A chargeback is a completely normal event in the financial life of a merchant. But even though it is an unwanted happening. Ethoca Alerts and companies that provide such a service can help a merchant to solve the dispute and reduce chargebacks. In this article, we will talk about chargebacks, businesses that are vulnerable to them, alert services to eliminate them, and qualified providers.
When do you need Ethoca Alerts services?
To explain what Ethoca is and how it works, let’s start from the very beginning. And for better illustration, we will begin with an example. Imagine that there is an online business, precisely a travel agency, in Europe, Austria.
People can book via websites short-term stays in the mountains during a;l the year, no matter the season. Evidently, people can have different spontaneous life events, changes, new plans, and so on. All these factors can affect that fact if the trip will actually happen or not.
Now let’s imagine the way this business works. So let’s say on the website it is very easy to view the trip’s details, book the trip, and pay. But it is quite difficult to get in touch with customer service, and it is not easy to find a way of getting a refund.
The only way that is left for a customer that wants to cancel the trip is to initiate a chargeback, or a money return, through its own bank. As a result, a customer will get the money back, but that will not be as simple for a business.
A chargeback will damage a business from many angles and will not do any good for its future. And this is where Ethoca services are the best solution. Basically, it can prevent the whole chargeback situation and not let the damage even happen.
That was indeed very brief, but no worries, we got you. Now we will dive into what a chargeback is, how and why it is a danger for a company, and which businesses are the most vulnerable to it.
What is a chargeback, and why is it so bad for businesses?
In simple words, a chargeback is a money return. But not a direct one. A money return, by its nature, has a very long history. From the beginning of pre-market society, even after a barter, a return could be demanded if the product did not meet the customer’s requirements.
When money started to exist, the funds’ return became even easier. But as we said, a chargeback is not a direct monetary return. For example, a direct money return in the old times would be an unsatisfied customer coming to a merchant and asking to return the funds. An indirect one would be if the very same customer would go to a governmental structure for them to make a merchant make a return. A chargeback is kind of the same thing but in eCommerce. To initiate it, a client demands a bank instead of a merchant directly.
Most of the claims are solved by the bank in favor of a customer. This policy is coming from the very beginning of online payment existence as the customer’s protection from fraudulent businesses. So the client would get back the spent funds in the very same amount, but the business would lose way more than just that.
First of all, a business would lose profit, but it is quite normal in this situation. Second, the business would pay a chargeback fee to the acquiring bank that has issued its online merchant account. And at last, the chargeback would stay in the history of an online account. So if a business accumulates a lot of chargebacks, it can become high-risk, and the acquirer can terminate even its merchant account.
What is a high-risk business?
A high-risk business is a business that potentially generates a lot of chargebacks, and so banks have a lot of risks when they issue merchant accounts for businesses like this. High-risk merchants for the account issuing and sustaining pay more fees, apply more strict documentation and can have difficulties finding a provider.
But do not mistake a high-risk business for something illegal or shady. In fact, there are a lot of industries that are considered high-risk as they can bring many money returns. For instance, all the travel sector, including airlines, social media companies, all kinds of streaming services, online gaming, etc. Here we have listed those industries and explained even more in detail high-risk entities.
Thus, high-risk businesses are basically magnets for chargebacks, they can have a lot, and it can lead to a merchant account termination, so an online business would not function at all. But not only the high-risk category is vulnerable. Low-risk businesses can also suffer from initiated chargebacks. Fortunately, there are Ethoca tools at their best that can prevent mentioned issues.
What is Ethoca?
Ethoca is a top service provider offering merchants protection of their businesses and revenue. The company was founded in 2005 in Toronto, Canada. In 2019 it was acquired by MasterCard.
Ethoca’s best services for eCommerce websites are focused on increasing card acceptance, preventing fraudulent actions, regaining lost revenue, and stopping chargebacks from both fraudulent and client disputes. Via the Ethoca Network, the data gap between card issuers and online business owners is way less.
The set of services of Ethoca Alerts company gives notable revenue increase and cost-saving. Currently, the Ethoca alert company is serving well to more than 5500 online merchants in 40+ countries, being quite popular in the USA, EU, and the UK.
Which services does Ethoca provide?
- Fraud prevention. Ethoca allows merchants to be protected from fraudulent actions. This includes classical fraud, hacker attacks, and friendly fraud. Friendly fraud is a fake chargeback when a customer pretends to have a reason to be unsatisfied with the item, while in fact, he or she just wants to have a money-back for the good product.
- Chargeback elimination. Chargeback elimination is focused on alert services that can prevent the dispute from being issued.
How does the Ethoca chargeback protection work?
Now let’s dive into the chargeback flow. At first, we will see how the normal flow goes, which entities are involved, and what is result of it. And after, we will see the flow when Ethoca is involved, how it is different, and what are the possible outcomes.
Normal chargeback flow
So normally, when a chargeback is placed by a customer, the information goes at first to the issuing bank of the customer and to the card brand such as Visa, MasterCard, American Express, and others. The dispute is being processed and verified for its validity. Then, if it is approved, those financial entities contact an acquiring bank of a merchant. It is the bank that issues a merchant account for a particular eCommerce business.
An acquiring bank then automatically withdraws the amount that the client spent, including the shipment cost, from a merchant account. On top of that, the acquirer takes a chargeback fee for an account and keeps the record of the event.
Chargeback flow with Ethoca Alerts company
With Ethoca involved, the flow is modified. In this case, when a customer creates a dispute, a bank issuer does not contact an acquirer but sends a notification to Ethoca. At this moment, when a notification is sent, a dispute itself is on hold for 24 hours.
A merchant receives an alert about a dispute with the customer’s details. And now there is a choice, to contact this customer, offer product replacement or refund, or do nothing and let the chargeback pass normally.
If the problem is solved with a product replacement or refund, a merchant sends an update to Ethoca, which transfers data about the dispute resolution to the bank issuer. In case the chargeback is fraudulent, it is canceled.
Refund vs. chargeback
So we just have said that it is better to offer a refund than to proceed with a chargeback. But why is it so? Because offering a refund, a merchant just loses the price of the product along with the product, which is fair, as honest chargeback claims that the item is not good.
But remember that a chargeback itself not only returns the money but also requires a fee and damages the reputation. Plus, from a marketing perspective, it is always better to talk with a customer nicely and be reachable to find a common solution, it is kind of a second chance to improve the reputation.
Best Ethoca service company for online business
What if you want to have your merchant account provider already equipped with chargeback protection in order to set up all the needed services in one merchant account. Then, we got you. Maxpay is a payment gateway service provider that covers all the merchant’s needs.
Maxpay issues merchant accounts, setups the payment acceptance tools on websites, and provides fraud prevention and Ethoca chargeback alerts. Besides that, the company has solid experience in working with high-risk businesses, including travel industries, gaming, and gambling. Contact us to find out how we can improve your business.
Is Ethoca owned by MasterCard?
Yes, in 2019, MasterCard became a parent company of Ethoca. The goal of this is to enhance fraud prevention, friendly fraud actions, and eliminate chargebacks. So basically, MasterCard wants to build a bridge between its cad brand and merchants that accept online transactions.
What are Ethoca Alerts?
Ethoca Alerts company provides fraud prevention services and also chargeback protection. A chargeback alert service basically notifies a merchant about the client’s dispute before the information reaches an acquirer. This means extra fees and bad records can be avoided.
How does Ethoca work?
Ethoca interrupts the classical chargeback flow. Instead of the dispute data being sent from a client’s bank to a merchant bank, a merchant gets a notification and a chance to solve the problem personally. So a merchant can offer a peaceful solution of refund or replacement, avoiding extra chargeback fees and damaged reputation.
When did MasterCard buy Ethoca?
It was in 2019. Before, Ethoca alert company was an independent entity. Currently, it does have its autonomy, but its parent company is MasterCard. MasterCard claims that it wants to enhance fraud prevention and eliminate chargebacks for merchants that accept card payments.