Invalid Disputes: Why They Happen

Sydney VaccaroChargeback BasicsLeave a Comment

Invalid Disputes. Why They Happen

Invalid disputes are when a merchant receives a dispute from a legitimate transaction. These disputes are invalid because the merchant did not do anything to cause it, such as accepting a stolen credit card or not processing a refund credit.

But if invalid disputes are actually a valid transaction, how does the merchant end up with a dispute?

How Invalid Disputes Happen

Cardholder's Motives

The first step in understanding why invalid disputes happen is by learning why cardholders are turning to the issuing bank to dispute a charge. Invalid dispute motives can be broken down into two categories: friendly fraud (not malicious) and chargeback fraud (malicious).

Friendly fraud is when a cardholder disputes a charge with no malicious intent. This type of fraud can stem from simple forgetfulness, an unclear merchant descriptor, or a family member making unknown purchases. Friendly fraudsters go to their issuing bank, thinking they did not make the purchase, and it must be fraudulent.

Chargeback fraud is when the cardholder is maliciously disputing a charge. They know that the transaction is legitimate and they are disputing the charge as a way to get their money back from the transaction. Chargeback fraudsters may feel buyer's remorse, want to sell the product for the money, have forgotten to cancel their subscription, did not pay attention to return policies, etc.

Issuers Trusting the Customer

A recent Javelin study on the short- and long-term effects of disputes found that issuers are more trusting of the cardholder's story. The study says, "With more information from the customers — who typically contact them first — issuers might be inclined to place more faith in customers who are disputing a transaction. In part because of regulatory requirements that direct issuers to ensure that cardholders are fully reimbursed for fraud that occurs on their account. ... Conversely, merchants who are likely to have difficulty obtaining documentation and even engaging with these customers are understandably less able to discern the intention of the customer when confronted with a chargeback."

Operational Oversights

Some cardholders with malicious intent will try to dispute the charge no matter what merchants do, but there are preventive steps merchants put in place to stop invalid disputes. For example, a merchant can prevent friendly fraud disputes by making sure their merchant descriptor is easy to recognize and is the name that the public recognizes and not the legal name. Or making sure that your customer service is easy to access and is responsive. Every merchant is different, but by performing a dispute analysis, merchants can pinpoint issues in operations and take action to prevent disputes.

How Merchant Can Prevent Invalid Disputes

Because invalid disputes are legitimate transactions, the merchant can regain the transaction amount by submitting a dispute response document that disproves the cardholder's claims. Even though merchants can respond to these disputes, they still receive a dispute fee, have to spend time and labor on the response process, and see an increase in their dispute ratio. Which is why merchants should prevent a dispute from ever happening.

Part of the problem with invalid disputes being filed is that issuers only hear the customer's story. Now, with Real-time Resolution (RTR), merchants can communicate customer, order, and product details to issuing banks before the dispute is filed. RTR enrolls merchants in Visa Merchant Purchase Inquiry (VMPI) and combines supplemental transaction information gathered by the Chargeback app with the related Visa transaction data.

With Real-time Resolution, the issuing bank's dispute analyst can use transaction details to decide if the dispute is invalid and prevent it from being filed. In cases of friendly fraud, the additional data helps jog the cardholder's memory about the purchase. And in cases where the cardholder is trying to intentionally misuse their chargeback rights, the extra layer of confirmation acts as a critical deterrent from proceeding with the dispute.