significantly help your business or are just another added expense.  If using alerts is warranted, you will benefit from Justt’s expertise in determining when refunds should be used and when the potential chargeback should be fought with a re-presentment. Finally, using a reseller like Justt will cost you the same or less than buying from the alert companies directly, so the additional benefits can only be a net positive.  

Bottom line: Use chargeback alerts judiciously and not as a cure-all for your payment dispute problems.