For many merchants and the ISOs that serve them, chargebacks are a perpetual and elusive source of distress. Trying to discern between legitimate transactions and fraud - and between valid claims to chargebacks and unfounded ones - can require levels of time and scrutiny that most ISOs simply don't have.
According to Chargeback Guardian President Mark Standfield, Chargeback Guardian provides a gateway-neutral service that monitors a merchant's chargebacks, analyzes patterns to pinpoint causes, reports its findings to the ISO and merchant, and implements highly customized measures to reduce chargeback levels and maximize sales volume. "A lot of times, ISOs see a problem with fraud but don't understand why it's occurring," Standfield said. In addition to its investigation-based fraud prevention service, Chargeback Guardian's product suite includes services for fighting chargeback disputes, dealing with the thorny logistics of monetary recovery and preventing big losses through a special kind of fraud insurance, according to Standfield.
He added that Chargeback Guardian is available to ISOs both as a value-added product sold to merchants, as well as one employed for protection by the ISOs themselves (since they, too, can bear the burden for fraud, chargebacks and other monetary issues that arise with their merchant customers).
"Sometimes when there's a problem, ISOs don't find out about it until it's full-blown," Standfield said. "Our compliancy and monitoring service is designed not just to prevent chargebacks to merchants, but also as an alert system for ISOs so they can see if something is out of whack and take the proper action."
Chargeback Guardian's fraud-prevention strategy comprises two fundamental parts. Part one involves a close monitoring of merchant transactions, using both algorithmic software and human analysis to size up the sources of fraud and the holes in a merchant's payment acceptance system. Part two is then recommending to the merchant or the merchant's ISO a customized approach to targeting the problem, based on the findings of the analysis.
"We watch transactions flowing through the gateway, so we can then ... identify the problem and take that knowledge to the front-end, so [the fraud issues] don't occur," said Frank Weinrauch, Vice President of Business Development for Chargeback Guardian.
Standfield added, "A lot of [fraud-detection] systems are either all on or all off. It's either, 'We're going to block this and you can review it,' or, 'We'll let it through and not follow up.' Our system is set up to monitor based on what goes through, and then to go upstream and use that information as a basis for optimizing our filtration."
Chargeback Guardian's layered approach of computer-based algorithmic detection reinforced by human analysis is particularly handy when anomalies crop up that defy historic patterns, according to Standfield. Fraud indicators and how fraud is perpetrated can vary greatly even between merchants who operate within the same vertical, he added. Chargeback Guardian is not simply designed to block or let through transactions based on broad patterns within merchant verticals, but rather based on the specific information culled from a particular merchant's living records, he noted.
"We do have some information across industries that says, 'Typically this is what you see,' but just because somebody gets chargebacks over here doesn't mean those same chargebacks will apply to another merchant," Standfield said. "Typically, fraudsters are smarter than that. He added that trends within merchant verticals are an indicator, but not the only indicator.
"The causes and types of fraud vary greatly between merchants," Weinrauch said. "Those things also change as a merchant adapts and changes their model, so we make sure to adapt with them. We'll use a constantly fine-tuned system to let through the most profitable transactions or least risky ones in this business's world. Our job is to give merchants a heads up of where their business is." With most clients, Chargeback Guardian begins its work without implementing any new fraud controls (unless otherwise directed by a client), but rather by allowing transactions to flow through a merchant's gateway as they normally would - only observing those transactions with a careful eye.
The company will then put its findings into a report prepared for the ISO, the merchant or both that provides details about chargebacks, and, more broadly, about the detection of patterns that indicate possible vulnerabilities or shortcomings around chargeback prevention.
Not all chargebacks are rooted in fraud, of course. Part of Chargeback Guardian's service is also identifying issues that prompt legitimate customers to seek refunds, such as customers who grow exasperated by a product or service that falls short of their purchase expectations. For example, whether frustrated customers either keep or return a new tech gadget that they're struggling to understand may hinge on the quality of the tech support that assists them in figuring it out.
"Chargebacks can happen for a variety of reasons other than it being something that's flat illegal," Weinrauch said. "The cause can be poor customer service, long hold times; it could be the company's on the East Coast and hasn't adjusted their service times to the West Coast - any number of experiences."
As an example Weinrauch mentioned a merchant who rarely experiences chargebacks. "Then a new product is launched and, suddenly, chargebacks are through the roof," he said. "We look at before and after. In this case, maybe they were initially providing an instant gratification [product], and now they're doing custom work that takes three weeks. That's a lot of time for things to happen; customers can change their mind for one reason or another."
In addition to conducting data analyses, Chargeback Guardian representatives may also conduct first-hand investigations into both existing chargebacks and, more generally, into issues that could give rise to chargebacks, according to Standfield.
For example, they may pull phone logs and other data to determine if customer complaints around wait times are valid, or (posing as a customer) call a merchant's customer service line to test the quality of that service first-hand.
Preventing chargebacks is not Chargeback Guardian's sole focus. It also offers a program to help merchants and ISOs fight existing chargebacks and, as they occur, new ones. "We'll pick the chargebacks [to dispute], and in doing so we're gathering data so we can prevent chargebacks from happening going forward," Standfield said.
Standfield noted that disputing chargebacks becomes easier as the relationship between Chargeback Guardian and a client matures, because the more data that's tracked, the easier it becomes to prevent chargebacks and, where they do occur, to assess whether a chargeback claim is legitimate.
According to Standfield, a big part of the chargeback dispute process is not only identifying chargebacks that merit rejection or reversal, but also following through with the necessary footwork. Chargeback Guardian takes care of that step as well, which can be a major relief for merchants who face high chargeback levels and the complicated issues that surround them, he said.
"We'll pick the chargebacks [to dispute], and once the merchant is notified, we'll reply to the bank on behalf of the merchant based on the data we've gathered," Standfield said. "We are taking the hassle away from merchants, and also gathering data so that we can prevent chargebacks from happening going forward." For ISOs and merchants, no upfront payment is required for Chargeback Guardian's chargeback dispute service; rather, the company is paid a percentage of the money it recovers.
According to Standfield, it's a no-lose proposition because the client is always getting back significantly more money from the reversal of disputed chargebacks than it is paying to Chargeback Guardian to fight those chargebacks. "If a merchant has a lot of chargebacks that they can't pay and the ISO isn't holding enough in reserves ... the ISO becomes liable, and they know it," Standfield said.
To further protect ISOs from potentially devastating losses brought about by merchant bankruptcies and the peril of excessive chargebacks, Chargeback Guardian rolled out its newest offering: an insurance policy that covers an ISO in the event of such losses. The policy is unique in a couple ways, according to Standfield. One, it isn't a portfolio product, meaning ISOs aren't required to use it with all their merchants, but rather can pick and choose which merchants to use it with.
Second, if a merchant goes bankrupt or otherwise collapses, the ISO's merchant reserves can be used the way they normally would be, rather than being taken out against the policy - as similar insurance policies commonly require, Weinrauch said.
Thus, while the policy is specifically meant to cover the financial burden of huge chargeback levels, it does not fine the ISO for related but technically different charges such as fines levied by the card brands and other entities. Instead, ISOs can use their reserves for any expenses they want, and then use Chargeback Guardian's insurance policy to cover the entirety of their costs relating to a merchant's bankruptcy, according to Wienrauch.
"This is going to become a hotter and hotter issue," Weinrauch said, adding that the Federal Deposit Insurance Corp. is informing ISOs they are responsible for their merchants and telling banks that ISOs are responsible for merchants, as well.
That's just one of the areas Chargeback Guardian aims to make a difference. Weinrauch believes the company's comprehensive offerings can provide ISOs and their merchant customers strong protection to help them not only deal with the many challenges chargebacks pose in today's world, but also to thrive in the process.
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Chargeback Guardian Inc.
814 E. Bamberger Drive
American Fork, Utah 84003