A Complete Guide to Chargeback Prevention Alerts

A prevention alert allows you, the merchant, to resolve a customer’s payment dispute before it progresses to a chargeback by refunding the disputed transaction.

Think of a prevention alert as one of those red, flashing sirens that warns you when something has gone wrong.

What are the benefits of prevention alerts? Why should you consider adding them to your chargeback prevention strategy?

Here is a high-level overview of what you could gain.

• Lower chargeback rates. This first benefit is usually the biggest and most obvious draw. If you can stop chargebacks from happening, you’ll help improve the reputation of your business and enjoy more stable, reliable payment processing.
• Solve problems quicker. A lesser known benefit of alerts is the gift of time. Chargeback notices usually take 2-5 weeks to reach you. But alert notifications happen in near real time. So you can identify and solve the underlying reason for disputes much faster, helping to eliminate future chargebacks that would otherwise be inevitable.
• Save the cost of goods. Again, alert notices come in quickly. Sometimes, they are quick enough to stop order fulfillment before your valuable merchandise is shipped out to fraudsters.

These three core benefits translate directly to business growth enablement. Maintaining healthy chargeback ratios below the critical 0.5-1% threshold can open doors to more merchant accounts, international expansion opportunities, and new sales methods that typically carry higher risk. Prevention alerts help you maintain ratios which can keep you off monitoring programs and in good standing with payment processors.

Prevention alerts work in sort of a down-and-back relay race.

Here’s the “down” portion of the relay:

STEP #1: The transaction is disputed. Either the bank detects fraud or the cardholder reports a problem.

STEP #2: Instead of immediately filing a chargeback, the bank pauses the dispute process and issues an alert.

STEP #3: You receive the alert. While the dispute is paused (24-72 hours), you investigate the case. Usually, you’ll discover one of two things.

• The transaction has already been refunded so a chargeback isn’t needed.
• The transaction should be refunded to stop the chargeback from happening.

Of course, there is always the option to ignore the alert and take your chances with a chargeback. But this option is very rarely used. Prevention alerts come with a fee. It’s unlikely that you’d want to pay for a service and not use it.

Now, here’s the “back” portion of the relay:

STEP #4: You respond to the alert and give the bank an update. The most common response options are that you issued the refund after being notified or perhaps the transaction had already been refunded.

STEP #5: The bank receives the alert response. The dispute will be dismissed without advancing to a chargeback.

STEP #6: The cardholder’s account is credited via the refund you issued. The case is considered closed.

Here’s a simplified visual of the down-and-back process.

AltoPay provides both manual and automated management options, ensuring you never miss the critical response window. Our automation can locate the disputed transaction in your CRM, issue the refund, and respond to the alert — all without manual intervention. Check our integration guide to learn more.

Understanding alert timing is crucial for effective chargeback prevention.

Alert notifications arrive in near real-time when a dispute is initiated, compared to 2-5 weeks for traditional chargeback notices. By then, merchandise is shipped, revenue is lost, and your chargeback ratio is impacted.

Prevention alerts give you the gift of time to solve problems before they escalate.

However, these perks come with one particular drawback: tight timelines.

One of the primary intentions of prevention alerts is to help you avoid chargebacks. However, if certain steps aren’t taken, the alert won’t successfully resolve the dispute.

The two essential tasks are:

1. Issuing the refund.
2. Responding to the alert.

Both actions need to happen as soon as possible. An alert will only pause the dispute for 24-72 hours (depending on the type of alert you receive). You need to both refund and respond within that time limit.

Prevention alert solutions are provided by two different vendors:

• Ethoca
• Verifi (Verifi calls their product Cardholder Dispute Resolution Network or CDRN)

The alert functionality is basically the same for both vendors. There are a few small differences that you should be aware of if you decide to use prevention alerts to protect your business.

Ethoca was acquired by Mastercard, so about 60% of Ethoca alerts are for Mastercard transactions. Ethoca handles disputes globally with particularly strong coverage in Canada, Europe, and Asia.

Verifi was acquired by Visa, so approximately 75% of CDRN alerts are for Visa transactions. As a U.S.-based company, Verifi has the strongest coverage in the United States.

Check our detailed guide to learn about other similarities and differences.

Here are a couple high-level things to know about the two vendors.

• Coverage extends beyond just Visa and Mastercard — some American Express and Discover disputes are also covered through these networks, providing comprehensive protection across all major card brands.
• You can and probably should receive alerts from both Ethoca and Verifi. It’s not an either-or decision. Using multiple solutions means you have multiple layers of protection.
• You can go directly to Ethoca and/or Verifi to receive prevention alerts — but you don’t have to. Ethoca and Verifi have partnered with solution providers — like AltoPay^® — to help customers get better results from their networks. The main reasons are: you can get alerts from both vendors in a single platform, you’ll have access to more data, you have the ability to automate the workflow, you can optimise your alerts, and you can get advice on how to improve your outcomes. Check our article to learn more about the perks of working with a qualified reseller.

There are dozens of tools and hundreds of techniques to prevent chargebacks. Are prevention alerts right for your business?

Any online business can benefit from prevention alerts. But there are a couple business types and industries that can benefit the most. If any of these characteristics apply to you, you will probably want to at least consider using prevention alerts.

• You sell (or want to sell) internationally. Each individual market has its own unique risks and challenges. Prevention alerts can help level the playing field and add a universal layer of protection.
• You sell physical goods. When a chargeback is filed, it usually takes 2-5 weeks for the notification to reach your desk. A lot can happen during that time — including order fulfillment. But alert notifications happen in near real time. So you could potentially stop shipments before merchandise is sent out to fraudsters, saving you the cost of goods.
• You sell goods or services with a free trial option. Offering a free trial is a great way to increase conversions and make more sales. However, they typically lead to a higher-than-average chargeback rate. You’ll want to proactively address the inevitable risk.
• You are (or think you will be) enrolled in a chargeback monitoring program. Card brands (Mastercard^®, Visa^®, etc.) set limits for how many chargebacks your business can receive in a month. If you go over that limit, you could be put into a monitoring program (which includes various penalties and fines). If you are enrolled in the program too long, your merchant account might be terminated. In these situations, you need to quickly lower chargeback activity. And prevention alerts is a proven-effective technique.
• You want more merchant accounts. When you apply for a new merchant account, you have to prove the validity of your business. One way you can do that is to add prevention alerts to the accounts you already have. Help prospective processors recognize that you can effectively manage risk.

Specific industries that benefit most include ecommerce (physical and digital goods sellers), subscriptions (SaaS, membership sites, recurring billing), travel and hospitality (hotels, airlines, travel agencies), digital services (online courses, software, consulting), and other high-risk verticals (nutraceuticals, CBD, adult products, etc.). Prevention alerts are particularly effective at resolving friendly fraud and customer confusion disputes — the sources of the majority of chargebacks for most merchants.

There are several chargeback prevention technologies on the market today. Alerts are one of the oldest and probably most well-known options. A newer and quite similar technology is Rapid Dispute Resolution (RDR).

Both tools allow disputed transactions to be refunded to avoid chargebacks. However the way they go about doing that is slightly different.

Here’s an overview of the two, their differences, and how they can be used together for more complete protection.

Both solutions work together as complementary parts of a comprehensive chargeback prevention strategy. AltoPay can help you determine the optimal mix for your business.

Prevention alert pricing is set by the vendor that provides the solution (Ethoca or Verifi). Pricing is per alert and is usually in the $20-40 range.

A couple things to note about pricing:

Check our guide to learn more about alert pricing.

When it comes time to choose a solution provider for your chargeback prevention alerts, you have options. But not all options are the same.

Here’s what makes AltoPay different.

Contact our team today if you’d like to learn more.

Our simple 3-step onboarding process can start protecting your business within 24 hours. Here’s how it works.

1. Fill out our online form and provide basic business information.
2. Meet with our team so we can help you build a customised strategy that is optimised for ROI. Want to get up and running within 24 hours? Come prepared with your billing descriptors, merchant account details, and the name of your CRM or order management system.
3. We’ll activate your protection to start receiving and preventing chargebacks.

Usually, merchants who use both Ethoca and Verifi alerts are able to prevent about 30-40% of disputes from becoming chargebacks.