Understanding American Express Chargebacks
Consumers might use their various credit cards interchangeably, but for a merchant, there is a difference between an American Express chargeback and a chargeback from one of the card associations.
Let’s take a closer look at how American Express chargebacks differ from those sustained by Visa and MasterCard.
American Express: Card Issuer and Network
Unlike Visa and MasterCard, American Express isn’t part of an association that has members to interact with cardholders on its behalf.
Rather, American Express is both the card network and issuing bank; the network has their own financial institutions issue the credit cards to consumers.
The American Express Chargeback Process
Like a MasterCard or Visa chargeback, the process starts when a cardmember contacts American Express to dispute a transaction.
Using the abundance of information available (gathered while acting as both the issuer and card network), American Express will review the dispute and handle the situation in one of three ways.
American Express will…
- Dismiss the case and inform the cardmember that the charge is valid.
- Send an inquiry to the merchant.
- Issue an immediate chargeback.
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Inquiries Instead of Copy Requests
MasterCard and Visa often use copy requests to gain more information from the merchant. Similarly, American Express makes inquiries with the merchant.
Usually, American Express is able to settle all transaction disputes based on the in-house information. In the rare situations where the financial institution doesn’t have the necessary information, an inquiry will be issued to the merchant.
The merchant can respond in one of four ways:
- Authorize the chargeback.
- Issue a credit 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 charge.To validate the charge, the merchant will need to provide sufficient evidence.
Four outcomes are possible when merchants are issued inquiries:
- The inquiry response successfully settles the dispute in the merchant’s favor.
- A chargeback is issued because the merchant failed to respond to the inquiry or didn’t reply within the time limit.
- A chargeback is issued because the merchant replied to the inquiry with inaccurate or insufficient documentation.
- A chargeback is issued because the merchant authorized it.
In most cases, American Express will issue an immediate chargeback to the merchant; few situations require an inquiry. In fact, if a merchant experiences high inquiry rates, American Express will advance the dispute process by issuing immediate chargebacks to that merchant. Inquiries will no longer be sent.
The inquiry process is also bypassed if the merchant has been added to one of the American Express chargeback monitoring programs. Enrollment in these chargeback programs usually results from elevated fraud or chargeback rates.
Disputes and Representment
Merchants who process American Express transactions have very few representment options. Usually, the only chance merchants have to prove their case is during the inquiry process. In most cases, a chargeback is considered the final outcome in cardmember disputes.
There are certain situations where it is possible to request a chargeback reversal, though the ability to fight a chargeback is limited.
Reasoning for Cardmembers’ Claims
Like the card associations, American Express chargebacks are accompanied by reason codes. These reason codes explain why the consumer had a grievance with the transaction.
The assigned American Express reason code helps the merchant determine representment options (or, as American Express calls it, a chargeback reversal).
The Importance of Prevention
Because there are very little representment options available with American Express chargebacks, it is best to prevent them from happening in the first place.
American Express offers the following tips for preventing chargebacks:
- Process credit immediately and let cardmembers know when they will receive the refund
- Share the return or exchange policy and any other terms of service before completing the checkout process
- Ask for the Card Identification Number (the card security code printed above the embossed numbers on the face of the card)
- Use the Automated Address Verification service (American Express’s version of AVS)