ROI of In-House vs. Outsourced Chargeback Fraud Protection

ROI Analysis: In-House vs. Outsourced Chargeback Fraud Protection

Michael Mallon

Nov 29, 2021

This article summarizes information and findings from the Accertify-sponsored Javelin merchant survey and report, “Merchant Chargebacks: Building Brand Value by Optimizing Efficiencies1.” and evaluates how merchants manage chargebacks either in-house or through outsourced experts and resources.

Technology is driving change in the world of chargebacks. Whether chargebacks are a form of friendly fraud or conducted by bad actors, they undoubtedly impact revenue. As the landscape for chargeback prevention and management changes, it is essential that merchants take the steps necessary to avoid chargebacks at the onset and quickly respond to those that inevitably come in.

Chargeback prevention, and the opportunity to win more disputes, is impacted by whether merchants have well trained and dedicated resources, either internal or external. In this analysis, we look at the Javelin merchant survey responses and other available data to compare the return on investment (ROI) of using an in-house chargeback management solution versus outsourcing all of an organization’s chargeback management efforts.

In-House Chargeback Protection

Managing chargebacks in-house is one option for merchants. 48% percent of merchants surveyed are satisfied with their existing in-house chargeback management system and 58% of merchant respondents1 think it is cheaper to manage chargebacks in-house. However, there is evidence that ROI is not well-calculated, and merchants may actually struggle to understand how chargebacks can impact their client satisfaction ratings and result in lost revenue.

The best analysis of how effective in-house chargeback protection is can be seen in the reasons cited in the Javelin survey1 regarding why merchants currently do not dispute claims.

  • 46% report that the current chargeback rules are too cumbersome for a type of chargeback
  • 43% report that the likelihood of winning is too low for particular types of chargebacks
  • 41% report that it is too costly to pursue chargebacks, or that the returns do not sufficiently offset the cost
  • 34% report that the likelihood of winning is too low for particular merchant acquirers
  • 26% report not having sufficient resources to dedicate to all chargebacks

So, while in-house chargeback management may appear to provide maximum control, it can be costing businesses much more than they realize.  Partnering with a company proven to deliver optimal results specific to their business may, actually, be far more cost effective.  

Factoring in all of the missed opportunities, the ROI for partnering with a chargeback management provider or even fully outsourcing chargeback efforts could be significantly higher.    

Outsourced Chargeback Fraud Protection

Merchant respondents attempting to reconcile chargebacks with the cost of managing and responding had this feedback1:

  • 64% felt that the success rates for disputes are too low to make pursuit worthwhile
  • 57% felt that the potential return is too low to cover associated costs
  • 53% felt that the fees for submitting disputes were prohibitive

A clear tension exists between the need to win disputes and the confidence that they can win disputes.

A lack of highly trained employees creates vulnerabilities with the in-house model. An example provided in the Javelin Report is this:

If companies ask employees to devote 20% of their time to dispute resolutions, as many as 80% of the cases lack adequate analysis.1

A people first strategy is simply not sustainable. Streamlined processes that leverage chargeback management solutions and expert analysis are available by outsourcing chargeback efforts.

The capacity of an in-house team versus outsourced experts is best analyzed by looking at the complications associated with managing disputes. 

Complications Affecting the Chargeback Process

In the survey, merchants reported numerous complications that impact the chargeback process.

These included:

  • Outdated reporting
  • Legacy platforms
  • Slow resolution
  • Lack of resources
  • Huge growth
  • Staffing problems
  • Fragmented data

Some of these issues, such as lack of expertise and lack of resources, directly speak to the need to outsource chargeback management.

Perceived Cost of In-House vs. Outsourced Chargeback Management

Price is the winning decision-maker for most merchants, but the cost of ownership itself inhibits exploring new providers. Here is what respondents said1:

  • 58% think it is cheaper to manage chargebacks in-house
  • 48% have an existing in-house system they are happy with
  • 35% have an existing in-house system that would be costly to get rid of
  • 21% do not trust they will get the best results if they outsource
  • 6% are unaware of any providers that offer chargeback management services

How much it costs to maintain in-house chargeback management versus how much it costs to outsource chargeback management should also be calculated based on capabilities:

Do internal teams have the same capacity for implementing time-tested methodologies to protect against the damage of chargeback fraud?

Three Key Considerations for In-House vs. Outsourced Chargeback Management

Three key considerations can be used to measure whether an internal or external team is up to the task of managing chargebacks.

Chargeback Management Systems

Are internal teams capable of effectively installing and using chargeback management applications, or would it be better to have a third party overseeing the process?

Chargeback management solutions are essential – whether keeping the processes in-house or outsourcing, merchant chargeback teams can’t do it alone. Chargeback management solutions reduce the risk of human error and provide precise insights and information for proactive decision-making.There are tools that can be used by in-house teams and there are fully outsourced solutions available. In the latter, a third party oversees the chargeback resolution process. With this, merchants can evaluate the number of chargebacks they receive per month, the size of the team they have dedicated to responding to chargebacks and their win rates.  If there is too much revenue leakage, help is needed. Merchants can evaluate the following to determine the best option:

Increase Data Collection and Analysis Efforts

Does the internal staff have the right processes and time to effectively collect and analyze data to increase win rates?

Survey respondents indicate that 43% of merchants feel they have no chance of winning chargeback disputes1. This lack of confidence can be offset if data collection and analysis provide the evidence necessary to win the dispute. For instance, knowing they have access to the correct compelling evidence places merchants in a position of strength when it comes to disputes.

Track Compliance Changes Closely

Are internal team members educated and informed enough to track compliance changes and implement regular improvements?

According to the Javelin survey1, 46% of merchants reported feeling confused about chargeback guidelines. It is true that there are certain compliance measures that must be met, such as payment brand and processor requirements for receiving, managing, and replying to chargebacks. Either through internal team members or external experts, it is important the team can stay abreast of new guidelines to ensure disputes are handled properly and with the highest chance of winning.

Accertify Chargeback Management

Accertify offers comprehensive chargeback management systems and tools. Our industry knowledge is unrivaled, and we have labored for decades to refine processes that prevent chargebacks and also expedite the processes to respond to chargebacks. In an ever-evolving landscape, it is important to use reliable tools and enlist trusted experts. That is what we provide. Either as support for merchant’s in-house team or use of our fully outsourced chargeback management services, Accertify can help merchants[1]:

  • Reduce the resources required to manage and respond to chargebacks by up to 50% or more and helps merchants improve win rates.
  • Provide a baseline of data to empower merchants to respond to disputes with greater confidence and come out with more wins.
  • Be compliant.

Are you struggling with chargebacks?  Request a consultation about Accertify Chargeback Management today.

1 Javelin Survey 2021 – Merchant Chargebacks: Building Brand Value by Optimizing Efficiencies

2 Paypal Disputes Chargebacks

[1]Based on Accertify customer data