Chargeback Myths and Misperceptions


Questions and Considerations Before Contesting a Chargeback

One of the reasons the chargeback process was designed was to provide a safety net to increase consumer confidence when using payment cards to make purchases. If a customer is dissatisfied with a purchase, they can dispute the transaction through the bank that issued their credit card and usually a refund is provisionally issued back to the consumer while the bank investigates the dispute. For merchants, chargebacks are often time consuming and expensive. The requirement of proof falls on the merchant to defend the transaction and show that the customer was correctly charged and the product or service was provided.

Some merchants believe there is no reason to dispute a chargeback because they are unwinnable. This is a common misperception. Winning a chargeback is possible, with time and the right strategy. Developing and presenting a winning case is hard work and takes a lot of time. Merchants need to assess each case and decide whether the cost of pursuing a dispute is worth it or if they should cut their losses and accept the chargeback without contesting it.

To Respond or Not to Respond

No matter how vigilant a merchant is in trying to prevent chargebacks, they will occur. Some merchants may think the easiest response to a chargeback is to just pay it. But if every chargeback is simply paid out of hand, the merchant can stand to lose significant profits as well as bleed from the bottom line because of potential fees levied by their acquiring bank. So when a dispute is filed, you should be prepared by default to respond to it, and then begin investigating to see if there is a legitimate reason not to.

The first consideration for a merchant should be how costly it will be to respond to the chargeback. A reasonable monetary threshold would be an amount equal to the cost of the good or service plus the fees that will be charged to fight the chargeback. Any chargebacks over that threshold that are suspected to be illegitimate should be disputed.

The reason code supplied with the chargeback is the next issue to consider when deciding whether to fight it. These codes categorize the dispute, such as merchandise not received, an item damaged during shipping, a customer requesting to terminate a transaction but being charged anyway, or a fraudulent transaction. Once you know why a customer is disputing the charge, there are several considerations that can help you decide if representing the chargeback is worthwhile.

  1. Do you have proof that will support your claim that the dispute is invalid?

    The more documentation you can provide that supports the validity of the transaction, the greater the likelihood the merchant has of winning the dispute. Examples of valid evidence include a copy of the order confirmation or sales receipt, proof that the product was delivered or picked up, written evidence that the customer was satisfied with the purchase, and purchase history showing that transactions made previously from the same billing address, e-mail address, IP address, or telephone number were not disputed.

  2. Have you developed and posted clearly defined product descriptions and policies that explain how you conduct business with customers?

    Sellers should provide detailed product descriptions so customers know what they are buying. Return, replacement, and refund policies should be clearly posted, along with information on how to contact customer service with questions or complaints. These policies should be presented prominently in the purchase path and the consumer should have to “click to accept” acknowledging they have read them to provide the merchant with the best chance to reverse the dispute. The potential likelihood of winning a chargeback dispute increases if you can show that you gave the customer sufficient information prior to purchase and were readily available to answer questions or solve problems.

  3. Is it possible that the chargeback is a valid claim?

    If the chargeback reason code indicates something that might be the merchant’s fault, such as not processing the transaction in a timely fashion or calculating the transaction amount incorrectly, then the chargeback dispute may be valid. It is important to note that this case may be harder to win and will in all likelihood be found in favor of the consumer. If the validity of a chargeback is uncertain, you should consider whether disputing the chargeback is more important than retaining the customer. If you decide to fight the chargeback, you will need evidence to support your case, and whether or not you win you will probably lose repeat business from the customer. Before fighting chargebacks that may be legitimate, you should weigh the importance of retaining a customer.

  4. Would it be extraordinarily difficult for you to prove the dispute is invalid?

    Some chargeback reasons are very difficult to dispute, such as an item never being delivered. Unless you ship only when the billing and delivery address are the same, or your shipping policies require a signature upon delivery, you may have no way of proving that an item was in fact delivered to the credit card account holder who made the transaction. Another example might be settling a transaction for an amount larger than the authorization amount or after the authorization code has expired because of delayed shipping. In cases where the odds of winning a dispute are very low, it may be more cost-efficient to accept the chargeback.

Choosing a Strategy

The chargeback process is complicated, and disputing a chargeback can be tedious and labor-intensive. To increase the likelihood of success when disputing a chargeback, be sure you have a thorough understanding of the process, the information you will need in order to fight the dispute, and the time and resources that will be required to respond appropriately to the dispute. Keep in mind that chargebacks come without advance warning, so your strategy for managing them should already be in place before you’re faced with a decision about whether to fight.

If you do not have the resources to prepare a winning case to dispute a chargeback, the most efficient strategy may be to work with a partner who focuses on managing chargebacks. A professional solution can empower merchants with tools that streamline and simplify the chargeback dispute process and dramatically increase chargeback reversal rates. Fraud-management solutions can help merchants avoid chargebacks and better manage the cost of organized fraud when it happens. Dedicated chargeback and fraud management solutions like the services Accertify offers help merchants monitor transactions and focus on card requirements to win disputes, so you can focus valuable resources on core business initiatives.

A solid chargeback management solution helps protect your bottom line. Decide on a strategy in advance by weighing the costs, potential risks, and potential benefits of each approach, and have a plan in place before the first chargeback arrives. Winning a chargeback dispute can be challenging, but it isn’t impossible.