What You Need to Know Chargebacks and How to Dispute Them

Chargebacks can be a frustrating and costly issue for merchants. When a customer disputes a charge on their credit card, it can result in lost revenue and additional fees. However, merchants have the ability to dispute these chargebacks and potentially recover the funds.

What are chargebacks?

Chargebacks are a form of consumer protection that allow customers to dispute payments and potentially get their money back. When a customer files for a chargeback, credit card companies initiate an investigation process to determine if the transaction was legitimate or not. If it is determined that there were fraudulent charges, then the company will issue a refund. To successfully dispute chargebacks, merchants must provide compelling evidence as well as quick responses in order to win the dispute so be sure you understand your rights and how it works before initiating any disputes.

Understanding Chargebacks

When a cardholder initiates a chargeback, they contact their card issuer (the bank that issued their credit card) and explain the problem. The issuer then investigates the claim to determine its validity. If the claim is deemed reasonable, the issuer starts the dispute process.

During the dispute process, the issuer credits the cardholder, and the payment brand (such as Visa or Mastercard) refunds the funds to the card issuer. The merchant’s acquiring bank, such as Chase, then debits the funds from the merchant’s settlement account to cover the dispute. It is essential for merchants to respond promptly and provide compelling evidence to challenge the chargeback.

The Importance of Compelling Evidence

To effectively dispute a chargeback, merchants must gather and present compelling evidence to demonstrate that the dispute is unwarranted. This evidence should directly address the reason code provided by the payment brand for the chargeback. For example, if the reason code indicates that the customer did not receive the purchased item, the merchant should provide proof of delivery or customer usage.

  • Some common types of compelling evidence include:

  • Delivery confirmation or proof of customer receipt

  • Proof of purchase or usage history

  • Refund or return policy agreements

  • Address verification system (AVS) and card verification value (CVV) matches

  • IP address and geographic location of the customer’s purchase device

  • Correspondence documenting conversations with the customer

The Cost of Disputes

Disputes can have significant financial implications for merchants. In addition to the potential loss of revenue, merchants may incur fees associated with each dispute. These fees can range from $25 to $100 per transaction and increase based on the volume of disputes a business experiences. It is estimated that up to 42% of businesses challenge less than half of all disputes, and 14% never bother to fight them at all.

By actively disputing chargebacks and providing compelling evidence, merchants can reduce the financial impact of disputes and potentially recover lost funds. Implementing effective fraud prevention measures and providing excellent customer service can also help minimize the occurrence of chargebacks.

Understanding Timeframes and Deadlines

When a chargeback occurs, the acquiring bank notifies the merchant and provides a deadline for disputing the chargeback. The timeframe for acquirers generally ranges from 10 to 35 days, depending on the payment brand. It is essential for merchants to adhere to these deadlines to avoid losing the dispute by default.

The entire chargeback process, including the dispute resolution, can take up to 120 days. Therefore, it is crucial for merchants to act promptly and submit their evidence within the specified timeframe. Monitoring and managing chargebacks efficiently can help merchants avoid unnecessary losses and maintain healthy cash flow.

Best Practices for Disputing Chargebacks

To improve the chances of winning a chargeback dispute, merchants should follow these best practices:

  • Be prepared: Collect and organize customer transaction data and relevant evidence in advance to respond quickly to disputes.

  • Know the rules: Familiarize yourself with the specific dispute rules and timeframes established by the payment brands you accept.

  • Gather compelling evidence: Ensure you have the necessary evidence to address the reason code provided for the chargeback and substantiate your case.

  • Submit evidence promptly: Adhere to the deadlines provided by the acquiring bank and submit your evidence within the specified timeframe.

  • Maintain accurate records: Keep detailed records of all customer transactions, including delivery confirmations, customer communications, and refund policies.

  • Monitor and manage chargebacks: Implement systems and processes to track and manage chargebacks effectively, allowing you to respond promptly and minimize losses.

  • Implement fraud prevention measures: Implement robust fraud prevention tools and practices to reduce the occurrence of fraudulent chargebacks.

  • Provide exceptional customer service: Aim to resolve customer complaints and concerns promptly, reducing the likelihood of chargebacks resulting from dissatisfaction.

  • Stay informed: Keep up-to-date with the latest industry trends, payment brand regulations, and best practices for dispute resolution.

  • Seek professional support: Consider partnering with a reputable chargeback management service or consulting with experts in the field to optimize your dispute resolution process.

Disputing credit card chargebacks is a complex process that requires careful preparation, prompt action, and compelling evidence. By understanding the chargeback process, gathering relevant evidence, and adhering to deadlines, merchants can improve their chances of winning disputes and recovering lost funds.

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