New chargeback solutions put merchants in control of the dispute process

David Mattei

David Mattei, Senior Analyst, Aite Group

Chargebacks are often the bane of most merchants’ existence because they take time and resources away from productive efforts. Businesses would love to close their eyes, click their heels three times, and have chargebacks go away. If only it were that simple, Dorothy! But preventing chargebacks is becoming that simple. Newer industry solutions are putting more control in the hands of merchants — control that merchants are warmly embracing. These solutions include dispute avoidance and chargeback avoidance.

Dispute avoidance helps banks clarify transaction details for customers

Most consumers contact their financial institutions when they don’t recognize a transaction. A recent Aite Group study found that 24% of these dispute calls are legitimate transactions. There are several reasons why a consumer may not recognize the transaction. In some cases, the billing descriptor on the statement may not clearly identify the merchant. This is common when intermediaries like Square facilitate purchases or the merchant uses their legal name instead of the name on the storefront.

In other cases, a consumer may not recognize the amount charged. For example, a consumer may have purchased two items totaling $100 (one item for $60 and the other for $40). The $60 item shipped immediately, so the consumer was billed immediately. But the $40 item was on backorder, so the consumer wasn’t billed. When the consumer sees their bank statement, they expect the $100 charge, not a $60 charge.

With dispute avoidance, a merchant can provide additional transaction details to the financial institution at the time of the consumer’s call. Knowing this data, the consumer may recognize the transaction and resolve the issue. That means no dispute and no chargeback, a win-win-win situation for the consumer, the financial institution, and the merchant.

Chargeback avoidance notifies merchants as soon as customers initiate disputes

If the financial institution accepts the consumer’s dispute, traditionally, a chargeback would be generated immediately. But a new resolution path — chargeback avoidance — can resolve the issue. In this process, the financial institution informs the merchant of the dispute, allowing the merchant to refund the consumer and prevent a chargeback.

A merchant may take the opportunity to refund a purchase themselves for a few reasons:

  1. The dispute is from a loyal customer, so the merchant wants to preserve the relationship.
  2. The dispute is a satisfaction issue with the product or service, and the merchant wants to avoid negative reviews.
  3. The merchant realizes they will have to refund the consumer if the dispute becomes a chargeback. Issuing a credit is less costly than the fees in the chargeback process.
  4. The merchant has an elevated chargeback rate and may want to issue a refund to proactively manage their chargeback levels.

With new industry solutions like dispute and chargeback avoidance, merchants can finally influence the situation and have some control of the dispute process. Not only that, but they can play a more proactive role in customer relationships, saving more sales and maintaining a good brand reputation.

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