Chargeback Disputes: What's the Difference Between Disputes & Chargebacks? How Does the Process Work?
Anyone can get a little lost when trying to understand banking terminology. There are literally hundreds of terms passing from one party to another every single day.
Some of them sound so similar, they might as well mean the same thing. In other cases, though, you might have two words that appear to mean the same thing, but are actually different. The words “chargeback” and “dispute” are an example of this.
The phrase “chargeback dispute” is a common misnomer. While it doesn’t generally cause problems, and although they are part of the same process, these two words mean different things.
In this article, we’re gonna clarify the situation for consumers and merchants, and give you a better picture of the dispute process.
Recommended reading
- Credit vs. Debit Card Disputes: Are They The Same Thing?
- Credit Card Disputes: The 2023 Chargeback Process Guide
- How Do Banks Investigate Disputes on Credit Cards?
- Authorization Reversals: Lost Sales are NOT Always Bad?
- Dispute Management System: Choosing the Right Fit for 2023
- What is a Transaction Dispute? Why Do Customers File Them?
A Brief Rundown on “Chargeback Disputes”
Since both terms are easy to confuse, let’s start by breaking them down, one by one.
The terminology is set by the different card networks, which also determine how and when they are used. Some institutions (likely those that are part of the Visa network) may use “dispute” exclusively, while others prefer to use only the term “chargeback.” Still, others use the two terms interchangeably.
To put it in simple terms: most chargebacks start with a customer dispute, but not every customer dispute results in a chargeback. A dispute is an action, while a chargeback is a process. It could be fair to consider a dispute as the first stage in the chargeback process.
What is This “Dispute-to-Chargeback” Process?
Once a customer decides to challenge a charge on their credit card statement, the dispute process is initiated. At this stage, action has been taken by the cardholder to undo a charge. If the bank agrees with the cardholder regarding the disputed transaction, the dispute will be elevated to the chargeback stage.
Dispute Stage
Step #1 | Initial Dispute
The cardholder identifies an invalid charge. This could be a fraudulent charge, or one for which the promised goods or services were not provided. The cardholder challenges the transaction by contacting their issuing bank.
Step #2 | Provisional Refund
A conditional refund is issued by the bank to the cardholder.
Chargeback Stage
Step #3 | Chargeback Initiated
The bank files a chargeback in response to the customer dispute. The issuing bank sends a message to recoup their funds from the merchant’s acquirer. They also assign a numeric reason code for the chargeback, then electronically transmits all the chargeback information to the acquirer.
Step #4 | Merchant Chargeback Notification
The acquirer receives the chargeback notification and forwards it to the merchant. The acquirer will also debit the disputed amount, plus fees, from their merchant’s account. The merchant also receives a chargeback advice letter, instructing them on how to proceed.
At this point, the merchant has the option to do one of two things. First, they can agree with the cardholder’s claim and accept the chargeback. But, if the merchant believes the chargeback was an error, or that the cardholder made an invalid claim, they can fight it through the representment process.
Learn more about chargeback representment
Valid Reasons for a Chargeback Dispute
Okay, but what makes a chargeback dispute claim “valid” or “invalid?”
The simple answer to this question is intention. If a cardholder has a legitimate reason to file a dispute with their credit card company, and they have the evidence to prove it, then their dispute is valid.
There are two fundamental, valid reasons to dispute a charge:
Invalid Reasons for a Chargeback Dispute
Conversely, there are many reasons a cardholder should not dispute a transaction. These include:
- Convenience
- Refund took too long
- Forgetting about the purchase
- Forgetting about a recurring payment
- Not recognizing the merchant’s billing descriptor
- Buyer’s remorse
- Waiting too long to file a refund
- Confusing chargebacks with refunds
- A household member made a purchase without permission
Cardholders should never bypass a merchant for a forced bank refund. The law allows consumers to dispute charges when the merchant has made a legitimate error or has failed to uphold their end of a transaction. This does not include items which consumers simply don’t like, or which they decide are unneeded, though.
How to Win a Chargeback Dispute: Cardholders
As a cardholder, the best approach to take here will depend on the claim being made.
Keep in mind, the merchant has the option to provide evidence that may invalidate the cardholder’s claim. In these cases, the issuing bank may reverse the provisional credit and return the funds to the merchant, thereby negating the attempted refund. If the cardholder’s claim is valid, however, and a merchant doesn’t attempt to reverse it, the issuing bank will file the dispute as normal.
Cardholders should ensure that they have their facts in order before calling the bank, and that they have documentation handy to support their claim. They should also pay attention to chargeback time limits; cardholders often have 120 days to dispute a charge, but this can vary substantially depending on the claim.
Learn how to dispute a chargeHow to Win a Chargeback Dispute: Merchants
For merchants, the dispute and chargeback processes are slightly more complex. They are only allowed to challenge illegitimate chargebacks (cases of so-called “friendly fraud”). Often, friendly fraud can be the result of a misunderstanding of the merchant’s policies on behalf of the cardholder, or can be purely intentional.
Also, the merchant must be able to provide evidence that the cardholder’s claims are invalid.
This evidence must be submitted in a formalized manner, along with a rebuttal letter. Some of this information will be outlined in the acquirer’s chargeback advice letter, instructing sellers how to respond. Merchants are on a very tight timeframe for submitting a response, though; often less than a week.
Learn how to fight chargebacks
5 Tips to Help Prevent Chargeback Dispute Claims
It costs merchants time and money to fight chargebacks, and there are no guarantees that the merchant will win. So, here are a few tactics merchants can employ now to prevent disputes and chargebacks later:
Disputes and chargebacks are complex issues. Neither has a “one-size-fits-all” solution.
Frankly, what works for some merchants may not work for others. This is why it’s imperative to not only have a fraud and chargeback prevention plan in place, but also to diversify those options as much as possible.
With the industry’s first and only full-service chargeback management solution, Chargebacks911® is uniquely qualified to can help merchants prevent chargebacks, recover revenue, and grow their businesses. Contact us today to learn about our no-obligation ROI analysis.
