How Can ISOs Add Value With Chargeback Services?
At every event we’ve attended in 2020—MAG Mid-Year, Sift’s Fraught Fighter Forum, and MRC—a common pain point we hear about from ISOs are their merchants’ continuous attempts to fight fraud only to see chargeback counts increase in volume and frequency. Shouldn’t chargebacks go down if fraud prevention tools are in place? Unfortunately, solving true fraud does very little to prevent friendly fraud—and as much as 80% of chargebacks may be friendly fraud.
Recently, we heard a story from an ISO agent who lost one of his best merchants—to quote him directly, his “meal ticket”—because the merchant wasn’t taking enough action to bring their chargeback rate down. The merchant’s acquiring bank eventually ended up terminating their account because of excessive chargebacks, and the commissions and revenue generated by that merchant disappeared overnight. Losing this merchant had a huge impact on the ISO agent’s wellbeing, all because of a chargeback situation that had gotten out of hand.
One big misconception about chargebacks is that it’s nothing more than the bank forcing a refund and that the only cost to the merchant is the transaction amount. This seriously underestimates the impact. When all of the bank and processor fees are included, and the time and labor spent dealing with chargebacks is factored in, the true cost of a chargeback can be as much as 2.5 times the original transaction amount.
When you take the true cost of a chargeback into account, it makes a lot of sense to invest in chargeback prevention and recovery. It can be difficult for merchants to do this in-house. To fight and prevent chargebacks effectively, you have to understand the real root causes behind them. This isn’t always apparent from the limited information banks pass along when they notify merchants of disputes in progress. Uncovering the root causes requires sifting through the data, doing the right analytics, and having the knowledge and experience to interpret the findings. That’s why many merchants choose to outsource chargeback management.
Chargeback management firms like Chargeback Gurus can typically recover between 50 to 70% of revenue lost to chargebacks. Not all chargebacks can be prevented or successfully challenged—chargebacks that result from true fraud are being employed exactly as the banks and card networks intended and merchants have no choice but to accept them. Friendly fraud chargebacks, on the other hand, can be reversed if merchants represent the transaction and submit the right compelling evidence that proves the customer is misusing the chargeback process. Crafting the right response isn’t always easy or intuitive, but chargeback management experts can show merchants how to do it.
Of course, prevention is always better than fighting a chargeback in progress. There are lots of things merchants can do to reduce their vulnerability to friendly fraud chargebacks:
- Many cardholders will immediately dispute an unrecognized charge without investigating it further. Make sure the merchant descriptors that appear on credit card statements include a recognizable merchant name and customer service contact number.
- Chargebacks are often a last resort after a customer has given up on trying to resolve a problem directly with the merchant. Attentive customer service and generous refund policies can greatly reduce chargeback rates.
- By meticulously documenting and retaining transaction records, merchants can be prepared to submit the compelling evidence they need to win chargebacks. Merchants who can’t locate their records—or who never had them in the first place—aren’t going to be winning many disputes.
- Merchants who overpromise or make misleading statements about what their products can do in sales and marketing messages often find themselves hit with “product not as described” chargebacks from unsatisfied customers. Setting realistic expectations is a much safer practice.
ISOs can add considerable value to their offerings by including chargeback services through a partnered provider. By expanding the range of services you provide to include chargeback management, you can:
- Reduce the risk to your merchants at no additional cost to yourself
- Protect their revenue streams and increase your own commissions.
Many of the improvements to business procedures that chargeback firms suggest will have other beneficial outcomes, such as:
- Healthier merchant accounts
- Higher rates of customer retention and satisfaction, and
- Reduced operating costs.
When merchants are able to focus on the things that really matter to them—their products, their branding, their customer service, their company culture—all of their clients, customers, employees, and partners benefit. Because chargebacks can have such a deleterious effect on a merchant’s financial health, it’s easy for merchants to get caught up spending a lot of time and effort dealing with them. Unfortunately, when you’re unfamiliar with the many rules and regulations around chargebacks and the ways that fraudsters exploit those rules, it’s also easy to waste resources on ineffective solutions.
Chargeback management companies like Chargeback Gurus that have been in the game for decades and have seen it all and can get right to work analyzing a merchant’s chargebacks and devising the prevention strategies that will work best for them. That’s a partnership that can make a world of difference for merchants struggling to stay afloat under a rising tide of fraudulent disputes.
Suresh Dakshina is the President of Chargeback Gurus. A pioneer in data analytics and industry-specific risk management, he is a certified e-commerce fraud prevention specialist and Certified Payments Professional. He understands first-hand the challenges that business owners face, especially when it comes to chargebacks and fraud.
Suresh holds a Masters degree from the University of Southern California, and has consulted Fortune 5000 companies for over a decade on chargeback and fraud minimization. He is a veteran speaker, and works closely with Card Networks like Visa and American Express on chargeback process optimization and compelling evidence policies.
Elite Performers Have Processes, Procedures and Systems in Place
Elite level organizations have invested the time necessary to develop their processes, procedures and systems. Every business function can be segmented into a process and/or sub process. Once you discover what processes drive a particular activity, it can be quantified, measured, and improved upon.
A process occurs in every area of business, whether it’s marketing, appointment setting, sales calls, deployment, inventory management, risk management, data compliance, underwriting, technical support, customer service, training, recruiting, hiring or firing.
W. Edwards Deming who single handedly turned Japan into an industrial powerhouse after WWII developed what’s called the Deming Cycle, which is, a continuous quality improvement model consisting of a logical sequence of four repetitive steps for continuous improvement and learning:
PLAN: Design or revise business process components to improve results
DO: Implement the plan and measure its performance
CHECK: Assess the measurements and study the results
ACT: Take action to standardize or improve the process
Start with improving your most important or core processes first, the ones that will have the most impact on your business if they are enhanced. This is the blocking and tackling part of any business, it’s not glamorous or exciting but if you want to be able to scale or have the business operating independently, you need to develop documentable processes, procedures and systems.
Start with the low hanging fruit:
1. Marketing (includes lead generation)
2. Sales Process
3. Merchant Boarding and Activation
4. Customer Retention
Let’s just look at marketing for a moment, this is an area where you have unbelievable leverage to create improvements. Think about it, if you are running a Facebook ad or pay per click (PPC) campaign you are spending a fixed amount each month, regardless if you generate 20 leads or 50 leads. If you have a salaried salesperson in the field the cost if fixed each month, you pay them the same salary whether they close 5 deals or 15 deals. If you have a call center, you are still paying a fixed hourly rate regardless of the number of appointments set and so on.
So marketing is one of the areas where you can realize the biggest leverage in your business. If you can increase those conversions ratios for Facebook ads or PPC campaigns, closed sales from salespeople, or higher appointment ratios you have just increased your revenue, sales, profits and portfolio value. Just small incremental improvements make a major difference!
Document each of these core processes, ask for input from team members and keep it simple.
With technology where it is today, there is no excuse why you can’t drastically improve your business in these four key areas. Once you get these four down, move to other areas, like operations, finance or human resource related items.
Why do you think franchises are so successful? Because they have processes, procedures and systems in place, so the franchise in Houston, Tx is ran just as efficiently as the one in Pittsburg, PA.
Systemizing your business gives you more power and control, you now have options; duplicate it in other markets, maintain it, sell it or turn it over to someone else to run. If you get these four perfected, you will be a long way toward building a massive residual stream.
If you want to grow and expand develop systems that allow you to do so.