Prevention alerts are designed to help stop disputes from becoming chargebacks. However, if the process does not work as expected, a transaction might receive both an alert and a chargeback. In the payments industry, this is referred to as “leakage.”
Alert leakage is usually the result of actions taken by the issuer (the cardholder’s bank). Unfortunately, neither the Chargeback Portal nor the alert vendors (Ethoca and Verifi) have any control over the chargebacks that issuers decide to file.
However, we can help you identify the reason for the leakage and offer suggestions on how to avoid future issues. The following are the most common reasons why alerts advance to chargebacks:
When you respond to an alert, the alert vendor informs the issuing bank that you have refunded the transaction. However, the bank does not consider the case closed until the refund actually posts to the cardholder’s account. Typically, if the issuer does not see a refund within 24 hours of initiating the alert, they advance the case to a chargeback.
We suggest that if you use the PreventFlow™ feature, you must refund the transaction as quickly as possible. Regardless of your workflow within the Chargeback Portal, you must settle your transaction batches promptly so the refund posts to the cardholder’s account within the time limit.
Note
If you use the fully automated prevention alert service, the technology issues the refund on your behalf.
The issuing bank relies on the alert response as an indicator of whether the cardholder’s account is ready to be reviewed. If the issuer does not receive an alert response—or does not receive one within the required time limit—they usually do not look for a refund.
We suggest that if you use the PreventFlow feature, you must respond to alerts manually. Be sure to resolve each alert within the Chargeback Portal as soon as you have issued a refund.
Note
If you use the fully automated service, the technology responds on your behalf, so this should not be a cause of leakage.
Occasionally, the issuer will not let a full 24 hours pass before advancing the case to a chargeback. This most commonly happens toward the end of the month, as the issuer might want the chargeback included in the current month’s quota rather than the following month’s.
Due to regulatory guidelines, an issuer must ensure that the amount refunded to the cardholder exactly matches the disputed amount. If you issue a refund for less than the alert amount, the issuer likely initiates a chargeback for the remainder of the disputed funds.
To keep your chargeback counts low, we highly recommend refunding the full alert amount. If threshold breaches are not a concern and you do not believe the customer is entitled to a full refund, you may choose to ignore the alert. This likely results in a chargeback, which you can then fight to potentially retain the revenue.
Unfortunately, many issuing banks still rely on manual processes. As a result, some chargebacks are caused by human error. For example, a bank employee in training might accidentally process a chargeback even though you have already refunded the transaction.
If the merchant account used to process the original transaction has been closed, you cannot use it to process a refund. While it may seem helpful to refund the customer using an alternate MID, this makes it incredibly difficult for the issuer to match the refund to the alert.
We suggest that you be aware of the potential drawbacks in this situation. If the issuer advances the case to a chargeback after you have refunded the alert via a different MID, you incur a double financial loss. Under normal circumstances, you can easily overturn a chargeback by providing proof that a refund was issued. However, if the refund was made with an alternate MID, there is no guarantee your chargeback response will succeed.
Although rare, alert leakage can occur due to system issues within the issuer’s environment. If the issuer is unable to properly use the alert platform, chargebacks might be filed even if you have already refunded the transaction.
We recommend checking the bank identification number (BIN) associated with the leakage. If the issuer is struggling to use the technology correctly, you can likely see a large batch of leaked chargebacks originating from the exact same BIN.
If an alert does turn into a chargeback, keep the following strategies in mind:
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You can fight and win. If you refunded the transaction before the chargeback was issued, you can respond to the chargeback with proof that the cardholder’s account was credited. You should easily win the case and recover the funds lost to the chargeback.
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You can block problematic BINs. Analyze the BINs associated with your leaked alerts. If specific BINs are consistently allowing alerts to become chargebacks, consider using a BIN blocker to prevent future purchases from those accounts.
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