Everything You Need to Know about 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.

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.

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.

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

• 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.

Prevention alerts can help you resolve some — but not all — disputes. Some cases will still advance to chargebacks.

These are the most common reasons why.

• The cardholder’s bank isn’t integrated with prevention alert technology.
• You aren’t able to issue a refund (for example, if your merchant account has been closed or you can’t match the alert to the original transaction).

Check our related article to learn more.

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

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.

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.

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:

• It’s not usually cheaper to go directly to Ethoca or Verifi instead of a solution provider. The price should be the same. And if you work with a solution provider, you’ll receive reporting, automation, and support — which is essentially free.
• The price may seem high, but alerts probably cost less than your chargeback fee. The difference is that you are paying for the alert fee instead of a chargeback fee since you are avoiding the chargeback. Aside from potentially saving money on chargeback fees, what you are getting is the gift of time and a healthy chargeback ratio — both of which are usually pretty valuable features!
• If you refund a disputed transaction via an alert but still receive a chargeback, you’re entitled to a credit. So you basically have guaranteed success (if you use the right solution provider!).
• The old expression, “you get what you pay for,” is true. There are solution providers out there with super low pricing. But they offer very little to no support. Ultimately, you’ll pay less for each individual alert, but you’ll get way more alerts than you should.
• As you consider pricing, also consider contract terms. We recommend you work with a solution provider that doesn’t require a long-term contract. If alerts end up not being a good fit for your business or you don’t like the level of support being offered, you’ll want the ability to make changes. Don’t lock yourself into a long-term, bad situation just because pricing seems more appealing. If a service provider does require a long-term contract, there is probably a reason. Providers with a great product and support don’t need to force their customers to stick around!

Check our guide to learn more about alert pricing.