What is the Credit Card Dispute Resolution Process? How Can Merchants Recover Their Money?
Here’s an interesting figure: nearly half of consumers in the US have disputed at least one charge on their credit card statement at some point.
It could be that the item didn’t work as we expected it to, or that it wasn’t delivered as described. Maybe, the issue arose due to misleading merchant policies. Or, maybe it was a case of chargeback abuse (commonly known as friendly fraud).
Whatever the case, the fact is that millions of cardholders can initiate a dispute with a few taps in their banking app. This makes the process as painless and uncomplicated as possible…for them, at least. For merchants, there are unfortunate side effects of the credit card dispute resolution process existing as it does now, including fees, abuse, and wasted resources.
In this article, we’ll examine the credit card dispute resolution process and how it works. We’ll also examine each step to see why chargeback resolution is so difficult, and what you can do about it as a merchant to recover revenue and protect your business.
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- Chargeback Form Templates for a Better Chargeback Response
What is Credit Card Dispute Resolution?
- Credit Card Dispute Resolution
Cardholders have the right to dispute fraudulent or inaccurate charges on their credit card statement with their issuing bank. Credit card dispute resolution is the process of resolving these disputes, usually involving collaboration between merchants and banks.
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Cardholders are encouraged to reach out to their issuing bank if they suspect fraud or abuse. Odds are, the bank will approve a dispute with relatively light investigation of the cardholder’s claim. In many cases, it can be cheaper and more convenient for banks to approve disputes than it is to investigate the matter further.
This is great news for cardholders, as it genuinely does help to track and resolve incidents of fraud. For merchants, on the other hand, this can lead to a marked increase in chargebacks. These incur hefty fees and other headaches that are difficult to manage.
The good news is that you can fight back if you believe a chargeback was not filed for a valid reason. Chargeback dispute resolution, or representment, is the process you’d use to pursue this option.
When is a Credit Card Dispute a Valid Option?
First, let’s examine how the credit card dispute process should work.
Chargebacks fulfill a valuable role in the payments ecosystem. They were designed to protect cardholders from fraud and shady merchant practices. For example, if an item was never received, was damaged, or was not the item ordered— cardholders have a right to dispute the charge, in accordance with the Fair Credit Billing Act (FCBA).
Disputes can help customers manage billing issues with their credit card provider, stabilize credit scores, and help investigate and fight fraud. When used properly, payment disputes should keep everyone honest and accountable for mistaken or fraudulent transactions, without further complication.
Having said that, disputes are not meant to resolve matters like customer service complaints. Simply not ‘liking’ an item you agreed to purchase, or being impatient with established fulfillment and shipping times, are not valid reasons to seek a credit card dispute. Actions like these constitute friendly fraud, which is a growing problem that costs merchants billions of dollars each year.
The Steps of the Credit Card Dispute Resolution Process
Every step of the payment dispute resolution process offers specific challenges that can make it more convoluted. It can also provide an unfair advantage to the cardholder. So, to combat these shortcomings, merchants should approach every step of the process with the understanding that, fairly or not, the burden of proof ultimately rests with them.
Let’s dive into each step, it’s challenges, and best practices to stay ahead of the curve.
A dispute begins when the cardholder challenges a transaction with their issuing bank. Each individual transaction presents a separate potential dispute. If more than one transaction is in question, multiple disputes may be filed.
In this step, a conditional refund will be issued to the cardholder. The issuing bank will issue a chargeback, debiting the merchant’s acquiring bank for the full amount of the original transaction, along with any applicable fees. The acquirer then recoups the funds from the merchant. The issuer also provides a chargeback reason code, which is meant to explain the reason for the dispute.
Opting to Fight
You must decide to either respond to the credit card dispute, or simply accept the loss. If you opt to fight the chargeback, you need to begin working immediately to compile the documentation you need to prove your case.
The Representment Package
You have to prepare your response to a credit card dispute or chargeback. Documentation you require for this process will include compelling evidence, along with a rebuttal letter and other documentation, which you must submit to your acquiring bank (literally “re-presenting” the purchase).
Final Review & Submission
At this stage, the acquiring bank will forward the chargeback dispute information to the issuing bank. The issuer will then review the information, comparing it to the statements and claims made by the cardholder.
After you re-present the transaction, one of three things will happen:
- You win: Your claim is validated by the issuing bank. The funds are pulled from the cardholder’s account and returned to you.
- The cardholder wins: The bank upholds the chargeback, and the funds are not returned to your account.
- You win, but a second dispute is filed: The issuer has the right to file a second chargeback for the same transaction. Reasons for a second filing might include the discovery of new information or a change of the reason code.
What Makes Credit Card Dispute Resolution So Difficult?
Anything with a ton of moving parts is going to eventually run into trouble.
The credit card dispute resolution, also known as the chargeback resolution process, involves multiple different parties. From the initial customer complaint all the way through arbitration, there are several key players involved, including:
- The Cardholder: The owner of the card involved in a transaction.
- The Merchant: The party who sold the goods or services being disputed.
- The Issuer: The bank who issued the card to the cardholder.
- The Acquirer: The bank tasked with acquiring payment on the merchant’s behalf.
- The Card Network: The card brand (Visa, Mastercard, etc.) that oversees the process.
For merchants, a dispute requires input at every stage of the process. It imposes strict timelines, and resolution progression that is anything but linear. To make matters worse, each provider is going to have their own set of rules regarding disputes. These factors can further complicate a system that is already inherently flawed in several ways. It’s:
- Subjective: The outcome of each credit card dispute is determined by humans that issue judgments as they see fit.
- Outdated: The Fair Credit Billing Act (FCBA) was adopted in a pre-internet era. The system is no longer suited to an increasingly digital global marketplace.
- Fallible: Banks operate under the assumption that the customer is always right. This makes the dispute resolution process decidedly one-sided.
- Vulnerable: The ease of credit card dispute resolution for cardholders can lead to elevated levels of friendly fraud and other dishonest practices.
- Damaging: Merchants either go under, or increase prices to mitigate losses, and cardholders end up paying more while having fewer choices.
It’s true that this process has problems. At the moment, though, it’s the only system available to resolve credit card disputes.
All is not lost, however; revealing the many flaws built into the dispute process can vastly improve your ability to overcome them. Understanding how best to navigate the dispute process can save merchants both time and money, and better prepare their businesses for success. Knowledge, as they say, is power.
Chargeback Rebuttal Letters
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6 Easy Tips to Overcome Common Merchant Dispute Challenges
As we’ve discussed, the issuing bank is not on your side. The cardholder is their customer. It behooves the issuer to satisfy the cardholder’s claim by initiating a dispute. So, who’s on your side in the credit card dispute resolution process?
Below, we’ve outlined tips that can help you eliminate issues in the dispute process and improve your odds of successful credit card dispute resolution:
Know the Rules
It’s hard to resolve disputes in your favor if you don’t understand the system. Bank and card network rules change constantly, so keep tabs on all updates.
Having quick access to the right documentation is vital. You’re on a tight deadline; it’s important that you can recall the information you need right away when you need it.
Know the Reason Codes
Each network or payment service has its own set of chargeback reason codes. Even in friendly fraud cases, your response needs to address the given chargeback code.
Only Fight When Appropriate
You can’t fight chargebacks that result from genuine criminal fraud or merchant error. Only try to do so if you know it’s a case of friendly fraud.
Take a “Hands On” Approach
Relying on automated tools for chargeback responses won’t cut it. You need human insight to compile strong cases for each individual dispute.
Be sure you’re tracking the right key performance indicators (KPIs). Regardless whether you win or lose a dispute, tracking your success will help refine processes and develop better strategies.
The Next Step: Professional Credit Card Dispute Resolution
There are a lot of hurdles to jump throughout the credit card dispute resolution process. To complicate matters further, chargeback regulations are constantly changing. Is it any wonder that managing chargebacks and dispute resolution can be a full-time job?
Thankfully, it’s not a job that you have to do alone.
Hiring a chargeback expert can make a huge difference in your win-rates and keeping chargeback ratios low. If your business is on the receiving end of a growing number of chargebacks each month, then professional assistance might be what you need. The solution is just a click away.