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American Express Chargebacks

Why American Express Chargebacks are Different

Chargebacks on American Express (Amex) cards serve the same function as chargebacks on other credit cards. The process is different, though, in that it is typically more straightforward. The reason is simple: unlike larger rivals like Visa and Mastercard, American Express serves as an issuing bank in addition to providing card payment-processing services to merchants.

By operating as both the card network and the bank, Amex can directly issue its own branded cards to customers—or “card members”—without relying on third-party issuers. At the same time, the company is able to process payments for merchants. At one point, in fact, American Express transactions could only be processed through Amex.

American Express held strictly to that all-inclusive business model for a long time. No other US banks were allowed to offer Amex cards, and merchants who accepted Amex had to use American Express processing exclusively. The company softened this stance within the last few years, though. Select banks have been granted the ability to issue Amex cards, while certain merchants are now permitted to use the same processor for American Express transactions that they use for processing other cards.

That said, Amex is still one of the largest issuers of Amex-branded cards. Thus, when it comes to chargebacks, there’s still a good chance merchants will have to deal directly with Amex. With that in mind, let’s take a closer look at how American Express chargebacks differ from those sustained by other major card brands.

Why is American Express Different?

Consumers often think of their various credit cards as being interchangeable. But, if we look behind the scenes, American Express—and it’s newer rival, Discover—differ considerably from Visa and Mastercard. Those brands were built on an extensive association of issuing and acquiring banks that interact with cardholders on behalf of the network.

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When American Express was founded in 1850, however, it wasn’t even a credit card company. Originally an express mail service, the brand introduced the concept of traveler’s cheques around the turn of century. This is where Amex first established themselves in the world of financial services.

American Express later offered one of the first credit cards on the market. Unlike companies that would follow, Amex handled all issuing and processing chores themselves: the only way a merchant could accept American Express payments was to use Amex for processing.

On the one hand, this created an inconvenient situation for merchants, who couldn’t simply use the same processor for all card brands. When it comes to chargebacks, however, the dispute and representment systems were more streamlined, leading to a process that is typically faster due to fewer parties being involved.

American Express’ Chargeback Process

The chargeback process starts when a card member contacts American Express to dispute a transaction. Card members typically have 120 days from the transaction date to file a chargeback. The timeframe may be slightly extended in certain cases involving Goods/Services Returned or Not Received, but only at Amex’s discretion.

Since the company acts as both the issuer and card network, American Express will already have an abundance of information on the transaction available for review. Their first move involves working directly with the customer to try and resolve the issue. From there, Amex will take off one of three options:

  • Dismiss the case and inform the card member that the charge is valid.
  • Decide the customer’s claim is legitimate and issue an immediate chargeback.
  • Send an inquiry to the merchant to gather more information about the case.

American Express will normally have sufficient in-house information to identify transactions as either legitimate or invalid. This resolves the dispute through either an immediate chargeback filing or a dismissal of the case. In situations where more data is needed, an inquiry will be issued to the merchant requesting additional documentation.

The American Express Merchant Inquiry

It’s in Amex’s best interest to keep card members happy. As a result, the company will issue an immediate chargeback to the merchant in most cases; few situations require an inquiry. If an inquiry does get issued, however, the merchant can respond in one of four ways:

  • Authorize the chargeback, essentially admitting culpability.
  • Issue a credit/refund (or supply evidence of a previously-issued credit).
  • Issue a partial credit (and evidence to support the reduced refund amount).
  • Provide sufficient evidence to validate the original transaction.

The merchant can also choose to ignore the inquiry, but this is never recommended. This chart shows the basic lifecycle of an American Express inquiry. As you can see, the path to reversal is more complex, with several points where the process could easily derail.

Merchants have 20 days to respond to an inquiry or a chargeback. If the merchant provides a response within the timeframe, with enough evidence to support the original charge, Amex will stop the chargeback. If the response is late or does not include sufficient supporting evidence, the chargeback will proceed, and the merchant’s account will be debited.

Amex Disputes and Representment

The best chance merchants have to challenge an American Express chargeback—described by Amex as “requesting a chargeback reversal”—is the inquiry process. When the company files an immediate chargeback, it’s generally considered the final outcome in card member disputes.

Even worse, businesses with a high-risk factor or with a disproportionate number of chargebacks may be placed into an American Express chargeback monitoring program. Amex will stop sending inquiries altogether for those merchants, and cases will automatically advance to an immediate chargeback.

Mandatory enrollment in one of these programs also means merchants forfeit the privilege of requesting a chargeback reversal. For these merchants, the only way to challenge a chargeback is to provide evidence that you have already issued a refund to the customer, thereby eliminating the need for a forced chargeback.

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The chances of getting an American Express chargeback overturned are limited. That said, it can happen under the right circumstances. For example, a merchant could successfully dispute a chargeback if there were mistakes in the processing of the transaction.

The process works much the same way the inquiry does in these scenarios. Timely responses with the correct documentation could lead to a reversal, while a late or incomplete response means the chargeback will stand. It should also be noted that chargebacks issued for no-reply are not reversed.

Like Visa and Mastercard, Amex assigns a reason code to each chargeback that shows the given cause for the card member’s claim. For more information, on these indicators, check out our full article on American Express reason codes. Understanding these codes will help but remember: the reason code seldom gives the full story behind the chargeback.

The Importance of Prevention

Even if merchants had a better chance of winning an American Express chargeback reversal, the best strategy is still to prevent them from happening in the first place.

One of the most important parts of chargeback prevention is clear communication with the customer. For example:

  • Make sure your customer service contact information is prominent and easy to access from multiple locations.
  • Share the return or exchange policy and any other terms of service before completing the checkout process.
  • For card-absent transactions, always ask for the Card Identification Number (the four-digit security code on the card face).
  • Use the Automated Address Verification service (American Express’s version of AVS) to validate card member information.
  • If you must process a credit, do so immediately and let card members know when they will receive the refund. A refund isn’t ideal, but it’s far better than a chargeback.

Implementing these practices may help prevent some disputes. That said, merchants ultimately need a comprehensive chargeback management strategy that addresses the issue from all angles. Chargebacks911® has a wealth of experience-based knowledge and expertise in providing cost-effective prevention and risk mitigation strategies for merchants. Contact us today to learn more.


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