As a business owner, you are tasked with juggling a multitude of responsibilities. However, one area that can often lead to headaches and potential loss of revenue is managing chargebacks and disputes. Three major players in this arena - Ethoca, RDR (Rapid Dispute Resolution), and CDRN (Chargeback Dispute Resolution Network) - can assist in mitigating these issues. This guide will help you understand these platforms, the differences between them, and how they can benefit your business.
Understanding Chargebacks and Their Impact on Dispute Rates
Chargebacks might sound complex, but their concept is quite straightforward. Think of a situation where a customer isn't happy with a purchase they made from your business. Instead of reaching out to you, they go directly to their bank or credit card company to challenge the charge. If their claim holds water, the disputed amount gets yanked out of your business coffers, leaving you with not only lost revenue, but also with potentially increased processing fees.
This could take a heavy toll on your bottom line. To make matters worse, frequent chargebacks could paint a negative picture of your business, leading to reputational damage and enrollment into a card network fraud program. So, it's not just about the immediate financial loss but also about the long-term implications for your business's credibility and customer trust.
The key lies in managing these scenarios proficiently to fortify your business's financial resilience. You'll need to have a deep understanding of the mechanisms that could help you alleviate the impact of chargebacks on your revenue. That's where Ethoca, RDR, and CDRN step into the picture. Each offers a distinct approach to handle disputes and chargebacks, helping you maintain your business's financial stability and protect your brand reputation.
In the sections that follow, we'll peel back the layers on these platforms to help you understand how they can serve as invaluable tools in your small business arsenal. You'll learn how these solutions function, and the unique benefits they can provide your business in dealing with chargebacks. Let's dive in!
What is Ethoca?
Ethoca Alerts are a key service provided underneath MasterCard, functioning as a chargeback management tool, facilitating collaboration between merchants and issuers, and mitigating chargebacks via prompt notifications of potential disputes. This solution, amongst a host of alert networks, provides interception capabilities, allowing the resolution of issues before they evolve into chargebacks.
When a participating issuing bank initiates a cardholder dispute, Ethoca Alerts promptly identifies and signals the impending conflict. This enables the merchant to address the dispute promptly and prevent it from escalating into a chargeback. While a majority of these alerts with come from MasterCard associated transactions, a select few (though infrequently) may come from Visa if the issuer is underneath Ethoca's service.
Suppose a customer makes a purchase from your online store and upon receiving the goods, isn't satisfied. Instead of seeking a refund from you, the customer directly disputes the charge with the issuing bank. Without any chargeback alert system in place, a chargeback may come as an unpleasant surprise.
However, in a similar scenario, if the merchant is now enrolled in Ethoca Alerts, the dynamics change. The network is triggered by an imminent dispute before the bank formally initiates the chargeback, sending you a preemptive alert. This is where Ethoca Alerts come into play, offering you a chance to address the dispute independently. You may now opt to refund the customer or provide additional transaction details to alleviate their concerns, thereby avoiding any hits to your dispute rate, or associated dispute fees. This preserves your rapport with your bank, and helps safeguard your processing rights against excessive chargeback cases.
What is Visa RDR? (Rapid Dispute Resolution)
RDR, short for Rapid Dispute Resolution, is a merchant dispute tool developed by Visa. This innovative system empowers merchants with the autonomy to design rules and set guidelines for automatically resolving selected disputes, thereby refunding the cardholder at the pre-dispute stage and avoiding a chargeback. This platform is crafted to uplift the consumer experience and minimize disputes. It aims to equip banks with an efficient tool that can resolve conflicts and refund customers automatically according to established regulations.
Ever since Visa's procurement of Verifi in 2019, they have made substantial strides in enhancing their dispute resolution systems. The objective is to equip banks, retailers, and consumers with exhaustive and effective dispute resolution methods. In essence, RDR is an advanced tool to avert chargebacks, available through Visa systems. It facilitates automatic dispute resolution for issuers and acquirers, which consequentially results in low merchant chargeback rates and improved customer satisfaction.
When an issuer participating in RDR raises a dispute for an eligible transaction involving a merchant also engaged in RDR, the dispute will start the following process. The phases of the RDR dispute process are as follows:
- A cardholder initiates a dispute with a Visa RDR-participating credit card issuer.
- The issuer submits the dispute to Visa's VROL, Visa's online dispute resolution platform.
- If the transaction is RDR eligible (meets the transaction amount thresholds set by the merchant), the flow pauses and initiates the RDR process.
- The dispute reaches the merchants acquirer or payment processor with code "RDR" attached the transaction, and then automatically refunds the customer.
- The loop closes: dispute resolved, acquirer credits issuer, and chargeback averted. RDR resolved disputes do not affect the merchant's dispute rate, nor will they incur any dispute fees.
When a dispute is resolved with RDR, a credit goes to the cardholder using Visa's existing dispute financial messaging. In essence, there is no dispute because you accept liability. Any transaction resolved with RDR will be identified as an RDR-resolved transaction, not as an actual dispute, meaning your dispute ratio will not be negatively impacted, and you avoid any associated dispute fees.
What is the Cardholder Dispute Resolution Network? (CDRN)
Suppose a customer has an issue with their purchase and decides to raise a dispute with their bank directly, rather than approaching you for a refund. The bank typically initiates a dispute based on the cardholder’s claim. This is when you’re on the verge of getting a chargeback, unless you’re armed with the Cardholder Dispute Resolution Network (CDRN).
If the bank is part of the Cardholder Dispute Resolution Network, an alert is sent via the network prior to the bank levying the chargeback. Consequently, you get a CDRN alert indicating an ongoing dispute.
CDRN alerts provide a chance to interact with the customer and negotiate a refund or try to resolve the disagreement yourself within a 48-hour timeframe. Although refunds might not be the preferred outcome, it helps bypass expensive charges, penalties, and fines associated with chargebacks. Additionally, it shields your business from the possible suspension of processing rights due to high frequency of chargebacks.
What are the similarities and differences between Ethoca, RDR, and CDRN?
While Ethoca, RDR, and CDRN all help with combating disputes, there are some key differences between the 3 providers.
Ethoca alerts and CDRN alerts work very similarly: both alerts are deployed from the customer's issuing bank, and are manually refunded by the merchant. However, Ethoca alerts will primarily cover MasterCard associated transactions, with some Visa coverage. Ethoca will also partially cover American Express and Discover transactions (if merchant enrolls necessary information). CDRN will cover Visa transactions, with some MasterCard coverage. The rate of coverage for the 2 providers is as follows:
Ethoca: 95% of MasterCard transactions, 50% of Visa, AMEX, and Discover transactions
CDRN: 50% of Visa transactions, 5% of MasterCard transactions
It is important to note that Ethoca and CDRN will cover 15 - 20% of the same Visa transactions, meaning duplicate alerts could be deployed for the same transaction if enrolled in both providers. This could incur excessive costs as a merchant would receive 2 alerts for the same transaction.
RDR alerts function differently from Ethoca and CDRN alerts, in that the alert is not deployed from the customers issuing bank, and instead is automatically refunded via the customers acquirer or payment processor. The merchant will set transaction amount thresholds that they'd like to be eligible for RDR alerts. Upon receiving a dispute that fulfills specific conditions, Visa RDR will liaise with the acquiring bank, to initiate an automatic deduction from the merchant's account and execute a refund. This intervention inhibits the dispute's escalation into a chargeback. However, RDR will only cover Visa transactions. The rate of coverage is as follows:
RDR: 99% of Visa transactions
Note that RDR will never result in duplicate alerts with Ethoca or CDRN, because the alert is being deployed at different stages in the dispute flow (acquirer versus issuer).
Choosing the Right Approach for Your Business
Navigating the world of chargebacks and disputes can seem like a daunting task. However, the right solution can streamline the process and help safeguard your business. Each of the discussed platforms offers unique benefits.
Each of these platforms serves a unique purpose and offers different benefits. Depending on your business's specific needs, the scale at which you operate, and the frequency of disputes, one approach might suit your business better than the others. Weigh the pros and cons, evaluate your specific circumstances, and make an informed decision that can help your business thrive amidst the often turbulent world of chargebacks and disputes. Remember, the goal is to find a solution that not only helps navigate these issues but also enhances your business's long-term resilience.
Chargeblast's dispute resolution technology, in collaboration with Visa, MasterCard, AMEX, and Discover provides an a tech-enabled approach to allow you to utilize RDR, Ethoca, and CDRN within one centralized platform. Our solution integrates with all major payment processors, and completely automates the dispute process.
If you'd like to learn more about Chargeblast, you can either speak with a professional, or signup yourself in under 10 minutes.
