Post-Dispute Tactics: Should You Block a Customer Who Filed a Chargeback?

While a huge amount of information is available – much of it on this site – about best practices for handling ongoing chargebacks, very little has been published about what to do with cardholders after the dispute dust settles. However, up to 25% net revenue may rest on how you answer this question. The right strategies with regards to former disputers can drastically reduce chargeback volumes, while failure to act can result in an endless state of siege by serial friendly fraudsters. 

While many companies opt to block any cardholder who disputes, or conversely,  allow chargebacks to keep coming, both of these approaches are deeply flawed. This article explores the pros and cons of battle-tested post-dispute strategies, so you can maximize your revenue retention while minimizing your workload. 

Fool Me Once: What to Do About Serial Disputers

With chargebacks currently costing businesses hundreds of billions annually, and set to increase 25% by 2028, a lot is at stake in how you handle them. Worse still, Visa reports that 75% of chargebacks are illegitimate, arising due to cardholder confusion and attempts to game the system. A huge proportion of this “friendly fraud” comes from cardholders who dispute regularly – nearly 15% of Americans file five or more disputes annually, while 6% initiate eleven or more chargebacks per year. 

The Chargeback Crisis

These serial friendly fraudsters present a huge threat to businesses, who may suffer repeat losses at the hands of just a few cardholders. It begs the question: what should merchants do with a cardholder after they initiate a chargeback? Here are a few of the most common reactions: 

• One Strike And You’re Out: Many merchants block cardholders after the first dispute. This ensures that no further chargebacks are initiated on the same card, but also severs a potentially lucrative revenue stream from genuine users. 
• Never Block: Others never block cardholders, no matter how many chargebacks are initiated. This attitude is usually motivated by fear of losing revenue or damaging brand reputation. Of course, it also permits serial friendly fraudsters to wreak havoc on revenue. 
• Thresholds: A third approach involves waiting for cardholders to initiate a set number of chargebacks before issuing a ban. This blended approach avoids the pitfalls of endless chargebacks and revenue cutoff, but still lacks the nuance of more sophisticated post-dispute strategies. 

Each of these approaches has its benefits and downsides, which may suit certain business models and industries. For instance, SaaS merchants will rarely wish to block a customer outright, even after several disputes – if they’re paying at all, you’re probably making a profit. On the other hand, if you operate with one-time customers and extremely high-value transactions, it might be imperative to block instantly. Some products are simply too valuable to lose twice. 

For most merchants, the middle-ground approach yields better results. However, it is vital that you compare the number of chargebacks against the total revenue earned from the customer – it doesn’t make sense to cut off a lifelong gaming customer simply because they have initiated six chargebacks on inconsequential microtransactions. It’s crucial to remember that rigid rules rarely serve dynamic businesses. But what is the alternative?

The Typological Approach to Post-Dispute Handling

Each of the common approaches we’ve examined risks throwing away revenue through overcaution or overexposure. This is because they fail to take the type of chargeback received into account. Some dispute categories are very unlikely to initiate repeat chargebacks, while others are almost guaranteed to do so. The ability to take action based on these distinctions is critical to preserving your revenue. Let’s take a look at a few of the most important categories, and how to handle them: 

• Social engineering fraud disputes occur when criminals exploit a person’s trust to convince them to make credit card payments. However, cardholders typically don’t reveal their card details in these instances. This means that there is little risk of repeat offending, and no need to block them from future transactions. 
• Stolen credit card fraud disputes involve fraudulent accounts initiating illegitimate payments with stolen credit card details. For these cases, you should block both the email address and the card from your site. 
• Account takeover fraud disputes happen when a legitimate account is hijacked by a bad actor, and used to initiate illegitimate transactions. This can happen briefly, or for a period of months. Pause account activity until you can contact the cardholder to confirm that they have regained control of the associated email address. If so, there is no need to block the account. 
• Service/fulfilment related disputes may reflect problems in your own business operations. If disputes arise because you failed to issue/offer a well deserved refund promptly, then you probably shouldn’t add insult to injury by blocking the cardholder. 
• Friendly fraud disputes happen when a cardholder initiates an illegitimate dispute regarding a legitimate transaction. This can happen either due to cardholder confusion or malicious intent. Either way, you should lean towards blocking these accounts, as they have a high chance of “reoffending”. 

It’s also worth noting that most dispute claims surrounding true fraud or service issues are actually friendly fraud in disguise. Only by studying each chargeback can you separate genuine fraud victims from perpetrators. 

Use Data to Make Post-Dispute Decisions

Of course, it takes time and mental energy to sift through disputes on a case-by-case basis. While this might be feasible for smaller companies, those receiving hundreds or thousands of monthly chargebacks will likely find this additional workload impossible to tackle manually. 

That’s why it’s important to analyze your chargeback data to better understand trends, causes, and patterns in your disputes.

Justt shows you a unified view of your disputes across the different PSPs you work with, and allows you inform your revenue recovery strategy based on learnings from data. This includes drilling down into the specific dispute level, which will allow you to identify repeat offenders, keep lucrative channels, and  while proactively eliminating revenue drains. 

Want to see Justt in action? Schedule a demo today.