Chargeback Facts vs. Fiction: Don’t Fall for These 10 Myths

Chargeback management is a complex, confusing task. It is not uncommon for myths to start circulating amongst merchants, tempting you to alter your strategy in ways you don’t realize are dangerous.

We’d like to share some of the most common falsehoods — and the chargeback facts you should believe instead.

There are various tools on the market today that can help you detect and block potentially fraudulent activity so unauthorised transactions won’t happen. And if you can stop unauthorised transactions, you can avoid the resulting chargebacks.

These tools play a crucial role in preventing chargebacks.

However, they are only one small piece of a comprehensive strategy.

There are three main chargeback reasons:

Fraud tools are only capable of addressing one of those three chargeback reasons: criminal fraud.

That leaves two other sources that you still have to account for: merchant error and friendly fraud.

If you are only preventing a fraction of the problems, you’ll only prevent a fraction of your chargebacks.

Check our detailed guide to build a comprehensive strategy for reducing chargebacks.

Before you process a transaction, you should submit an authorisation request. An authorisation request asks the cardholder’s issuing bank to review the status of the account. The bank checks three things:

If the review is satisfactory, the issuer will approve the transaction.

But just because the bank says it’s ok to process the transaction doesn’t mean the cardholder has given consent. Issuers don’t review transactions for signs of fraud, so an “approved” transaction can actually be unauthorised.

If all sales are final, you’ll probably get more chargebacks — not less. If customers know they can’t get a refund from you, they’ll go to the bank instead.

These days, the chargeback process is very tech driven. Most cardholders can initiate a chargeback with a push of a button in their banking app. They don’t even have to interact with a human.

But even if a human is involved, no one at the bank is going to manually review each and every chargeback request. An agent won’t take the time to review your terms and conditions to see if the chargeback request is valid or not. The bank will just send off a chargeback and wait to hear what you say about it.

Clearly defined terms and conditions — along with cardholder consent — can help you fight invalid chargebacks. But they won’t do much to prevent them from happening.

Merchants are enrolled in card brand monitoring programs — like VAMP — if certain metrics breach set thresholds.

Usually that means going over the limit for both monthly chargeback count and ratio (chargeback-to-transaction ratio or VAMP ratio).

However, those are the card brand standards. Your processor or acquirer likely has different thresholds.

In most situations, your merchant account is at risk for closure if your ratio is over — or even approaching — the limit. Your monthly dispute counts are irrelevant.

All of these factors can impact the type of merchant account you qualify for. Figure out which capabilities are absolutely essential and which are negotiable — at least for right now.

Unfortunately, this isn’t true. You can and will get chargebacks even after your account has been closed.

Card brands set time limits for chargebacks — transactions must be disputed within a given time frame. Usually, disputes have to happen within 90-120 days. However, some time limits extend to 540 days after the initial transaction.

You will retain chargeback responsibility for months — or even years — because liability doesn’t shift to the acquirer or processor when your account is closed. You are responsible for all chargebacks — and their corresponding fees — regardless of your account status.

It’s not uncommon for confusion or misunderstandings to lead to chargebacks. For example, customers might not recognize the purchases on their monthly statements. Or they might forget about recurring transactions.

And sometimes, a cardholder will catch the mistake, regret the chargeback, and want to make things right. But unfortunately, there isn’t much the cardholder can do.

Once a chargeback is initiated, it is nearly impossible for the bank to cancel or void it. The damage has been done.

Of course, you can use prevention alerts or RDR to refund disputed transactions before they become chargebacks. These solutions can technically intercept disputes, but they can’t restore the original payment or reissue the revenue you rightfully earned.

Refunds can help prevent chargebacks — but only if you are issuing them via solutions like prevention alerts and RDR.

If you use these solutions, you can intercept a dispute, issue a refund, and stop the chargeback from happening.

But if you refund a transaction on your own after the chargeback has been filed, you’re creating a double refund. The chargeback has already debited your account once. A refund will cause you to lose your revenue twice.

There is no way to void or cancel a chargeback after it has happened.

If you receive a chargeback and you think it was issued in error, you can fight the chargeback and attempt to recover your revenue.

Of all the statements we’ve shared in this article, this one might be the most believable. Because it is so logical! You’ve proven the chargeback wasn’t valid, so you shouldn’t be punished for it. Right?

But unfortunately, that’s not how things work.

It could take weeks or months to successfully overturn an invalid chargeback. The chargeback representment process is quite lengthy and involved. By the time a verdict is issued, your ratio calculations are beyond adjustment since they are calculated on a monthly basis.

Once a chargeback is issued, your ratio is immediately — and permanently — impacted.

Fortunately, this is a myth! Ethoca alerts can help reduce your VAMP ratio.

Ethoca was acquired by Mastercard in 2019. But Ethoca alerts were an agnostic product for years before the acquisition, working with both Mastercard and Visa issuers.

Because there are dozens of international Visa acquirers still in the Ethoca network, alerts can successfully prevent chargebacks and keep ratios low — just like they always have. VAMP hasn’t changed Ethoca’s effectiveness.

If saving money is your goal, then you should be using RDR — regardless of what the fees are.

The Visa Acquirer Monitoring Program (VAMP) has changed the way chargebacks and fraud are managed. For many merchants, thresholds are difficult — if not impossible — to adhere to. Limits are lower than they have ever been, yet calculations include twice as many cases as before.

Even if your VAMP ratio is within the limits today, it probably won’t stay that way for long. And if you are subjected to your acquirer’s VAMP fees, you’ll pay the chargeback fee and the VAMP fee — eliminating any chance at saving money.

On the other hand, if you only pay the RDR fee — which is usually comparable to a chargeback fee — then you will likely avoid the extra expense of the VAMP fee.

We’ve shared a lot of information here. And odds are, some of it is contrary to what you’ve always believed.

If you’d like help determining what is true and helpful, reach out to our team. We have experts with decades of chargeback management experience ready to provide accurate, helpful, and effective information.