Why Analysis of Dispute Data is so Important

Sydney VaccaroChargebacksLeave a Comment

Why Analysis of Chargeback Data is so Important
By asking these questions and thoroughly going through your dispute information allows you to fix problems and prevent disputes.

When a merchant receives a dispute, the first step is to respond or accept the customer’s claim. While the response process is vital for merchants to recover revenue, simply responding to disputes isn’t enough. In this post, we’ll explain how analyzing disputes benefits merchants—and what merchants should be looking at in their analysis.

Analyzing Isn’t Easy

A recent Javelin study of the long- and short- term effects of disputes found that the "lack of transparency in the chargeback process imposes unnecessary costs on merchants. Nearly a fifth of merchants (18%) are unable to effectively identify the reasons that their chargeback representments fail because the reasons are not made clear to them either by their processor or the card network."

Not having an effective process to review or even receive data from disputes can be discouraging. But merchants need to take the time and resources to look into their disputes.

Why Analyzing Disputes is so Important?

Creating a dispute response helps merchants regain lost transaction amounts, which is extremely important. But all the details surrounding a dispute and the response process are equally crucial for gaining and retaining revenue.

Dispute analysis can show merchants where there are problems with their operations, logistics, billing, communication, or even the dispute response process itself. It can also give data to the front-end fraud processes to make them more effective. The analysis of disputes can create a better customer experience and prevent the loss of revenue through disputes.

But where should merchants start with their analysis? Here are questions merchants should ask to gain insight into their disputes.

What Reason Codes are we Receiving?

The goal of reason codes is to inform merchants why the cardholder is disputing the charge and provide insights into what specific compelling evidence is needed for a dispute response. When reason codes are analyzed, merchants can see where there are issues in their logistics, operations, or fraud prevention. For example, if you are receiving a large amount of Visa Reason Code 13.2 Cancelled Recurring Transaction this could mean there is a miscommunication happening between where the customer is canceling their subscription and updating your billing process.

Reason code tracking becomes a roadmap for merchants. It can point you to the exact places where revenue is being lost through disputes.

What Dispute are We Losing?

Three scenarios will cause a merchant to lose a dispute when they submit a response. The first is if the dispute response does not contain the necessary evidence requested by the card network. Each reason code and card network has specific, compelling evidence needed to disprove a cardholder's claim. If the response does not contain the necessary evidence, then the response will not help the merchant win the case.

The second scenario is that the dispute was true fraud. True fraud is when a fraudster gets a hold of credit card credentials and successfully uses them at a merchant's site or store. A true fraud dispute is not winnable for merchants. The Zero Liability Guarantees and the Fair Credit Billing Act made it the merchant's responsibility to stop fraudulent transactions.

Lastly, if the dispute is valid, the merchant will not win with a dispute response. A legitimate dispute means that the merchant made a mistake which led the customer to dispute a charge with a valid reason.

The best way to look at the disputes you are winning for insights is through checking for these three scenarios. First, you should check if the dispute is issued for valid reasons. If the customer is claiming that their refund never was processed, Visa Reason Code 13.6 Credit Not Processed, check to see if you refunded the transaction amount. If you did, you could rule out that it was a valid dispute. The next step is to see if your dispute response had all the necessary information required by the card network to win the dispute. If that all checks out, then the dispute was most likely a true fraud dispute.

Once you have narrowed down the true fraud disputes, you can update your front-end fraud filters. These filters are the only way to prevent fraudulent purchases. When fraud filters are not accurate enough, they can let fraudster in, while preventing actual customers from purchasing.

What Dispute are We Winning?

Winning a dispute means one thing: that the cardholder filed an invalid dispute. This indicates that the dispute is the result of a cardholder committing either chargeback fraud or friendly fraud. Chargeback fraud is when the cardholder maliciously disputes a purchase in an attempt to get their money back, while still retaining the goods or services received. Chargeback fraud can stem from buyer remorse, irresponsible spending, or trying to sell the product for profit.

Friendly fraud is when a cardholder accidentally disputes a charge that they actually authorized. This can happen because of an unclear merchant descriptor, simple forgetfulness, or a family member making an unknown purchase.

Chargeback and friendly fraud are not valid reasons to dispute a charge, which means that the merchant can regain the transaction amount with a well-crafted dispute response. While friendly fraud and chargeback fraud are winnable for merchants, it is still important to analyze the transactions that come from these disputes. Is there a specific location that is causing a spike in chargeback fraud disputes? Then maybe try to place stricter requirements for front end fraud filters when an order comes from an IP address inside that location. Are there a lot of friendly fraud disputes stemming from your subscription? Make sure you are clearly communicating when the subscription will charge the cardholder's account. They may be thinking that charge is fraudulent because they had no warning.

By asking these questions and thoroughly going through your dispute information allows you to fix problems and prevent disputes.