Any growing eCommerce business at some point meets the chargeback or fraud. Both happenings if being frequent can damage the reputation of the merchant, bring unexpected fees, put the business in the high-risk category, and even be a reason for closing the merchant account by the acquiring bank.
To protect the business from friendly fraud and chargebacks, an owner should seriously consider the implementation of the prevention alerts technology. In this article, Maxpay‘s team will describe one of them, Ethoca, its benefits, costs, and general basics such as the nature of frauds in eCommerce and chargebacks and how the last ones differ from refunds.
What is Ethoca
Ethoca is one of the alert services for chargeback prevention alerts and detection of fraudulent transactions. The solution has a basis of the bank networks, including issuing banks of the consumers’ cards, merchants acquiring banks of business owners, and card associations such as Visa, MasterCard, American Express.
But what is actually happening when the merchant already has Ethoca chargeback prevention and fraud alerts implemented into the commerce? For diving into this question, let’s first make it clear what is a fraud and what is a chargeback.
Chargebacks and eCommerce fraud
Fraud is an attempt to gain an unauthorized benefit by using false means. In the case of eCommerce platforms fraud is not that much about using the stolen credit card, but more about manipulating the stolen data. When a consumer with a false identity engages in fraudulent action on the web store, the business automatically absorbs the cost, which in the end damages the revenue.
Friendly fraud or chargeback fraud is when customers on the contrary use their valid identity information, along with truthful billing and shipping details. The fraudulent action is happening when the customer receives goods in perfect condition and quantity but requires the chargeback claiming that the product is damaged, or lost. In the end, this consumer has the desired goods and the spent money back. If we would think of the friendly fraud equivalent in retail, we would come up with the shoplifting.
If both types of frauds are totally illegal no matter that one is called friendly, chargebacks are absolutely lawful. Chargeback is the right of the customer to declare a reasonable dissatisfaction with the product or service, by issuing a return of funds. By reasonable we mean that the received item or the delivery itself was not as they meant to be considering the agreement between a seller and a consumer.
Here comes a question why the chargeback is so wrong if it is a legitimate action. Well despite the rightful intentions of the consumer, a chargeback is bad for the business. With each issued chargeback, the merchant loses the revenue from the purchase, along with the sold service or item, which creates a double minus. Also, there is an unavoidable fee per chargeback from an acquiring bank. And there are long-term consequences.
If the chargeback ratio of the business gets over a certain point, it signals to the acquiring bank that dealing with this particular business is too risky. And so there are lots of outcomes the merchant would not want to meet at all. The business can become a high-risk one, transaction processing rates can rise. And if things go too far, a merchant will lose the merchant account and will get a reputation among acquiring banks for being not reliable in the financial market.
It is as disturbing as it sounds, but luckily the alert services were created especially to solve these problems. Ethoca fraud and chargeback prevention protects from both fraudulent transactions and friendly fraud customers, and controls the chargeback ratio, and keeps it at the low point.
Benefits of prevention alerts
Now we can come back to how exactly prevention alerts do the job. Usually, if the customer is issuing the chargeback, the request flows to his or her issuing bank, then to the acquiring bank of the merchant, and then funds plus the fee are taken from the merchant’s account. The information of the action affects the chargeback rate immediately and forms the statistics.
Implementing Ethoca prevention alerts the business joins the service’s network of different bank institutions. This time if the customer is requiring the chargeback, the issuing bank notifies Ethoca, which sends prevention alerts directly to the merchant. From this moment the chargeback is on hold for the next 24 hours. During this time the merchant can offer a satisfying solution for the consumer: a refund, return, or replacement. The main benefit of the alert system is that merchants have a chance to solve a dispute on a personal level without involving an acquiring bank. And so with no extra fees and without an increase of the ratio.
Are prevention alerts networks the best solution against chargebacks?
So far prevention alerts networks are the only reliable solution for tracking chargebacks automatically. Within 24 hours, the merchant can resolve the dispute. Most often the solution is a refund. But how are the refund and the chargeback different if in both cases the business loses the sold item and then returns the cost of it?
It is way cheaper to issue a full refund, especially in the long-term perspective. Engaging in the chargeback process means extra fees to pay for the acquiring bank, an increase of the chargeback rate, revenue damage, and potential threats to the business lifecycle.
Maxpay has a lot of experience when it comes to chargeback prevention. Check out this article to know more: “Prevent chargebacks and fraud with Maxpay’s merchant account services”.
Is Ethoca the only prevention alerts network
In fact, there are two main chargeback prevention networks in the world: Ethoca Alert and Verifi CDNR. Both services operate with the network of issuing banks to offer chargeback prevention. Both put the chargeback request on hold for a certain period. But the networks still differ. We could say that Verifi covers more issuing banks on the territory of the United States of America, while Ethoca contracts mostly with banks in the European Union, Asia, and Canada.
Business owners who want to protect themselves completely, often use Ethoca together with Verifi. Doing that may cause duplication in the network, thus double prevention alerts and twice the fees. In order to avoid overcharging for unnecessary alerts, businesses should look for a balance between fees and coverage area.
How to get started with prevention alerts networks
That is not that difficult. The business must be officially registered, having a business name and address, obtaining the merchant account, having the merchant account descriptor, and the merchant account number. With this data, a business owner can construct an agreement with one of the prevention alert services.
The cost of prevention alerts
The costs of the prevention alert services may vary depending on the business size and vertical. The average charge per alert is 30$-40$. Even though it might seem like a lot, in a longer period it is definitely worth the investment. Better paying each chargeback prevention than losing a business.
Maxpay works with both Verifi and Ethoca which means that our payment gateway service provider takes care of chargebacks, eCommerce fraud, including friendly fraud. Solutions prevent revenue loss and paying extra fees, protect merchant accounts and business reputation. Chargeback prevention alerts are accessible for all Maxpay clients through Covery anti-fraud platform with an average fee of 20$-30$ per alert. To discover more benefits of Ethoca and Verifi at Maxpay, please write to our sales department.