How can merchants dispute credit card chargebacks?

When a customer disputes a purchase on their debit or credit card—triggering the chargeback process—the merchant can try to stop the chargeback by proving the dispute is unwarranted.

But merchants may have questions about the chargeback dispute process—also called representment—and whether it’s worth their time. Such questions include:

• How long do merchants have to dispute chargebacks?
• Are merchants liable for chargebacks?
• How can merchants win chargebacks? 

Merchants should prepare themselves in advance with customer transaction data and any proof of purchase, so that they are ready to counter unwarranted credit card disputes. The types of information the merchant collects may vary by industry or business model, but can include:
 

• Delivery confirmation (any proof the customer received the product or service)
• Proof of customer purchase or usage history
• Copy of the refund or return policy agreed to by the customer
• AVS (address verification system) and CVV (card verification value) matches
• IP address of customer’s purchase device for online transactions, along with exact time and date of purchase
• Geographic location of the device
• Correspondence, such as any emails, phone records or letters documenting conversations with the customer

Having this information ready in advance allows the merchant to respond quickly when it’s notified of a customer dispute.

Keep in mind that you must follow consumer data collection and privacy laws and shouldn’t collect more data than you are realistically able to protect.

The acquiring bank notifies the merchant when a customer has disputed a charge. It will provide the merchant with the deadline for deciding whether to dispute the chargeback and for submitting all compelling evidence that shows the dispute is unwarranted. Timeframes for acquirers average 10-35 days.

Each network has different chargeback dispute rules and timeframes, but the deadline is typically 20 to 45 days after the merchant is notified. The entire chargeback process can take up to 120 days. 

Assuming the merchant has diligently collected and organised all customer transaction data, gathering compelling evidence shouldn’t be difficult. They can simply go into their transaction recording systems or customer records and pull relevant receipts, signed contracts or order forms and other transaction data on file.

When notifying the merchant of the dispute, the acquirer will provide a chargeback reason code—which gives the basic reason for their dispute. The code could indicate, for example, that the customer claimed they did not receive the purchased good or service, or that the item was defective.

Compelling evidence submitted by the merchant should directly address the chargeback reason code. For example, if the code indicates the customer didn’t receive the item, the merchant should submit any evidence of delivery or customer usage they have. If card-not-present (CNP) fraud is listed as the reason, the merchant can submit the IP address of the device the purchase was made on.

Merchants must adhere to the deadline given by the acquirer. If they miss it, they will lose the chargeback dispute by default. Losing the chargeback means not only losing the sales revenue, but also the associated chargeback fees merchants typically must pay to cover the cost of the chargeback process.

Along with the compelling evidence, the acquirer will submit what’s called a chargeback rebuttal letter—essentially a cover letter that clearly and succinctly summarises the compelling evidence and how it shows the customer’s dispute is unwarranted.

The letter doesn’t have to be long, but it does have to leave no doubt in the reader’s mind that the customer’s claim is invalid.

The acquirer will forward all information it collects from the merchant to the payment card network, which will forward it to the issuer. The issuer then makes the final decision on whether to give the customer the chargeback or deny it.

If the customer’s chargeback is denied, the merchant will get the transaction amount refunded to their account. If the chargeback is approved, the customer gets the purchase amount refunded to them.

While the chargeback dispute process is relatively straightforward, a merchant may wonder whether it’s worth their time to organise all the compelling evidence and put together a formal dispute.
 
Here are three important considerations:

1. Merchant liability: Merchants are generally liable for all chargebacks in card-not-present (CNP) transactions. But for card-present (CP) transactions, such as when someone makes a purchase in a physical store, the merchant is not liable when the reason for the chargeback is genuine fraud. However, regardless of whether the merchant is liable for the chargeback, they must pay the chargeback fee.
2. Compelling evidence: If you have strong compelling evidence that shows the customer’s dispute is unwarranted, then you have a good chance of winning the chargeback dispute and keeping the sales revenue (because the consumer won’t receive the chargeback refund). On the other hand, if your evidence is weak, you may want to reconsider disputing the chargeback. 
3. Chargeback ratio: Successfully disputing a chargeback doesn’t resolve all the repercussions associated with chargebacks. Even when the merchant “wins” a chargeback, the customer’s dispute still impacts their chargeback ratio—a ratio that’s used to gauge the merchant’s riskiness. A high ratio may result in higher fees and potentially even the risk of having their merchant account frozen.

While merchants do have the opportunity to dispute chargebacks and potentially avoid lost sales revenue, undoubtedly the better goal is to prevent chargebacks before they happen.

Collaborative solutions allow you to get alerted about disputes before the chargeback process is initiated—allowing you to resolve matters with the customer directly or stop orders due to chargeback fraud.