Manual vs Automated Chargeback Software: What Actually Saves Merchants Money?

Companies that have subscription services over the internet often rely on recurring payments. SaaS providers, digital services, and others offering trial periods can be more subject to transactional disputes than any other category of business. 

One such software solution used by many digital service providers is Merchanto, a software solution designed to help prevent chargebacks and fraud at earlier stages of the transaction. For many businesses, the main question these days is fairly simple: Is it more effective and profitable to process chargeback disputes manually or with an automated anti-chargeback solution?

KEY TAKEAWAYS

•  The new Mastercard and Visa fee structure ties dispute processing speed to fees.
•  Manual processing is typically not fast enough to comply with the 72-hour window for dispute resolution.
•  Merchanto’s automation tools utilize Ethoca and RDR alerts to preemptively refund disputes before they are counted as chargebacks against your official chargeback ratio.
•  The cost of manual processing for each dispute is approximately $15-$16 in labor; automation reduces that cost to approximately $3-$15 per alerted dispute with no upfront costs.

Why Manual Dispute Processing Costs More

Initially, many digital services will try to handle problems manually. The support staff will evaluate the customer inquiries and the data on each transaction to provide a resolution to the request. This approach is simple; however, over time, you will realize that the costs of this method will exceed the benefits.

As payment volumes increase, manual processing becomes a constant operational burden. Disputes come from multiple channels, and merchants discover them too late. As a result, employees cannot handle the workload, and the company starts responding only after the bank officially registers the dispute. 

Manual processing has many problems. Among the main ones are:

• late detection;
• high support workload;
• manual evidence collection;
• long review cycles;
• low win rates;
• lack of early warning.

This method does not scale well. This presents itself quite plainly with regard to SaaS services that have a trial period, where some customers are unaware of their automatic billing and subsequently dispute the charges. 

As these situations increase, the amount of time that a support employee spends on responding to customers will increase, while the time spent developing the product will decrease. Another risk is exceeding the permissible chargeback rate. 

If the chargeback ratio becomes too high, the company may fall under payment system monitoring programs, such as the Visa Acquirer Monitoring Program (VAMP) or the Mastercard Excessive Chargeback Program (ECP). This can lead to fines or even the blocking of the merchant account.

How an Automated Chargeback Prevention Tool Works

Automated prevention systems work differently. They help stop disputes from becoming an official chargeback. The industry calls this approach chargeback deflection—rejecting disputes at the initial stage.

In modern systems, there are notification systems from payment processing networks, to notify the merchant of a customer complaint. This provides the merchant with an opportunity to provide a refund or some other type of resolution before the banking process has started. These systems use the following services to assist them:

• Ethoca alerts;
• Mastercard chargeback alerts;
• Visa Rapid Dispute Resolution;
• Visa Order Insight VMPI;
• Visa CDRN dispute network;
• Fraud alerts TC40.

Businesses looking to protect revenue often invest in chargebacks software to prevent disputes before they escalate. The system automatically notifies the merchant when it detects a potential conflict. 

Sometimes, initiating a refund immediately can stop a claim prior to its official registration. This way, you can avoid an official chargeback and maintain a safe chargeback ratio. These are very important for any business that accepts payments via common payment processing gateways. 

Many businesses will try to prevent chargebacks from occurring in companies like Stripe, Shopify, or Braintree. Therefore if there are increased dispute rates, then the payment processors will reduce your payment payouts or review your account.

When Chargebacks Lead to Account Suspension

For digital services, one of the most painful situations is the suspension of a merchant account. It can occur unexpectedly and halt all company operations.

The typical process is as follows: the fraud ratio increase first, followed by a Visa TC40 Notification which results in either a “Stripe Account Under Review” or “Stripe Payouts Paused” message.

In the worst case, the provider may suspend the account completely. This means the loss of the payment infrastructure and the urgent need to find a new processor.

Many organizations who experience large amounts of disputes turn to search for option protection tools. One such option is a specialized anti-chargeback solution, which works to reduce the dispute count before they occur. For instance, with the Merchanto service, it is possible to identify early warning signs of potential complaints to prevent them at the pre-dispute stage.

SaaS companies especially need such solutions. Proactively addressing disputes helps maintain their reputation with payment systems. You can avoid being caught by monitoring programs such as Visa Chargeback Monitoring or Mastercard Excessive Fraud Merchant.

Why Automation Saves More Money

Manual processing of disputes has a lower cost than electronic processing at first glance.  Since you are not required to pay for an additional service and the support staff have been established. As your organization grows, however, you will discover that manual processing has a higher cost than electronic processing due to hidden expenses.

Every chargeback isn’t just a lost payment. Fines, fees, and operational costs are added to it. Sometimes the total cost of a single incident is several times the transaction amount. Automated systems streamline these costs in several ways. These include:

• reduction in the number of official disputes;
• quick response to potential fraudulent transactions;
• transparent analytics on the causes.

There are solutions available that enable small service organizations to have access to technology. Merchanto is an example of this because it has no monthly fees or integration fees, allowing you to acquire a chargeback prevention tool without having to incur a large up-front expense. 

The fast, real-time chat support makes resolving connection and technical issues almost instant. For online services with a subscription model, this means a more stable financial model. 

The fewer disputes that go through the banking cycle, the lower the risk of fines and restrictions from payment systems, which is why it is important to keep the workflow as simple as possible.

Conclusion

Chargebacks are a large expense to online businesses. They affect profits, reputation, and the overall stability of payment processing infrastructure. 

Manual processing of disputes may work during times of low transaction volume, but at a higher level of transaction volume, manual processing of disputes becomes too costly and takes too long to resolve.

Automated systems are changing this approach. They allow chargebacks to be stopped even at the stage of warnings and signals from payment networks. This reduces dispute ratios, fraud rates, and helps avoid inclusion in Visa and Mastercard monitoring programs.

For subscription-based service organizations, chargeback prevention is becoming a part of their financial strategy. Due to the fact that they will have less chance of encountering a blocked account or losing the ability to accept payment.

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