Minimize financial losses and improve customer satisfaction by integrating early dispute resolution into your payment flow
Chargebacks and disputes are a growing concern for merchants, directly impacting their revenue and acceptance rates. Solutions targeting consumer disputes play a critical role in streamlining dispute management and reducing the risk of chargebacks long term. They offer a proactive way to address disputes before they escalate, helping businesses protect their bottom line and maintain a stronger risk profile. Rapyd looks at the issue of chargebacks holistically. We offer detection and prevention measures to identify fraudulent disputes, as well as provide a suite of dispute-related solutions: early-stage pre-dispute alerts, automated refunds and an embedded Dispute Management System to control chargeback rates, control the risk, and safeguard revenue and customer satisfaction.
Why Pre-Dispute Resolution Matters
Your payment acceptance rate is directly connected to the chargeback ratio: a higher number of chargebacks typically results in a lower acceptance rate. When not managed effectively, disputes and chargebacks can drain revenue, damage customer loyalty, and harm your reputation – affecting relationships with consumers, issuers, and card networks.
By identifying disputes at an early stage and automatically resolving them, merchants can minimize harm, lower costs, improve customer loyalty and maintain a healthy risk ratio.
Global Perspective: A Growing Problem
Rapyd’s recent study on high-opportunity industries has highlighted a growing global concern for both B2B and B2C merchants: the impact of disputes and chargebacks. According to the study, chargeback-related risks are increasingly seen as one of the most significant challenges facing these businesses.
The scale of this issue is underscored by Mastercard’s projection that chargeback volumes across the industry will soar to 337 million by 2026, marking a 42% increase from 2023 levels. This dramatic rise illustrates the extensive challenge confronting the whole payments ecosystem.
Adding to the complexity, research by Riskified and Paladin Fraud shows that the overly complicated chargeback resolution process causes nearly 60% of merchants to forgo disputing a significant number of chargebacks—around two out of five—resulting in substantial losses in profit.
As chargebacks continue to escalate, many merchants find they are not prepared to manage them effectively. They often need more tools, experience, and processes to defend themselves properly, leading to significant damage beyond lost sales.
In response, businesses are increasingly seeking integrated payment solutions with built-in dispute resolution and management that offer more automation, consolidated reporting, enhanced data management, and improved tools for chargeback prevention.
Seizing the Pre-Dispute Window
At the pre-dispute stage, right after a cardholder contacts their issuing bank, card networks give merchants and acquirers a crucial window to resolve disputes before they escalate into chargebacks. This extra time allows for early intervention, using methods like automated refunds or direct communication with the customer. By addressing issues early, you can avoid the higher costs and save operational resources associated with chargebacks.
To enable this, Rapyd has partnered with DisputeHelp, a comprehensive solution providing tools to help merchants prevent disputes, reduce chargebacks and recover revenue, and is now offering automated refunds for Visa and Mastercard transactions. This partnership taps into major dispute programs like Verifi’s Rapid Dispute Resolution and Mastercard’s Collaboration Request Program to reduce chargebacks and safeguard the risk ratio efficiently.
How Does Pre-Dispute Resolution Work?
For businesses choosing Rapyd as their preferred acquiring partner, no extra in-house development or additional integration is required to start leveraging pre-dispute alerts for Visa and Mastercard transactions and set automated refund logic.
How it works:
- Rule Setting: During onboarding, Rapyd works with merchants to set specific criteria for refunds. For example, rules might be built around the transaction amount – “refund all transactions below €50.” Another example would be to automatically refund transactions with a specific dispute reason code combined with a specific amount.
- Continuous Monitoring: Near real-time monitoring detects new disputes for Visa and Mastercard transactions. Depending on the card brand, the disputed transaction is processed either through RDR or the Mastercard Collaboration Request Program.
- Automated Refunds: When the preset automation criteria are met, the system automatically initiates refunds, preventing the dispute from escalating further.
- Performance Tracking: An insightful interface allows merchants to monitor their overall chargeback ratio and track success criteria for refunded disputes.
Who Is Early Dispute Resolution For?
Pre-dispute alerts can benefit multiple merchant categories and use cases. The key ones include merchants with elevated fraud risks, businesses with historically high chargeback rates and businesses in high-opportunity industries, including:
- Online Gaming & iGaming
- Affiliate & Influencer Marketing
- Creator Economy
- Online Trading & Financial Services
- Online Travel
- SaaS & Digital Goods
Businesses Experiencing High Fraud Rates: Some industries are more susceptible to fraud due to the nature of their business:
- Electronics and luxury goods: High-priced items may be targeted for fraudulent purchases, often representing cases of stolen card credentials or account takeover mechanics. High levels of friendly fraud and policy abuse also increase the likelihood of disputes and chargebacks.
- Ticketing: Reseller abuse or the distribution of fake tickets leads to higher fraud rates.
Merchants with a History of Chargebacks: Businesses can suffer from a higher-than-average chargeback rate due to factors that include:
- Poor customer service: Unhappy customers who fail to resolve their issues with the merchant may file a dispute to get their money back.
- Confusing billing practices: Unclear pricing, hidden fees, or poorly detailed card statements can lead to chargebacks.
- Accidental overcharges: Human errors or unauthorized transactions (commonly seen in car rentals or hotels) can lead to consumer disputes followed by chargebacks. In these cases, merchants often cannot defend themselves against the chargebacks.
iGaming Example
Imagine a player loses on an online gaming platform and then disputes the charge, falsely claiming it was unauthorized. This type of fraudulent chargeback, where a player tries to recover lost money through a dispute, is very common.
When the player files a dispute, automated pre-dispute alerts make it possible to notify the iGaming merchant immediately. This gives the merchant and the acquirer time to resolve the issue before it becomes a chargeback.
Using preset rules, the merchant may automatically refund the player if the transaction meets certain criteria. This prevents the chargeback and protects the merchant’s chargeback rate while maintaining a better relationship with card networks and issuers.
Identifying signs of potential fraud in customer behavior can also help detect similar transactions, stop them at the pre-authorization stage, label them as fraudulent and decline them before they even reach the issuer.
Key Benefits for Businesses
Automated pre-dispute resolution helps you save revenue that might otherwise be lost due to chargebacks, while also maintaining higher levels of customer loyalty.
- Reduced Chargebacks: Faster and more efficient dispute resolution minimizes the number of disputes that escalate into costly chargebacks.
- Authorization Rate Uplift: Refunded disputed transactions do not impact the overall fraud and chargeback ratio, improving your standing with both issuing banks and card networks. This leads to fewer false declines and higher revenue.
- Improved Operational Efficiency: Streamlined processes, zero in-house development, and full automation save you valuable time and resources.
- Complete Transparency: You can monitor your refund success rates and the number of chargebacks prevented in a single dashboard.
- Enhanced Customer Experience: By promptly managing disputes and processing refunds, you can improve customer satisfaction and increase retention. Automated refunds ensure that customers receive their funds back within approximately three days, compared to the average 45-day waiting period typically associated with chargebacks.
Building a Resilient Strategy
Resolving disputes at an early stage is crucial for tackling the rising challenge of chargebacks. By addressing disputes before they escalate, you can safeguard revenue, maintain strong relationships with the payments ecosystem, and improve your overall risk ratio. However, to truly mitigate chargebacks, a comprehensive approach is needed. This includes implementing robust detection and prevention measures throughout the payment flow, coupled with advanced transaction monitoring and fraud management tools. Moreover, not all disputed transactions will be refunded automatically. In that case, leveraging a Dispute Management System helps you gain even more transparency over the dispute process, review claims, provide evidence and increase the number of cases won.
Rapyd offers all of these options as part of our platform and provides holistic fraud and chargeback prevention measures. By making automated pre-dispute resolution part of a broader strategy, you can build a truly resilient defense against chargebacks, ensuring long-term success and customer satisfaction.
Frequently Asked Questions About Chargebacks
A dispute occurs when a cardholder notices a problem with a transaction and contacts their bank to resolve it. The bank then reviews the situation and decides whether to work with the merchant to resolve the issue through a process called representment (also known as retrieval) or to initiate a chargeback. A chargeback is when the bank reverses the transaction at the cardholder’s request, taking the money from the merchant’s account and refunding it to the customer.
Here is a quick overview of the process.
- Transaction Initiation: A cardholder makes a purchase on a merchant’s website.
- Issue Identified: The cardholder notices a problem—such as an unrecognized payment, suspected fraud, overcharge, or dissatisfaction with the product. This stage can also be the start of a friendly fraud case.
- Attempt to Resolve: The cardholder may first contact the merchant directly to resolve the issue, seeking a refund or another form of resolution.
- Dispute Escalation: If the issue remains unresolved, the cardholder contacts their issuing bank to dispute the charge.
- Review Process: The issuing bank reviews the dispute and may request additional information from both the merchant and the cardholder.
- Chargeback Initiation: If the merchant fails to provide sufficient evidence to prove the legitimacy of the transaction, a chargeback is initiated.
Financial Impact: The merchant may be required to refund the transaction amount to the cardholder and also pay associated fees.
- Cardholders: Initiate the dispute and request a chargeback.
- Card Networks: Set the rules and guidelines for the whole payment ecosystem including the rules for chargeback and dispute management.
- Issuing Banks: Communicate with the cardholders and represent them in the dispute process.
Acquirers/PSPs: Process payments, move funds, and represent the merchant in the dispute process. Acquirers are also affected by chargebacks alongside their merchants. That’s why they must ensure strong detection and prevention measures as part of their solutions.
- Unrecognized Transactions: Consumers might dispute a transaction if they don’t recognize it. This can happen if the merchant listed on their statement isn’t the one they remember making a purchase from or if the details of the purchase weren’t clearly presented. Such confusion can prompt consumers to seek clarification and potentially file a dispute.
- Suspected Fraud: Consumers believe they’ve been victims of fraud, for example, account hijacking or unauthorized card use, and request a refund for a transaction they did not authorize.
- Fraudulent Claims: In some cases, the consumer is the fraudster, making a purchase but later claiming they didn’t receive the goods or received damaged items, leading to a chargeback request.
