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Chargeback Prevention

The most cost-effective chargeback is the one that never happens. This section covers the prevention hierarchy and tools available to stop disputes before they become chargebacks.

The Prevention Hierarchy​

Think of chargeback management in three layers, in order of preference:

  1. Prevent - Stop the conditions that cause chargebacks (fraud prevention, clear billing, good service)
  2. Deflect - Intercept disputes before they become chargebacks (alerts, Order Insight, Consumer Clarity)
  3. Represent - Fight chargebacks after they're filed (compelling evidence, representment)

Each step up the hierarchy is more expensive and less effective than the one before it. A prevented chargeback costs nothing. A deflected chargeback costs an alert fee but preserves your ratios. A represented chargeback costs time and money, still counts against your ratios, and you might lose.

Important caveat: For pure fraud disputes, deflection tools like alerts can prevent the chargeback from being filed, but any underlying fraud report (e.g., Visa TC40) may still count against you under programs like VAMP. Alerts are most powerful for non-fraud disputes; for true fraud claims, they help but not as much as you'd like.

Prevention Categories​

Fraud Prevention​

Stop fraudulent transactions before they clear:

See the full Fraud Prevention Guide for strategies by fraud type.

Operational Prevention​

Eliminate the merchant errors that cause chargebacks:

  • Clear billing descriptors (customers must recognize charges)
  • Accurate product descriptions
  • Realistic delivery timelines
  • Easy-to-find contact information
  • Proactive shipping notifications

Customer Service Prevention​

Resolve issues before customers contact their bank:

  • Easy refund/return processes
  • Quick response to complaints
  • Subscription management tools
  • Clear cancellation policies

Deflection Tools​

When a customer contacts their bank, deflection tools give you a chance to resolve the issue before a formal chargeback is filed:

ToolProviderPrimary CoverageFunction
RDRVerifi/VisaVisaAuto-refund based on rules
CDRN AlertsVerifiMulti-brand (US focus)Manual refund within 72 hours
Ethoca AlertsEthoca/MastercardMulti-brand (global)Manual refund within 24-72 hours
Order InsightVerifi/VisaVisaTransaction enrichment
Consumer ClarityEthoca/MastercardMastercardTransaction enrichment

For detailed coverage of these tools, see Chargeback Alerts.

Measuring Prevention ROI​

Calculate whether prevention investments pay off:

Prevention ROI = (Chargebacks Prevented × Fully-Loaded Chargeback Cost) - Prevention Cost

Fully-Loaded Chargeback Cost should include:

  • Transaction amount (lost revenue)
  • Product cost (COGS - you shipped it, they kept it)
  • Chargeback fee ($15-100 depending on processor)
  • Operational cost (staff time to handle, investigate, potentially represent)
  • Future ratio risk (elevated ratios can mean monitoring program fines, higher processing rates, or termination)

For most merchants, the fully-loaded cost of a chargeback is 2-3x the transaction amount. Under VAMP and ECP, elevated ratios can mean fines of $10+ per dispute and eventual account termination - include that "future risk" when calculating ROI.

Next Steps​

Starting chargeback prevention?

  1. Set up alerts - Biggest impact, fastest to deploy
  2. Fix your descriptors - Stop recognition disputes
  3. Track your metrics - Know your baseline

Already have alerts?

  1. Review fraud prevention - Stop fraud at the source
  2. Implement 3DS - Liability shift for fraud
  3. Optimize representment - Win more fights

Ratio approaching threshold?

  1. Follow crisis playbook - Emergency response
  2. Understand network programs - Know consequences
  3. Read Zero Point Nine Panic - Immediate actions

See Also​