Exploring the Chargeback-Dispute Dichotomy
You’re probably familiar with chargebacks to some degree. However, you sometimes hear this process referred to as a “chargeback dispute,” or simply as a “dispute.” This raises some questions: is a dispute the same thing as a chargeback?
In this post we’ll look at the subtle differences between chargebacks and customer disputes. We’ll also explore why the differentiation matters, and explain why you should strike the phrase “chargeback dispute” from your vocabulary entirely.
Chargebacks vs. Customer Disputes
The terms “chargeback” and “customer dispute” are often used interchangeably. While it doesn’t generally cause problems, they’re not quite the same thing. To put it in simple terms: most chargebacks start with a customer dispute, but not every customer dispute results in a chargeback.
A payment dispute means that the cardholder challenges a transaction on their card statement. They may claim the transaction amount is incorrect, for example, or that an order was never delivered. In some cases, the customer doesn’t remember the purchase at all. Whatever the reason, the cardholder contacts the bank to “dispute” the legitimacy of the charge. A dispute is an action taken by a cardholder to challenge a transaction appearing on the cardholder’s statement.
In contrast, a chargeback is a forced payment reversal. It results from a payment card dispute, and is carried out at the banking level. The issuer investigates a charge, determines it is illegitimate, withdraws the transaction amount from your account, and returns it to the cardholder. This happens with no input on your part.
In short: a dispute is an action, while a chargeback is a process.
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It’s important to note here that calling the bank should be a last resort for the cardholder. If a customer discovers what appears to be a discrepancy, the first move should be to contact you to resolve the issue.
Chargeback Dispute: Where Confusion Arises
Having two terms that are used interchangeably by merchants can create confusion. To make matters worse, other stakeholders like banks also tend to be inconsistent with their terminology. Some institutions (likely those that are part of the Visa network) may use “dispute” exclusively, while others prefer “chargeback.” Still others use the terms interchangeably.
In the recently-published 2021 Chargeback Field Report, 36% of merchants said they used the term "chargeback," while 21% said they used "dispute" to refer to the same process. 43% of merchant respondents said they used both interchangeably.
Also, as we mentioned, not every dispute ends up in a chargeback. If the cardholder contacts the bank with a question, the bank may be able to satisfactorily answer the cardholder’s question. Banks’ investigations may prove the claim invalid, and special chargeback alert programs can provide you a chance to offer a refund, thereby halting the chargeback process.
That doesn’t happen in every case, though; for instance, the cardholder may not recognize your billing descriptor on his or her statement and claim that the charge was unauthorized as a result. In other cases, the customer calls the bank to get more information about the charge, and the bank takes preemptive action by filing a chargeback on the customer’s behalf. In both cases, the cardholder’s act of contacting the bank is considered a customer dispute.
Chargebacks, Disputes & Representment
Luckily, you have a built-in mechanism to fight back when customer disputes lead to invalid chargebacks. This process is called representment.
Each time you process a payment card transaction, the sale is "presented" to the bank. Thus, "representment" is the act of submitting a transaction a second time; you literally “re-present” it. When you submit a transaction for representment, you’re telling the bank that the original transaction was valid and should not have been overturned.
Unfortunately, this is where the terminology gets even more confusing.
In the past, representment was sometimes referred to colloquially as a “chargeback dispute” by some merchants. This is because you would have been disputing the bank's actions and the resulting loss of funds. Recent language changes by card networks like Visa have made it confusing to refer to the representment process as a chargeback dispute, though, so these phrases are no longer in official use.
People who have dealt with chargebacks for years may still default to the legacy term. It’s important to understand, though, that it’s now considered more accurate to think of representments as “challenging” or "fighting" a chargeback, not disputing it.
If we think of a chargeback as the process of overturning a purchase, then representment is essentially the act of overturning the chargeback. You’re saying that a mistake was made, and asking the bank to nullify the chargeback and honor the original transaction. You’re asking for the return of what rightfully belongs to you, and the truth is that failing to challenge invalid chargebacks can cost much more in the long run.
You want to be clear on all the terminology you use. The chargeback process is confusing enough already; there's no need to add additional complexity for no reason.
The fact that the terminology is not standardized throughout the industry is a major drawback. Merchants end up trying to research their problems, but may be using the wrong word. This could mean missing out on the answers they need, or even deploying the wrong solution.
For instance, failing to engage chargebacks through the representment process could mean you end up losing revenue and encouraging fraudulent behavior. In fact, nearly half of successful friendly fraud cases result in offenders filing another illegitimate chargeback within 90 days.
Have other questions about chargeback terminology? Want to learn more about practices you can implement to prevent disputes and chargebacks? The experts at Chargebacks911® can create a custom comprehensive chargeback management solution catered to your business's needs. Contact us today for a free chargeback analysis and see how much you could be saving.
What is a chargeback dispute?
“Chargeback dispute” is an obsolete term. It once referred to the act of challenging a chargeback; this process is now more accurately known as “representment.”
What is a cardholder dispute?
A cardholder dispute is a process by which a cardholder contacts the issuing bank to dispute a charge to his or her account. The bank investigates the dispute, and may either reject the cardholder’s claim, or file a chargeback recover the funds.
Are chargebacks and customer disputes the same thing?
Not exactly. The terms are often used interchangeably, but a customer dispute refers to the act of contacting the issuer to question or deny a payment card transaction. Failure to resolve the issue could result in a chargeback, which is a separate process.
Is a chargeback the same thing as a refund?
Not at all. A refund reverses the entire transaction; goods are returned to you, and money is refunded to the customer. With a chargeback, only the payment is reversed. This means you lose the transaction amount, the merchandise, and your shipping and processing costs. You also pay an additional chargeback fee assessed by the bank.
Is a representment the same as a chargeback dispute?
Both terms refer to the process by which a merchant challenges the legitimacy of a chargeback. Due to card network changes in terminology, however, the legacy phrase “chargeback dispute” can cause confusion, and should no longer be used.
What should I do to prevent chargebacks?
There are basic steps to take, including:
- Engage in practices to reduce friendly fraud
- Improve customer service
- Leverage fraud detection tools to stop criminal fraud
- Implement business best practices.
For more ideas, download our free chargeback prevention guide.
What do I need to fight illegitimate chargebacks?
In addition to a rebuttal letter explaining your position, you’ll need compelling evidence to support your claim. This could include:
- Sales receipts
- Order forms
- Tracking numbers
- Transcripts of communication between you and your customer
- Delivery confirmation
- Records of previous transactions that were not disputed
For more ideas, download our free chargeback rebuttal guide.