Editorial · November 18, 2018
Chargeback Dispute: How Merchants Can Fight Back
A chargeback dispute starts when a cardholder asks their bank to reverse a card sale. The bank pulls the money back from the merchant, and the merchant then has a short window to answer with proof. Merchants who know the steps keep more of their sales.
How a chargeback dispute works
The cardholder tells their bank that something is wrong with a charge. The bank sends the dispute to the merchant's card processor. The processor passes it on to the merchant. The merchant can then accept the dispute and pay it, or reject it and send back documents that support the sale.
Visa groups these disputes into four kinds: fraud, authorization problems, processing errors and consumer disputes. Each kind has numbered conditions. Condition 10.4 covers fraud when the card was not present, and condition 13.1 covers goods or services that were never received. Your processor will name the condition on the notice, and the condition tells you what proof will help.
Visa also warns that disputes are not always the merchant's fault. Banks and cardholders make mistakes too. That is why it pays to respond when the facts are on your side.
The first step: a request for a copy
Often a dispute starts smaller. A customer does not recognize a charge on a statement. Their bank sends a request for a copy of the sale receipt, also called a retrieval request, to your processor.
Visa says the processor has 30 days from receipt to send the copy back to the card issuer. If the request is passed to you, your processor will tell you how many days you have, and you must follow that time frame. Make a clear copy of the receipt and send it with proof of delivery. Registered or certified mail works for paper copies. For email or electronic transfers, keep a written record of what you sent.
Many of these requests end here. Once the customer sees the receipt, they usually remember the purchase.
What evidence to collect
Visa defines compelling evidence as proof that the cardholder took part in the sale, received the goods or services, or gained from the sale. Merchants can offer it for two conditions: card-absent fraud (10.4) and goods or services not received (13.1).
The Visa guide lists the kinds of proof that count. Examples include:
- Photos or emails that link the person who received the order to the cardholder.
- For an order picked up at your location, a signed pick-up form or a copy of the ID shown.
- For a delivered order, proof of delivery to the same address that matched on the address check, with the time of delivery. A signature is not required for this item.
- For digital goods, a description of what was downloaded, the date and time, and two or more of the following: the buyer's IP address and device location, a device ID, the buyer's name and email linked to their profile, or proof the buyer used their account before the sale.
- Proof that the same device and card were used in an earlier sale that was not disputed.
Start a file for every order on day one. Save the receipt, the order confirmation, the shipping label, the tracking page and any emails with the customer. It is much harder to gather these after a dispute arrives.
Watch the response windows
Time limits decide many disputes. Visa says each step in the dispute cycle has a defined time limit. These limits can vary by processor. If you or your processor miss the deadline on the notice, you cannot fix the dispute.
So read every notice the day it arrives. Check the condition, note the due date and ask your processor how it wants documents sent. If the dispute cannot be fixed, Visa notes that accepting it may save you the time and cost of a fight you will not win.
If a customer with a real complaint contacts you first, act at once. Issue a credit when it is owed and tell the customer by email that it is coming. A quick refund costs less than a lost dispute.
Why customers can dispute, by law
Card disputes are not only a network rule. For credit cards, the Fair Credit Billing Act and Regulation Z give customers a legal path to challenge a billing error. Knowing it helps you see the customer's side.
A billing error can be a charge the customer did not make, or one for goods or services that were not accepted or not delivered as agreed. The customer must send written notice so that it reaches the card company within 60 days after the first statement that showed the error. The card company must acknowledge the notice in writing within 30 days. It must then resolve the matter within two complete billing cycles, and never later than 90 days after it gets the notice.
While the dispute is open, the customer may withhold payment of the disputed amount. For you, this means a late or sloppy answer can cost you the sale, since the customer's bank has a legal duty to look into the claim.
How to prevent the next one
Visa says most disputes come from poor handling of the sale and can be prevented with training and care. For card-absent sellers, its guide points to three tools.
- Address check. If you get a full match on the address check and the billing and shipping addresses are the same, you can show proof of the shipping address and signed proof of delivery.
- Security code check. Ask for the card's security code on every online or phone sale.
- Verified by Visa. When a buyer is authenticated, or the bank or buyer is not enrolled, the merchant is protected from fraud disputes if the sale is processed correctly.
Beyond tools, keep clear return and refund terms on your receipts and site. Use a billing name customers will recognize. Answer customer emails fast. Each of these cuts down on the surprise that leads to a dispute.
A chargeback dispute is a process with rules, not a verdict. Merchants who keep records, read notices fast and reply on time give themselves the best chance.