What is a closed-loop chargeback prevention process?
A closed-loop chargeback solution will activate the moment a customer files a dispute. The dispute is then routed directly from the issuer to the merchant for resolution and the chargeback process is paused for up to 72 hours – giving the merchant ample time to respond. This differs from open-loop processes, where the chargeback dispute process continues in tandem with the alert being filed.
Once the merchant is notified of the dispute in near real-time, they can resolve the issue directly with the customer and issue a refund or credit. Or, the retailer can choose to do nothing and let the chargeback proceed. If the issue is resolved, the credit will post to the cardholder’s statement and the merchant avoids the chargeback altogether, bypassing expensive fines, fees and penalties.
The merchant generally has up to 72 hours to respond, eliminating the “race to the refund” scenario that often results from open-loop workflows that usually give retailers only 24 hours to respond. Whether the merchant stops fulfillment of goods or services, provides a refund or takes no action and accepts the chargeback risk, he/she makes an active business decision.
Closed-loop services enable the merchant to bypass the communication delays and inaccurate data that are all too common within open-loop workflows. Without feedback loops and direct integration with issuers, open-loop processes push information to merchants in a fragmented way while forcing retailers to respond to situations within a shorter timeframe. Worse yet is that much of the data is TC40 data that includes untargeted information like first-time fraud offender reports. The combination of bad data, communication silos and rushed response leads to false defects that can increase the total cost of the service.