Do I Need Chargeback Insurance?
How Does Chargeback Insurance Really Work?
Chargeback insurance is not as all-encompassing as merchants may hope. Although it protects businesses from profit loss, it is only successful in specific cases.
Is the Insurance Always Helpful?
Insurance as previously understood entails coverage for loss of profit or property in the case of an incident. However, chargeback insurance isn’t exactly as it seems. For most companies offering policies, only chargebacks that occur through their processors are covered under their insurance policy. Additionally, only transactions that are not determined high risk are covered.
Merchants may want to utilize chargeback insurance if they also utilize fraud filters to eliminate high risk transactions. Fraud filters are designed to weed out potentially fraudulent transactions. However, fully automated programs rarely work 100% of the time.
If a filter detects a high risk transaction, when the cardholder really is simply making an authorized purchase, the merchant may turn down a perfectly safe sale. On the other hand, if the merchant ignores the warning of the fraud filter in order to save every falsely high risk sale, it will be defeating the purpose of the filter entirely.
Chargeback insurance provides another option to those merchants who use a fraud filter.
How Does It Really Work?
Many merchants choose to validate the sales manually by contacting each customer who results from a high risk rating. This, however, is extremely time consuming, and also not 100% accurate. That is where chargeback insurance comes in.
Merchants who determine that a percentage of the high risk cases are actually valid customers may proceed with the transactions. Of these purchases, some may still result in chargebacks. As long as these cases meet the criteria set forth by the chargeback insurance provider, they are protected.
Chargeback insurance aims to protect merchants from specific types of chargebacks under the following conditions:
- Chargebacks must be fraudulent.
- The merchant must receive an authorization approval code.
- And they must be reviewed by the chargeback insurance company.
If the chargeback qualifies, the merchant is protected for its loss of profit and product.
Does It Always Apply?
Chargeback insurance is not always applicable to the situation. In fact, it does not protect merchants from chargeback fees at all. These fees, associated with each and every chargeback, can range anywhere from $20-$100 and are never refundable.
For example, under most chargeback insurance policies, if the fraud filter determines a sale is high risk, but the merchant contacts the card holder who confirms she wants the sale, they have the ability to complete the transaction. However, if that same customer turns around and commits friendly fraud against the merchant, the chargeback is not covered under the insurance.
In the case of friendly fraud, most chargeback coverage does not protect against any cases of friendly fraud that have resulted from a product being poor quality or not delivered. Although the consumer may be lying, the merchant is still left unprotected.
Additionally, it is impossible for merchants to purchase merchant chargeback insurance for legitimate chargebacks, under the Visa and MasterCard official guidelines. This is to protect customers from being taken advantage of by illegal sales practices that the merchant gets away with.
Is It Right For Me?
Chargeback insurance is not right for everyone. Some merchants do not employ a fraud filter. Others simply receive too many chargebacks to deal with them in this way. The only real way to combat fraud and fight chargebacks is to do it in a two part process: defense and offense. Prevent the chargebacks you can and dispute the ones you can’t.
There are other ways to prevent and fight chargebacks:
- Institute a chargeback monitoring program.
- Require billing address, card security code, and expiration date on every card-not-present purchase.
- Never proceed with a transaction without authorization approval.
- Take note of unusual orders, high ticket prices, and high quantities.
Are you in over your head when it comes to chargebacks? Don’t fret! We are here to help you breathe a little easier. We attack chargebacks from all angles. We can help you determine your biggest problem areas and the root source of your chargebacks so that we can develop a prevention strategy catered to your business. Then, we will take care of the ones that there is simply not preventing. Contact DisputeChargebacks for a free ROI analysis today!