chargeback management software

Chargeback Management Software: Mastercard and Visa’s Latest Arsenal Against Supply Chain Disruptions

Supply chains were already stretched to snapping point by the COVID-19 pandemic, which has no qualms about outstaying its welcome and is with us for a third year. More recently, geopolitical problems and the war between Russia and Ukraine is causing exponentially greater damage to retailers and service providers.

The answer to the supply chain squeeze from the global consulting firm Deloitte is that organizations need better risk management strategies to mitigate the ripple effects. One of their recommendations is to implement “control towers powered by artificial intelligence/machine learning and advanced analytics … to identify suppliers and commodities that pose elevated risk levels to supplier networks.”

Deloitte also recommends finding secondary supply sources (oh! If it were only that easy) and onshoring the manufacturing of domestic resources. However, that takes significant financial injections. in the case of semiconductors, the US lacks the natural resources and expertise to produce them to any significant scale. So, while these solutions are all great in theory, merchants need more immediate and practical tools to manage the fall-out from weakened supply chains.

Read on to find out how new payments solutions are helping merchants stop the bleeding in their bottom lines in the midst of the supply chain squeeze.


What’s Going on With the Supply Chain?
The COVID-19 pandemic shut many economies down in 2020 as workers fell ill and others were sent home. The result was a lurching and inconsistent global supply chain that couldn’t keep up with demand. Two years of disruption has crippled global complex supply chains, and the ripple effects have been frustrated consumers perplexed by the sharp rise in the prices of commodities, food, and consumer goods and delayed and cancelled deliveries.

Most recently, America’s biggest supplier of imports, China, has gone into lockdown again because of a renewed COVID outbreak that, according to The Guardian, threatens to ‘“tear apart” already very stretched global supply chains.” China’s economy is sharply constrained because of the lockdowns, and its manufacturing sector is expected to suffer for months. And then the war in Ukraine erupted adding to supply chain woes, rising prices, and inflation, particularly oil and grain prices.

The supply chain will struggle to recover under these conditions, so what are organizations doing to stay operative? Some are diversifying supply lines and turning to other countries in south-east Asia rather than relying on China.

But there’s still the problem of inflation, and high prices combine with failing supply chains is causing change in customer behavior. In the United Kingdom, inflation is 6.2 percent, while in the United States, prices have increased by 7.9% in the year through February—the highest rate in in 40 years.

These events have changed consumer behavior, and while companies can’t affect the macro factors any time soon, there are ways to combat the micro effects on consumers and mitigate the fall out.


How Customers Are Responding to the Supply Chain Squeeze
Merchants are experiencing shipping delays and stockouts at record-breaking levels, which is causing irritated consumers to cancel orders and dispute transactions. According to data from PYMNTS, in late 2020, 38% of shoppers—55 million people—could not buy at least one of the purchases on their list because retailers did not have the item. What’s more, inventory stockouts cost retailers up to $4.6 billion in lost Black Friday sales. It’s no surprise that consumers are fighting back.

Data from Visa found that card not present (CNP) disputes rose by over 29 percent from 2019 to 2021. A CNP dispute occurs when a consumer tries to recover funds from an online transaction, which they could do either through genuine frustration, because of a mistake, or to commit fraud, albeit justified in the consumer’s eyes.

For example, a consumer might decide that a shipping delay with an order is problematic, so they turn to another provider and claim that they did not order the item in the first place. Or, it could be that they don’t recognize a transaction, or a fraudulent action really did occur. Whatever the circumstances, the merchant faces chargeback fees or a payment reversal conducted by the issuing bank.

CNP chargebacks have increased exponentially with growing ecommerce trends that facilitate CNP channels. For example, more digital transactions mean there is a greater probability of a dissatisfied customer. Think of how many orders are put into Amazon each day. It’s often difficult for consumers to monitor their orders and subscriptions. Also, fraud detection is not keeping pace with ecommerce volume, and fraudsters are leveraging the CNP environment exacerbating the weight of the chargeback conundrum.

Originally, chargebacks were designed to be a last resort for cardholders who fell foul to criminal activity or dishonest merchants, and the affected cardholder would first contact the merchant before disputing a charge. Today, faced with an unrecognized charge, the cardholder will first call the bank and report the charge as identity theft. If the issuing bank takes the claim at face value, they will file a CNP chargeback.

The funds from the transaction are automatically pulled from the merchant’s bank account, and they lose the sale. The merchant also loses the money paid for overhead expenses like shipping and interchange and must pay a chargeback fee assessed by the bank.

Disputing a credit charge is not difficult for a consumer, and some use it to their advantage by committing “friendly fraud.”


Why Chargebacks Have Become Such a Problem for Merchants
It’s increasingly common for customers who want an easy return to abuse the chargeback process and commit friendly fraud. Here are the myriad ways friendly fraud occurs.

·         The cardholder thinks a chargeback and a refund are the same thing.

·         The cardholder may not understand that inquiring about a charge can initiate a dispute.

·         An unrecognized charge might originate from another member of the household.

·         The cardholder may not be able to identify the purchased item from the billing descriptor.

·         The merchant keys in a number incorrectly.

The last thing a merchant wants to do is to accuse their customers of cyber-shoplifting, but they do need some protections. According to, chargeback fees from banks vary from $20 to $100, and every dollar lost to chargeback fraud costs a merchant an estimated $2.40. That means a $100 chargeback fee will cost a merchant $240. If they’re a high-risk merchant, they face higher chargeback fees and will probably have to pay additional costs, making it even more critical for them to prevent chargebacks in the first place. So, what tools can merchants use to mitigate these inevitable and growing costs?


How to Prevent Chargebacks
There are some simple steps that merchants can take to prevent chargebacks and friendly fraud. These include providing more transparency for customers and employing basic security protocols. Then, there are new chargeback management solutions and fraud detection tools recently unveiled by the industry payment powerhouses Visa and Mastercard.

Here are ways merchants can encourage customers to better manage their transactions:

·         Use clear descriptors for billing statements, so that customers can identify what they bought with their credit card from which merchant.

·         Use chargeback alerts to give notification of an intended chargeback. The merchant then has the option to issue a refund and stop the dispute before a chargeback is filed.

·         Improve consumer response management systems (CRM) and be super-responsive to customers. Provide contact information, phone numbers, chat bots, and email communication. Check social media and manage their reputation by responding to any complaints quickly.

·         Offer no-hassle return functionality and prepaid return labels. Also, make it easy for customers to cancel subscriptions and recurring billing contracts.

·         Keep customers informed of their order status. Let them know the delivery dates and if they change. Many customers will be a little patient if they are kept in the loop.

·         Up security protocols. Ask for CVV codes (if the buyer does not have the code, they probably don’t have the card), and use address verification. Verification software solutions compare the billing address given at checkout against the address on file with the bank.

These actions will improve chargeback ratios and avoid customer disputes. But powerful new solutions by the powerhouses Visa and Mastercard will help even more and improve the customer experience at the same time.


How Visa and Mastercard Are Reigning in Chargebacks
Two new solutions that are making a difference for merchants are Verifi by Visa and Ethoca by Mastercard. They both do much the same thing as pre-dispute management solutions that help merchants avoid chargebacks while improving the buying experience for their customers.

These solutions use a straightforward strategy for dispute resolution, which is to alert merchants of potential disputes before the chargeback process is initiated. Once alerted, merchants can refund disputed transactions and avoid costly chargebacks.

High-risk merchants with a high or increasing level of chargebacks ought to consider these services, which is just about any merchant in today’s economic climate.

Both Verifi and Ethoca are chargeback tools that give merchants the choice to either refund the customer or to allow the case to become a chargeback. It’s an added safety measure that can drastically mitigate one of the most visible costs facing merchants. If the merchant decides to refund the customer, Verifi or Ethoca will automatically perform the refund based on the rules set up by the merchant, and the rules and preferences are tailored to each merchant’s business needs.

There is a fee for each alert, but the fee is much lower than a chargeback fee, and merchants do not lose money on shipping because early alerts mean that an order can be stopped before it is fulfilled.

Advancements in digital solutions are constantly emerging. Don’t let your bottom line be consumed by complacency. To find out more about how Ethoca or Verifi can reduce your revenue loss by managing chargebacks caused by the supply chain squeeze, partner with Cartis Payments. Cartis is a merchant services provider that will streamline payment gateways, fraud protection, and chargeback prevention tools with your platform to optimize your workflows and boost profitability.