Credit and debit cards have been a blessing for most customers. Rather than carrying around wads of easy-to-lose, hard-to-recover cash, you can simply carry around a single plastic card. And even if your card gets lost, you can lock it down and get a new one. In many ways, cards are great for merchants too, but there are some major drawbacks, including the risk of chargebacks.
When a chargeback occurs, a bank will reverse a payment and give cardholders their money back. From a retailer’s perspective, a chargeback is essentially a nonconsensual refund. Even worse, cardholders are not expected to return the goods purchased. As such, merchants have to suck up the revenue returned to the cardholder, while also writing off lost inventory. In addition, they’ll also have to pay chargeback fees.
Add it all up and costs can quickly skyrocket. Fortunately, there are steps you can take to fight and prevent chargebacks. We’ll help you get started with managing disputes and fighting chargebacks by covering how the chargeback process works and steps you can take throughout the process to win disputes.
Step 1- The Process Starts When Customers File a Dispute
In the United States and many other countries, card issuers, such as a consumer’s bank, are required to provide cardholders with a process to dispute charges. These requirements were put into law to protect consumers and to provide them with a way to dispute fraud and illegitimate charges. This is the chargeback process, and it usually starts when customers file a dispute.
The customer will alert their card-issuing bank, point out the charge they’d like to dispute, and then provide further information as to why they’re challenging it. Banks typically offer customers a wide variety of contact methods, including online chat programs, email, phone numbers, and more.
Dispute management platforms offer merchants a variety of options for fighting chargebacks throughout the process. You might think that you’d have to wait until after a customer files a chargeback to fight it, but in fact, you can address pending chargebacks. This allows you to fend them off before they’re officially filed and avoid fees and penalties. Typically, this means refunding the customer.
Step 2- Acquiring and Issuing Banks Exchange Information
The cardholder’s bank, otherwise known as the card issuer, gathers the information and forwards it to the merchant’s acquiring bank. This is the bank that the business works with to accept payments. The acquiring bank will send a chargeback notification, which will outline what charge the customer is disputing and why. The merchant will be provided with a “reason code,” which explains the reason for the dispute.
Tracking incoming chargeback notifications can be a hassle. Many merchants deal with dozens, hundreds, or even more chargebacks per month. A great dispute platform will track and organize incoming chargebacks, important deadlines, and other bits of vital information. This makes them easier to manage.
Step 3- The Merchant Concedes (or Fights the Chargeback)
Once the chargeback notification is delivered, the merchant has a big decision to make: to fight or accept the chargeback. If the merchant accepts the chargeback, the money will be refunded to the customer, the merchant will get hit with fees, and their chargeback ratio will increase (incurring higher processing costs).
If a merchant isn’t planning to fight the chargeback, it’s smart to use chargeback alerts, as mentioned previously. Once alerted to a pending chargeback, you can preemptively refund the money, thus avoiding chargeback fees.
You can also keep the chargeback from impacting your chargeback ratio. If your chargeback ratio gets too high, fees and processing costs may increase. Further, some payment processors may decline to work with you altogether.
The merchant can also fight the chargeback.
Step 4- The Business Files a Chargeback Rebuttal Letter
If the merchant decides to fight the chargeback, they will file a rebuttal letter. In this letter, the business will argue that the chargeback should be dismissed. The content of this letter will vary based on what the customer reported while filing a chargeback.
Let’s say a customer claims that their card was stolen and used to make a purchase. The merchant may argue that the purchase was legitimate. The business could furnish IP addresses, signed delivery receipts, and communication with the customer to prove that the cardholder both made and received the purchase.
The more evidence, the better. That said, when writing a chargeback rebuttal letter, the business should skip filler content and keep things brief. This way, you shine focus on your claim and evidence while also easing the burden on the bank employees reviewing your argument.
The cardholder’s bank will decide whether to approve or disprove the chargeback. Banks tend favor their cardholders. However, a well-honed argument backed up by clear and compelling evidence can sway the decision in the merchant’s favor.
Using a Dispute Management Platform to Manage The Process
Managing disputes and filing rebuttal letters is a hassle. There are important dates to track and if you miss them, you’re more likely to lose your dispute. You might fail to provide evidence by the deadline, for example, and as such, it won’t be taken into account. A dispute management platform can help you track deadlines and promptly submit evidence.
Gathering and tracking evidence is also difficult. Good dispute management platforms can track and gather data for you, say looking up IP addresses or safely storing signed delivery receipts. This makes the entire dispute process easier to manage while also increasing your chances of successfully making your argument.
Step 5- Second Chargebacks and Pre-Arbitration
If either party doesn’t accept the outcome of the chargeback dispute, they can appeal it. The first step of this process involves pre-arbitration. In practice, this means going through the chargeback process outlined above. Unless either party can furnish new evidence, however, the outcome will probably be the same. Once again, a dispute management platform can help merchants manage the entire process.
Step 6- Card Networks Are Brought In
If there’s still no resolution, the card network can be brought in as a neutral arbiter. Both parties will submit their arguments and evidence. The acquiring bank and issuing bank will send the information over to the card network, which will then make a final ruling. The network will also charge fees for this, which can get quite expensive, and are paid by the losing party.
Step 7- Legal Recourse?
Technically, the card network’s ruling, while final, is not a matter of law. The merchant or customer could file a claim with the appropriate courts, setting off a legal challenge. This is rare, however, and could get quite costly.
Final Thoughts on Managing and Disputing Chargebacks
Preventing and fighting chargebacks is important. Chargebacks can prove quite costly, often costing far more than the initial disputed charge once fees, time, lost inventory, increased processing costs, and other things are factored in.
Chargeback alerts from services like Chargeback Help are great for preventing chargebacks and thus fees and an increased chargeback ratio. Other dispute management tools can be used to handle the process throughout, easing burdens and helping you track deadlines.
When it comes to preventing and fighting chargebacks, a proactive approach is vital. If your business doesn’t have a system in place for dealing with chargebacks, it’s time to get to work.
