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Payment Card Dispute

Payment Card Disputes: the Ultimate Merchant’s Guide to Protect Your Business

What is a payment card dispute? In simple terms, it’s a situation in which a cardholder reaches out to their issuing bank to demand that a charge on their card statement be reversed. This is done through a process commonly known as a chargeback.

There’s a lot more to payment disputes than a simple complaint, though. In this post, we’ll take you through what you need to know about payment-card disputes. We’ll examine why cardholders dispute card payments. We’ll also look at valid—and invalid—reasons for a chargeback request, and offer some tips that may help you prevent your next card dispute.

What is a Payment Card Dispute?

Payment Card Dispute

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A payment card dispute is a situation in which a cardholder reaches out to their issuing bank to demand that a charge on their card statement be reversed.

One thing we should address upfront is confusion about the terms “chargeback” and “customer dispute.” They can be used interchangeably by merchants, though they don’t always refer to the same thing.

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 charge.

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. A dispute is an action, while a chargeback is a process.

This is made more confusing by the fact that Visa now uses the term “dispute” in place of chargeback in their card network rules. This is probably why, in the recently published 2021 Chargeback Field Report, 43% of merchant respondents said they used both interchangeably.

Why Do Cardholders Dispute Charges?

The 1974 Fair Credit Billing Act establishes that cardholders in the US have a legal right to dispute illegitimate charges on their statements. This can cover a variety of scenarios. For instance, a cardholder can dispute a charge if:

  • The transaction in question was unauthorized.
  • A transaction was billed twice, or there were other clerical errors.
  • The goods or services in question didn’t match what the merchant promised.
  • The goods purchased never arrived, or a service was never provided.
  • The merchant violated terms that were agreed to at the time of a transaction.

This is not an exhaustive list. If we examine the list of Visa reason codes or Mastercard reason codes, we see that there are dozens of reasons a cardholder might give for disputing a charge. In any of these scenarios, the cardholder could contact the bank and launch a payment card dispute. The bank would then file a chargeback on the cardholder’s behalf and claw back the funds from the transaction.

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Of course, if a dispute arises because of something that you did (or did not do), then the cardholder has a responsibility to contact you before reaching out to the bank. The goal should be to resolve any potential payment disputes directly with the cardholder before the bank gets involved.

If a transaction is a genuine case of payment card fraud, then it will be easier for you—and the cardholder—to simply refund the charge. In many cases, the transaction in question might even be valid; maybe the cardholder authorized the purchase and simply forgot, for example. If the cardholder contacts you before disputing the payment, you can provide more information and, hopefully, resolve the situation before it escalates.

Payment Disputes & Friendly Fraud

Of course, not every customer's claim is legitimate. Chargebacks filed as the result of an invalid payment card dispute are referred to as “friendly fraud” chargebacks. Unfortunately, these chargeback scams are becoming more and more of a problem every year.

According to the same 2021 Chargeback Field Report cited above, the majority of merchants said that friendly fraud was on the rise between 2018 and 2021. Among those, the average response noted a 23% increase in friendly fraud overall. Even this figure might undersell the problem, as most merchants can’t identify friendly fraud effectively.

Friendly fraud works by hiding behind fake cardholder claims. This means the reason code attached to the transaction will not reflect reality. Merchants have to look past the reason code to spot friendly fraud, and most simply don’t have the time, resources, or data analysis capacity to do that.

Friendly fraud is no a small matter; it carries serious consequences for you as a merchant. Each payment dispute that progresses to the chargeback stage will result in lost revenue and merchandise, higher overhead costs, and added fees assessed by the bank. Friendly fraud adds up over time, resulting in a higher chargeback ratio, which could jeopardize your entire business.

Friendly fraud is going to continue to be a major problem for merchants in the future. Our data suggest that 61% of all transactions disputed by cardholders are going to be cases of friendly fraud by 2023.

Invalid Reasons to Dispute a Charge

As we've seen, payment disputes are an important consumer protection mechanism. However, industry regulations have not kept pace with rapid changes in technology and payment options. This allows cardholders to abuse their dispute rights, turning the process into a tool to commit fraud, rather than prevent it.

Cardholders might initiate a payment card dispute for any of a number of invalid reasons:

  • The consumer uses a chargeback to avoid a restocking or handling fee.
  • The consumer has “buyer’s remorse.”
  • The return process seems too cumbersome.
  • The consumer wasn’t patient enough to wait for (or didn’t understand) the delivery schedule.
  • The consumer didn’t act promptly and the return time limit has expired.
  • A family member made the purchase but the cardholder doesn’t want to pay the bill.
  • The cardholder forgot about or didn’t recognize the transaction.

Even worse, there are some consumers who initiate purchases fully intending to dispute the card payment later. This is a practice known as cyber shoplifting, and it’s basically an attempt to abuse the chargeback process to get something for free.

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50 Insider Tips to Preventing More Chargebacks

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Preventing Legitimate Payment Disputes

Fortunately, there are steps you can take to prevent many payment card disputes before they happen. Some of these include:

Prioritizing Customer Service

Prioritizing Customer Service

Provide live customer service as many hours a day as possible (24/7 service is best). Use live phone operators. Also, respond quickly to all email and social media inquiries.

Make it Easy to Find Your Contact Info

Make it Easy to Find Your Contact Info

Post your contact information on every page, and make it easy for customers to find. This should include your customer service email address, phone number, and links to all social media platforms you use.

Make Your Return Policy Easy to Understand

Make Your Return Policy Easy to Understand

Your return policies need to be clear, concise, and obvious. This is especially true if some items are non-returnable. Your policy should be flexible to handle seasonal changes in activity.

Clarify Shipping Policies

Clarify Shipping Policies

Your fulfillment and shipping policies should be as accessible as your contact information. Thoroughly explain timeframes for order processing, and offer multiple shipping options with pricing and cut-off­ times for each.

Communicate Consistently

Communicate Consistently

Send an automatic email that acknowledges each order, along with shipping and expected arrival dates. If a customer makes a social media comment (good or bad), let them know it was heard, and what steps to take next.

Provide Accurate Product Descriptions

Provide Accurate Product Descriptions

Check service and product descriptions for accuracy. Try to anticipate customer questions, and answer them in your descriptions. Post multiple hi-res pictures that show the product from all angles.

Avoid Clerical Errors

Avoid Clerical Errors

Instruct staff to double-check all entries. Avoid manually keying information by hand when possible; if you have to enter information manually, be extra wary of any mistakes, and audit the information multiple times.

These are just some basic practices that can help you prevent a payment card dispute. You’ll find dozens of more strategies you can use to stop chargebacks before they’re filed, simply by downloading our 50 Insider Tips for Prevent Chargebacks guide.

What Can You Do About Invalid Disputes?

So, you now know some basics for preventing payment disputes. What about friendly fraud, though? If cardholders file friendly fraud chargebacks for invalid reasons, how are you supposed to stop them?

The short answer: you can’t.

Some best practices outlined in our 50 Insider Tips guide can help mitigate friendly fraud risk. For instance, the way in which you set up the billing descriptor that appears on your customer's card statements could be a major catalyst to either produce—or prevent—friendly fraud chargebacks. Generally, though, you can’t reliably prevent friendly fraud. This is because a friendly fraud transaction is, in effect, a legitimate purchase until the second the cardholder disputes it.

What you can do, however, is use the representment process to challenge chargebacks resulting from faulty disputes. Representment allows you to collect evidence and literally “re-­present” the transaction to the bank.

That said, representment is a complex, time-consuming process. Many merchants simply don’t have the time or resources to do it on their own. This is why we strongly recommend partnering with a third-party solution provider to help manage chargebacks.

At Chargebacks911, we offer the industry’s leading fully managed chargeback solution. We take a holistic approach to fighting chargebacks, identifying dispute claims by their authentic sources, then deploying solutions to fight friendly fraud and prevent more disputes in the future. Chargebacks911 offers revolutionary dispute management technology, plus the industry’s highest win rates—all backed by a 100% ROI guarantee.

Don’t risk losing money on your next payment card dispute. Contact Chargebacks911 today and discover how much you can save.


FAQs

What is a payment card dispute?

A payment card dispute is a situation in which a cardholder reaches out to their issuing bank to demand that a charge on their card statement be reversed.

Why do cardholders dispute payments?

There are several valid reasons why a cardholder would dispute a charge. For instance, the buyer may claim that the transaction in question was unauthorized, that it was billed twice, or there were other clerical errors.

What happens when a customer disputes a charge?

Each payment dispute that progresses to the chargeback stage will result in lost revenue and merchandise, higher overhead costs, and added fees assessed by the bank. Over time, these disputes will negatively impact your chargeback ratio, which could jeopardize your business.

How do you handle a payment dispute?

As a merchant, there are many tactics you can employ. We recommend prioritizing customer service, making it easy to find contact information, and creating easy-to-understand shipping and return policies, just to name a few practices.

What can I do about invalid payment disputes?

You can fight chargebacks resulting from invalid disputes (a practice called “friendly fraud”) through the representment process. Representment allows you to collect evidence and literally “re-­present” the transaction to the bank.


Prevent Chargebacks.

Fight Fraud.

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