Issuer Alerts

Technique Overview

Issuer Alerts are a form of data sharing between participating issuers and merchants where merchants receive notifications on transactions or disputes that the issuer is about to process into a chargeback, providing the opportunity for merchants to resolve the problem or refund the transaction and prevent a chargeback from occurring.

Issuer Alerts are provided to merchants through the service provider who receives notifications from the cardholder’s issuing bank. It may be that the issuer has identified fraudulent activity on a card before the cardholder does, or it may be that the cardholder initiated a dispute (fraud or non-fraud related) with the issuer but the issuing bank will first address the dispute with the merchant directly through the service provider rather than going through the chargeback process with the card association. This route can benefit both the issuer and merchant by avoiding the costs and operational processes associated with chargebacks.

Through Issuer Alerts, merchants are able to respond to disputes or avoid them entirely by refunding transactions before they hit the cardholder’s statement and before they become a chargeback. If detected early enough, merchants may be able to stop fulfillment or cancel shipment on a physical good. Merchants can also perform link analysis to find other orders associated with the ones in which Issuer Alerts were received.

Key considerations when implementing or buying this functionality include:

How large is the provider’s network of participating issuers? This should be considered in terms of the number of cards issued by participating banks rather than just the number of different issuers participating.
Does the service apply only to fraud or to both fraud and non-fraud related chargebacks?
How are transactions flagged by issuers to become alerts? Does it require the cardholder to contact the issuer and dispute the charge, or does the issuer provide information on all compromised cards to the service provider?
Are both domestic and international issuers participating in the service?
Can merchants provide information on a transaction to the card issuer? (one way versus two way communication)

How it Works

Typically, Issuer Alerts are sent to merchants through the service provider to recognize transactions that may be fraudulent or would otherwise result in some type of chargeback without intervention. There are some service providers that provide real time data sharing between the merchant and issuer to look for potential fraud. In this case the issuer may provide a real time alert or post alert that fraud or a chargeback is likely.

There are a couple of different ways potential fraud or chargebacks are recognized by issuers and submitted to the vendor offering Issuer Alert services. First, the provider must work with a network of issuers who will provide this information. Issuers participating in the service could notify the service provider when a customer initiates a dispute rather than immediately filing a chargeback. Alternatively, issuers may provide the service with a list of payment card numbers for blocked or compromised accounts, and the list is checked against the transactions the merchant is processing or has already processed. With some services, if fraud is suspected the issuer may even contact the cardholder to determine if the transaction is legitimate before initiating an alert. Some Issuer Alert services may also offer the ability for merchants to submit information about transactions to the card issuer through the service provider.

Using the Results

It can be weeks or months after a transaction is processed before the cardholder recognizes the charge and initiates a chargeback. But Issuer Alerts enable merchants to recognize these transactions before they become a chargeback so the response time from purchase to chargeback notification is shorter. Merchants should investigate the transaction related to the alert and make a decision on how to handle the transaction. Generally, this would include refunding the transaction and notifying the issuer of the outcome so that the chargeback is avoided. If detected early enough, the merchant may be able to stop fulfillment or shipment of the good to avoid lost product.

Another application of Issuer Alert services is to perform link analysis on the orders that were flagged by issuers as fraudulent. This could enable merchants to find and cancel or refund other linked orders made by the same entity that may have been conducted using a card issued by a bank that is not participating in the service.

Issuer Alerts are also beneficial for avoiding chargebacks with billing and other non-fraud related issues. If a cardholder goes directly to their issuing bank to say they are owed a refund, were billed twice, want to cancel recurring charges or initiate some other dispute, and the issuer is participating with an Issuer Alert service, then the issuing bank can work with the merchant directly to resolve the issue rather than go through the chargeback process. This saves both parties fees and resolves the issue more quickly for the cardholder.

Issuer Alerts can benefit all types of online retailers and merchants in reducing their chargebacks, and they are especially useful for merchants that offer digital goods, subscription services and recurring billing, as well as merchants with high margins.