For online businesses, particularly those in high-risk verticals, chargebacks represent a significant threat to both revenue and processing relationships. Over the years, services like Ethoca and Verifi emerged as essential merchant protection tools by providing early warning systems for potential disputes. However, a troubling shift in the payments ecosystem has turned these protective shields into weapons that may be used against the very merchants they were designed to protect.
The Original Promise of Pre-Dispute Alerts
Pre-dispute alert services were created with a merchant-first philosophy. Their fundamental value proposition was simple but powerful: give merchants advance notice when a customer contacts their bank about a transaction, but before that inquiry escalates to a formal chargeback. This early warning allowed merchants to:
- Issue refunds proactively
- Reach out to dissatisfied customers
- Prevent formal disputes from being filed
- Preserve their chargeback ratios
- Avoid expensive chargeback fees
For years, this system worked well as a win-win solution. Customers got faster resolutions, merchants maintained healthier payment processing relationships, and banks avoided the operational costs of processing formal disputes.
The Alarming Pivot
Recent changes indicate a shift in the flow of pre-dispute data within alert services. Payment processors such as Stripe and PayPal are reportedly beginning to obtain this data directly from alert providers. As a result, the information may now reach payment processors before it is shared with merchants.
This development introduces a new dynamic in which:
- Payment processors receive early indicators of potential disputes involving merchants’ customers
- Risk assessments may occur before merchants have the opportunity to engage with their customers
- Payment processors may take precautionary measures regarding merchant accounts based on the information received
How Processors Are Weaponizing Alert Data
When payment processors gain access to pre-dispute alerts, they can use this data to trigger various defensive measures against merchants:
- Increasing reserve requirements – Holding more of a merchant’s funds in reserve
- Slowing down payouts – Extending the settlement timeframe for transactions
- Flagging accounts as high-risk – Applying additional scrutiny to future transactions
- Account termination – In extreme cases, terminating merchant accounts entirely
This represents a fundamental change in how alert data is used. What was once a tool for merchants to resolve issues amicably has become a risk signal that processors use to protect themselves, often at the merchant’s expense.
The PayPal Precedent
PayPal has reportedly been implementing this approach for some time. According to industry observers, they integrate with alert services to gather pre-dispute information and then immediately treat these alerts as if they were actual chargebacks when evaluating merchant risk.
For merchants, this means being penalized for disputes they never had the opportunity to prevent. The very system designed to help merchants avoid chargebacks is now being used to punish them for potential chargebacks that haven’t even occurred.
Stripe’s New Direction
Stripe has recently announced expanded chargeback prevention tools, including alerts. While presented as a merchant benefit, industry experts warn that this integration may follow the PayPal model, with alert data feeding directly into Stripe’s risk assessment algorithms.
The concern is that Stripe will use this data to:
- Make internal risk decisions about merchant accounts
- Adjust reserve requirements based on pre-dispute signals
- Potentially off-board merchants who trigger too many alerts, regardless of resolution
The Broader Industry Implications
This trend signals a troubling shift in the payments ecosystem. Services that were built to protect merchants are now being co-opted by payment processors to protect themselves first. This has several implications:
- Devaluation of Alert Services: If alerts trigger processor penalties before merchants can address them, the original value proposition of these services is undermined.
- Reduced Merchant Visibility: Merchants lose direct access to customer issues at the earliest stage.
- Increased Processor Leverage: Payment processors gain additional data and control points over merchants.
- Less Merchant Autonomy: The ability to manage customer relationships and dispute resolution diminishes.
Protecting Your Business
In this evolving landscape, merchants need to consider new approaches to protect themselves:
- Direct Relationships with Alert Providers: When possible, establish direct connections to alert services rather than relying on processor-provided integrations.
- Diversified Processing Relationships: Don’t rely on a single processor for all transaction volume.
- Proactive Risk Monitoring: Implement your own systems to identify potential dispute triggers before they reach the issuing bank.
- Enhanced Customer Service: Address customer concerns quickly through multiple channels to prevent them from contacting their bank in the first place.
- Documentation and Analytics: Maintain comprehensive records of customer interactions, dispute resolutions, and alert outcomes to identify patterns and demonstrate responsible merchant behavior.
The Future of Dispute Management
As pre-dispute data becomes increasingly controlled by processors, merchants risk losing critical visibility and influence in the dispute resolution process. This shift undermines the original purpose of alert services: empowering merchants to resolve customer issues before they escalate into chargebacks. To safeguard revenue and maintain control, merchants need solutions that prioritize their interests and restore a direct line to customers. Centrobill helps merchants—especially those in high-risk industries—stay ahead by offering tools and insights that support a merchant-first approach to dispute prevention. With smart routing and adaptive transaction management, Centrobill not only optimizes payment processing but also enhances visibility into potential disputes. In an environment where traditional protections may now work against merchants, Centrobill provides a vital path forward, preserving payment capabilities, strengthening customer relationships, and ensuring businesses maintain the power to act before a dispute becomes a chargeback. Understanding and adapting to these shifts is essential for long-term success.
