American Express ChargebacksHow an Amex Dispute Gets Escalated to a Chargeback & What to do About it

American Express is the third-largest card network in the US market. The company saw $828 billion in purchases occur on their network in 2019 (compared to $909 billion for Mastercard).

As a card network, the company is entitled to handle American Express chargebacks and disputes however they see fit. But, considering that they also operate as an issuing bank, and sometimes even as an acquirer, the Amex chargeback process can be a bit different from that used by Visa and Mastercard.

This article will discuss American Express chargebacks, from the pre-dispute stage through the resolution and representment process. We’ll also explain why Amex works a bit differently from their competitors, and provide merchants with a few tips to prevent Amex chargebacks before they happen.

Why Do Amex Chargebacks Happen?

It’s a cardholder’s responsibility to try and resolve disputes directly with a merchant. For instance, if a transaction seems unfamiliar, or there was a problem with the purchase, the buyer should contact the merchant directly. If the cardholder cannot resolve their dispute promptly and satisfactorily, though, Amex may elect to file a chargeback on the buyer’s behalf.

If a dispute can’t be resolved, Amex will either process a formal request for more information or file a chargeback and immediately remove the disputed funds from the merchant’s account, plus processing fees.

At that point, the merchant has 20 days to respond to the chargeback with any documents and supporting evidence they may have. This is the merchant’s only option is they want to refute the cardholder’s claim and recover their funds.

Once Amex receives the information, they will review the case and make a determination. The network will either remove the chargeback and return the merchant’s funds or substantiate the cardholder’s claims, and the Amex chargeback stands.

How Does the Amex Dispute Center Work?

Like their competitors Visa and Mastercard, American Express recently overhauled their dispute and chargeback policies. The aim of this move was to serve card members and merchants better, and hopefully avoid chargebacks when possible.

The American Express Dispute Center was created to combat common issues with their previous system and to provide a more transparent, faster, and more balanced dispute process. Now, Amex disputes are handled directly through an Amex-specific dispute resolution portal featured on their website.

The dispute portal allows buyers and sellers to communicate and resolve issues that result from Amex credit card transactions. Cardholders can use the Amex Dispute Center to:

• Report unauthorized transactions
• Open a billing dispute
• Check the status of a billing dispute
• Cancel a billing dispute

The American Express Dispute Center offers better clarity and understanding of the dispute process, integrated with an intuitive, easy-to-use platform. It offers cardholders a better way to resolve problems and, in some cases, can help protect merchants from chargebacks.

Why Are Amex Chargebacks Different?

Chargebacks on American Express cards serve the same function as other credit cards. Their chargeback process differs because it is typically more straightforward. The reason is simple: unlike larger rivals like Visa and Mastercard, American Express serves as an issuing bank and provides payment-processing services to merchants.

Amex continues to operate as both a card network and a bank. By doing so, they can directly issue their own branded cards to customers—or “card members”—without relying on third-party issuers.

American Express held strictly to that all-inclusive business model for a long time. No other US banks were allowed to offer Amex cards. The company softened this stance within the last few years, though. Select banks have been granted the ability to issue Amex cards. Also, 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. As a result, there’s still a good chance merchants will have to deal directly with Amex when it comes to chargebacks.

How Do Amex Disputes Work?

The  Amex chargeback process starts when a card member contacts American Express to dispute a transaction.

Since the company acts as both the issuer and card network, American Express will already have abundant information on the transaction available for review. Amex will examine the cardholder’s request, then direct it in one of three ways:

• 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 generally have sufficient in-house information to identify transactions as either legitimate or invalid. But, in situations where more data is needed, the merchant will be issued an inquiry requesting additional documentation.

What is an Amex Merchant Inquiry?

Remember: Amex is both a card network and an issuer. It’s in the company’s best interest to keep everyone happy, but  card members can take precedence.

The company will issue an immediate chargeback to the merchant in most cases. Few situations require an inquiry for more information. That said, Amex will sometimes submit a merchant inquiry to try and get more information. If an inquiry does get issued, the merchant can respond in one of four ways:

• Do nothing. Essentially admit culpability and authorize the chargeback.
• Issue a credit/refund, or supply evidence of a previously-issued credit.
• Issue a partial credit, with evidence supporting the reduced refund amount.
• Provide sufficient evidence to validate the original transaction.

The merchant can also ignore the inquiry, but this is never recommended. The chart below 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 quickly derail.

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

The American Express chargeback process begins with Amex issuing a chargeback, along with a reason code to explain the dispute to the merchant.

What are Amex Reason Codes?

Every card network features its own list of chargeback reason codes. These codes explain the reason why the chargeback was filed, and the reason the chargeback was approved.

American Express is incentivized to keep their customers happy. So, if a customer files an Amex chargeback, the company has good reason to side with their customer over the merchant.

If the customer’s story matches any of their predetermined reason codes, Amex is likely to let the chargeback go forward. It will then be up to the merchant to dispute erroneous or suspicious reason codes through a process called representment.

Learn more about Amex chargeback reason codes

Again, if a merchant finds fault with any reason codes given, it’s their responsibility to fight back. Neither the card network, nor the banks, will do it for them.

Fighting invalid chargebacks is critical. Our internal research suggests that roughly 60% of global chargebacks result from first-party sources like friendly fraud or cyber shoplifting. Merchants can’t afford to let illegitimate chargebacks slide under any circumstances. But remember: they will be required to prove their argument in the representment process with compelling evidence, and will only have a limited time in which to do so.

What are the Amex Chargeback Time Limits?

Standard procedure dictates that card members typically have 120 days from the transaction date to file a chargeback. The timeframe may be slightly extended in some instances involving Goods/Services Returned or Not Received. However, this will only be at Amex’s discretion.

Things work differently if the company is unsure about the claim. If they send a merchant inquiry instead, the merchant has 20 days to respond, either to accept the dispute or provide evidence that the claim is invalid (initiating representment). If the merchant fails to answer within this time frame, or if American Express views their evidence as insufficient, the dispute becomes a chargeback.

Like we referenced earlier, Amex serves as both an issuer and a card network in the same transaction. Thus, there are very few situations where they won’t have enough documentation to make a call to either reject a cardholder’s claim or go ahead with a chargeback.

If a merchant believes that a customer’s dispute is invalid or was issued incorrectly, they can contest it. The process, however, comes with strict deadlines:

• After an inquiry (request of information) is issued, the merchant has 20 days from the inquiry date to respond.
• If the inquiry response results in a chargeback issuance, they have 20 days from the chargeback date to contest the chargeback.
• After a chargeback is issued directly from the customer dispute, they have 20 days from the chargeback date to contest the chargeback.

Should Merchants Challenge All Amex Disputes?

Short answer: no.

Merchants cannot challenge any chargebacks resulting from genuine cases of merchant error or criminal fraud. They can only fight chargebacks tied to first-party sources like friendly fraud. If a merchant tries to re-present transactions resulting from fraud or merchant error, Amex will reject their case.

Second chargeback and pre-arbitration phases are not standard practice with American Express. They may be allowed in some cases, but guidelines for the process are flexible. In most cases, Amex’s response to chargeback representment is final.

Also, merchants should keep in mind that if their inquiry rate (number of inquiries as a share of total transactions) is too high, receiving inquiries will likely no longer be an option. American Express will escalate all disputes directly to the chargeback stage, with no input from the merchant.

Managing Amex Chargebacks

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 essential parts of chargeback prevention is clear communication with the customer. For example, merchants should:

• Ensure their customer service contact information is prominent and easy to access from multiple locations.
• Share the return or exchange policy and other terms of service before completing the checkout process.
• Always ask for the Card Identification Number (the four-digit security code on the card face) for card-not-present transactions.
• Use the Automated Address Verification service (the American Express version of AVS) to validate card member information.
• Process credits immediately when necessary, 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 merchants with cost-effective prevention and risk mitigation strategies. Contact us today to learn more.