Chargebacks are an unavoidable part of doing business. So what can merchants do to fight them? In this post, we will go through how merchants can recover lost revenue and what they can do to prevent disputes in the future.
What is a Chargeback?
A chargeback or dispute is a transaction reversal meant to serve as a form of consumer protection from fraudulent activity committed by both merchants and individuals. This transaction reversal is demanded by a credit-card provider for a retailer to make good the loss from fraudulent or disputed transactions. Unfortunately, the dispute process does get taken advantage of by malicious or confused cardholders.
When a cardholder files a dispute and the issuing bank finds that the dispute has merit, the transaction amount will be taken from the merchant's account, the merchant will receive a dispute fee, and the merchant may lose the merchandise or services associated with that transaction.
How can Merchants Fight Disputes?
You have received a dispute. Now, the only way to fight the dispute and get your hard-earned revenue back is to create a dispute response document. The response document's goal is to refute the cardholder's claim. Merchants can find out what the claim behind the dispute is and what evidence is needed in the response by looking at the dispute reason code. Reason codes are alphanumeric strings of text provided in a chargeback notification as a means of explaining the cause for the dispute.
To create a winning response document, merchants should do their research into the reason code to make sure they are providing all the necessary information required. The responses are most powerful when the compelling evidence is provided as directed by the specific card network rules and regulations. Merchants also need to make sure they are responding to the dispute within the required time frame, or they will no longer have the opportunity to get their revenue back.
Here are some resources that can help merchant research and respond:
- Downloadable Response Templates
- How to Create a Response Document - Blog Post
- Dispute Best Practices - Ebook
- How to Prevent Chargebacks - Blog Post
- Reason Code Encyclopedia
Winning a Dispute is Great, Preventing a Dispute is Better
It is vital for merchants to have a robust process for monitoring and responding to disputes to recover revenue. It is also essential for merchants to take action to prevent chargebacks from ever happening.
The first step is to make changes internally to prevent disputes. For example, is your customer service easy to get a hold of and work with? Is your merchant descriptor easy to recognize? Do you send your customers a reminder email before their subscription charge happens?
Merchants will want to make any changes to their operations, logistics, communication process, or anything else that may lead a confused or frustrated customer to dispute a charge instead of working with you.
Preventing True Fraud
True fraud is when a fraudster uses stolen credit card credentials to make a purchase. The actual cardholder disputes the fraudulent charge. The only way to prevent true fraud is by implementing front end fraud filters. Front end fraud filters automatically determine what transactions are valid or fraudulent based on factors that the merchant sets up. The fraud filters are able to prevent true fraud transactions from ever being accepted.
Preventing Friendly Fraud and Chargeback Fraud
Friendly fraud is when a customer accidentally disputes a charge because of simple forgetfulness or an unclear merchant descriptor. Chargeback fraud is when a cardholder maliciously disputes a transaction in an attempt to get their money back while still retaining the goods or services. Friendly and chargeback fraud will get past fraud filters because they are your actual customers, using their own cards.
To prevent this type of fraud, merchants can use Real-time Resolution (RTR). RTR allows merchants to communicate in real-time with the issuing bank when a cardholder comes to the bank wanting to dispute a charge. Through RTR, merchants can send customer, order, and product details before the issuing banks files the dispute. This stops friendly fraud by being able to give the confused customer more information about the purchase. RTR also prevents chargeback fraud by better equipping the issuing bank's dispute analysts to make informed decisions on whether or not a dispute should be filed.
Here are resources where merchants can learn more about preventing disputes:
- The Three Faces of Fraud- Ebook
- How to Prevent Disputes with Emails - Blog Post
- 10 Tips to Prevent Disputes - Blog Post
- How to Spot Chargeback Fraud? What to Look for to Protect Your Business - Blog Post
- How to Spot Friendly Fraud: What to Look for to Protect Your Business - Blog Post
- Why Analysis of Dispute Data is so Important - Blog Post