An important factor in knowing how to dispute payments is understanding what exactly a payment dispute is and when it occurs. A payment dispute occurs when a customer questions or challenges a payment made to a business. This can happen for various reasons, such as the customer not receiving the product or service they paid for, the product or service being faulty or not as described, or the customer not recognizing the transaction on their bank statement. Payment disputes can also arise from fraudulent transactions, where someone other than the authorized account holder makes the payment.

When a payment dispute occurs, it can result in a chargeback or refund request, where the payment is reversed or refunded to the customer. This can have a negative impact on the business, as it can result in lost revenue, increased chargeback fees, and damage to the business’s reputation. Therefore, it’s important for businesses to have a clear payment dispute management strategy in place to handle disputes effectively and minimize their impact.

How can I dispute a payment? 

If you receive a payment dispute from a customer, there are several steps you can take to respond to it. Here are some general steps to follow on how to dispute payments: 

1. Review the dispute: The first step is to review the dispute to determine its validity. If the dispute is fraudulent or unfounded, you may be able to successfully dispute it. 
2. Gather evidence: Collect all relevant information and evidence related to the transaction, including receipts, invoices, order confirmations, and any communication with the customer. This information will help support your case and increase the chances of a successful resolution. 
3. Respond promptly: It’s important to respond to the dispute promptly to avoid chargeback fees and minimize the impact on your business. If you don’t respond within the specified timeframe, the customer may automatically win the dispute. 
4. Provide a detailed response: Provide a detailed response that addresses the customer’s concerns and provides evidence to support your case. Be professional and courteous in your response and avoid blaming the customer. 
5. Be persistent: Responding to a payment dispute can be a time-consuming and frustrating process, but it’s important to be persistent in pursuing a resolution. Follow up regularly and keep records of all communication to ensure the issue is being addressed. 

It’s important to note that the process of responding to a payment dispute can vary depending on the payment method and specific circumstances of the dispute. If you’re unsure about how to dispute a payment dispute, contact your payment provider or financial institution for specific guidance. 

Who is involved in the dispute process?  

Another important factor in understanding how to dispute payments is knowing who’s involved in the dispute process. Those involved in the payment dispute process can vary depending on the specific circumstances of the dispute. However, there are some common parties involved: 

• Customer: The person who made the payment and initiated the dispute. 
• Merchant or service provider: The business or individual who received the payment and is being disputed by the customer. 
• Payment provider: The entity that facilitated the payment transaction, such as a bank or credit card company. 
• Issuing bank: The bank that issued the customer’s credit or debit card. 
• Acquiring bank: The bank that processes the merchant’s payment transactions. 
• Card network: The network that facilitated the processing of credit or debit card payments, such as Visa or Mastercard.
• Arbitration or mediation service: In some cases, an independent third party may be involved to resolve the dispute, such as an arbitrator or mediator. 

The parties involved in the dispute process can vary, making it important to understand the responsibilities of each party to manage and resolve payment disputes. 

 

What are dispute withdrawals? 

A dispute withdrawal refers to the process of withdrawing a payment dispute that has been initiated by a customer. This can occur for several reasons, such as the customer realizing the dispute was made in error or the dispute getting resolved through alternative means.

If a customer initiates a payment dispute but later decides to withdraw it, they can typically do so by contacting their payment provider or financial institution and requesting that it be withdrawn. In some cases, the payment provider or financial institution may require additional information or documentation to support the request for withdrawal. 

Once a dispute is withdrawn, the payment provider or financial institution will notify the merchant or service provider of the withdrawal. Depending on the payment provider’s policies and procedures, the merchant may or may not still receive a chargeback fee for the original dispute. Dispute withdrawals are another important factor in understanding how to dispute payments. 

What permissions are needed to dispute? 

In general, customers don’t need specific permissions to initiate payment disputes. They have the right to dispute a payment if the product or service they paid for is faulty or not as described, or the customer not recognizing the transaction on their bank statement (among other reasons). And in turn, you don’t need permission to respond to the dispute either. 

However, you will both need to follow the dispute process outlined by your payment providers or financial institutions. This typically involves providing information and documentation to support your arguments and submitting the necessary information within the specified timeframe. 

It’s important to note that initiating a payment dispute without valid grounds can result in penalties or legal consequences, so it’s important to carefully review the transaction and understand the dispute process before initiating a dispute. Knowing what permissions are needed to dispute is another important factor in understanding how to dispute payments. 

 

How can PAYARC help with disputing payments? 

PAYARC is a payment processing company that provides various services to merchants, including dispute management services. Here are some ways PAYARC can help merchants with knowing how to dispute payments: 

1. Dispute management: PAYARC can help merchants manage and respond to payment disputes initiated by customers. PAYARC provides guidance and support to merchants throughout the dispute process, including gathering evidence and submitting responses to the payment provider or financial institution.
2. Chargeback prevention: PAYARC offers tools and services to help merchants prevent chargebacks, which can reduce the risk of payment disputes. These services may include fraud detection and prevention, address verification, and transaction monitoring.
3. Fraud protection: PAYARC provides fraud protection services to merchants, which can help prevent fraudulent transactions and reduce the risk of payment disputes. These services may include fraud screening, identity verification, and risk management.
4. Customer service: PAYARC provides customer service and support to merchants and their customers, which can help resolve disputes and prevent chargebacks. PAYARC’s customer service team can assist with billing inquiries, transaction disputes, and other payment-related issues. 

The specific services and support offered by PAYARC may vary depending on the merchant’s needs and the specific circumstances of the dispute. It’s important to contact PAYARC directly to discuss your specific needs and determine how they can help with disputing payments. 

To learn more about payment disputes, contact one of our experts today! 

 

An unfortunate reality of doing business today is chargebacks. There are two types of fraud – true and friendly fraud. With the former, a bad actor has obtained sensitive card data of which they are not the owner and uses that information to make a purchase (aka identity theft). In the case of friendly fraud, a less malicious form of chargeback, a request for chargeback happens largely due to customer confusion. The customer may have made a purchase and then forgot, may not recognize a charge made by another family member, or perhaps simply misunderstood a return policy.

Whether true or friendly fraud, these chargebacks originate when a cardholder doesn’t recognize a charge on their statement and calls her issuing bank to dispute it. Unless a merchant can prove that the charge was a legitimate purchase, it is often left to eat the cost of the chargeback, which includes not only fines and fees, but the cost of shipping, the cost of the product, and more.

Cost of Chargebacks: More than Lost Sales

Chargebacks are a long-standing problem for merchants. As such, many actually factor in the cost to operational budgets. At first glance, it would seem that every dollar lost to a chargeback would come off your bottom line quite simply. Research from LexisNexis Risk Solutions, however, tells us that the actual chargeback amount is just the tip of the iceberg. In fact, 2017 showed us that every dollar of fraud cost merchants between $2.48 and $2.82 – or roughly more than 2.5 times more than the transaction itself, depending on the industry.

How do these inflated costs happen? They can be seen in everything from additional charges by card companies as a percentage of costs or chargeback fees, time spent disputing charges, or losses from goods and services. The holiday season sees an even higher cost, as fraud cases rise sharply and stretched customer service teams work to address the volume of cases they encounter. Ecommerce merchants processing card-not-present transactions are even more likely to experience year-over-year increases in loss. As online sales continue to grow (16% in 2017, alone), the opportunity for fraud losses through chargebacks will increase, as well.

Real Life, Real Losses

Let’s look at an example of how much a typical retailer will pay for a chargeback :

A $220 charge is disputed over the holiday season by a customer through their VISA account. Due to new VISA chargeback rules, settled disputes require the retailer to provide pages of documentation to support their case. The charge is decided to be fraud and is closed and settled as a chargeback to the retailer.

This $220 charge is projected to cost the retailer a whopping $545.60 for the most modest scenario but could cost them as much as much as $620 in lost productivity, fees, and penalties. Assuming an increase in 16% of online sales next year, this same cost of a chargeback could be represented by almost $720 in losses next holiday season!

Rolling Back Chargebacks – Tips for Merchants

Chargebacks are expensive, and it behooves merchants to enact a system for mitigating customer disputes. While true fraud can never be fully prevented, there are some things smart retailers are doing to reduce friendly fraud and keep losses under control.

First, ensure that your billing descriptors (line-item explanation of charges) are easy to read and identifiable. With card companies making it easier than ever before for customers to dispute a charge with the click of a button, many won’t hesitate to dispute any charge that they don’t recognize. By providing clarity, you can head off unnecessary chargebacks resulting from customer confusion.

Second, many customers resort to chargebacks as a last resort to unresolved customer service issues. If a return or replacement didn’t go as requested, they might use the generous terms of their credit card protections to find a positive outcome. By aiming to provide the best shopping experience possible – including posting clear return policies on your website – you can put yourself in the driver’s seat for making the customer happy without involving the card company in an expensive chargeback scenario.

While some fraud is inevitable, some chargebacks are preventable. Use trends in your card processing statements to identify the type of products, services, and subscriptions that are most like to be disputed, paying careful attention to payment types and the times of day and year that these disputed claims occur. Use the information contained in your data to alert you to the behaviors that will cost you big down the road. Then, take action to implement the security options and customer care policies most likely to prevent them.

Unfortunately for merchants, you’ll likely have to pay some fees regardless of whether or not you win in the dispute. The process can also take months, and it’s designed to protect consumers, meaning the odds of winning most dispute cases aren’t in your favor. Chargebacks are, unfortunately, part of life as a business owner.  But the good news is there are simple ways to protect yourself and avoid getting into this situation in the first place:

• Be clear about your shipping return policies, and make it easy for the customer to contact you. Sometimes a chargeback will result when the customer wanted to return something and couldn’t, or when a customer thinks they aren’t going to receive an item that’s en route. Being open about this information and easy to contact can help reduce the chances of a chargeback.
• Also be clear and honest about your product, so there are no surprises for your customer. This can also cut back on returns.
• Keep detailed records, follow all processing protocols, and hang onto all receipts.
• Make sure your customers know what name will appear on their billing statement. If they don’t recognize your business, they might think they’ve been fraudulently charged and begin a credit card dispute.

Chargebacks are both damaging and tedious, so you don’t want to have too many of them. Not only do they represent lost revenue, but they also dent your reputation and can get you classified as a high-risk merchant if you have too many. Your best bet is to understand the option you have when you’ve been hit with one and take steps to reduce the chances of a chargeback in the first place.

Chargebacks are one of the biggest challenges merchants face. Merchants lose an average of $3.75 per every $1 to chargebacks, and the average cost of a single chargeback is up to $190. These are not numbers to be taken lightly by any business owner.  

Protecting revenue from the threat of chargebacks is crucial, but first, it’s essential to understand the problem. This guide defines everything about chargebacks, including what chargebacks are, how chargebacks occur, how the chargeback process works, and how merchants can fight chargebacks to recover revenue.  

What are chargebacks?  

A chargeback happens when a customer disputes a charge with their payment card issuing bank, and the bank refunds the transaction to the customer.  

Thoroughly understanding the answer to “what are chargebacks” can help a merchant prepare for these instances. There are various types of chargebacks, but all have negative consequences for merchants by way of fines, fees, penalties, and damage to their business’ reputation.  

What is chargeback fraud?  

There are several reasons cardholders might partake in chargeback fraud. Consumers may not want to go through the return process and deal with fees. Or, they could have buyer’s remorse and miss the return window.  

Chargeback fraud, also known as friendly fraud or “friendly chargebacks,” is a growing problem in the e-commerce industry. Here are some statistics related to friendly fraud:  

1. According to a report by PYMNTS, friendly fraud accounts for an estimated 60-80% of all chargebacks.  

1. A study by Kount, a fraud prevention company, found that friendly fraud increased by more than 35% between 2017 and 2018.  

1. In a survey conducted by the PYMNTS, friendly fraud was identified as the biggest threat to retailers’ profits, with 62% of retailers reporting that friendly fraud has become a significant problem.  

1. According to a report by Cardrates, friendly fraud costs retailers $10 billion per year in the United States alone.  

1. Data from Experian shows that friendly fraud has increased by nearly 50% since 2015.    

These statistics highlight the urgent need for merchants to take measures to prevent and manage this type of fraud. By implementing the right tools and strategies, merchants can reduce the risk of friendly fraud and improve their bottom line.  

Chargeback #1: True fraud  

When evaluating the different types of chargebacks, true fraud or unauthorized use is the first term to understand. This happens when bad actors use stolen payment card information to make a purchase, and the true cardholder files a chargeback to dispute the unauthorized charge.  

This type of chargeback typically occurs as the result of identity theft or card skimming. In some cases, unauthorized use could be the result of a family member making a purchase without the actual cardholder’s knowledge. This is a less dishonorable type of chargeback but just as costly for merchants.  

Here are some statistics related to true fraud:  

1. According to a report by the Federal Trade Commission (FTC), fraud-related losses in the United States totaled $5.8 billion to fraud in 2021, with true fraud accounting for a significant portion of those losses.  

1. A study by PYMNTS found that true fraud accounts for 20-40% of all chargebacks.  

1. In a survey conducted by the National Retail Federation, true fraud was identified as the second-biggest threat to retailers’ profits, with 40% of retailers reporting that true fraud has become a significant problem.  

1. Data from Experian shows that true fraud has increased by nearly 70% since 2015.  

1. According to a report by Experian, the number of identity theft incidents in the United States increased by 19% in 2019.  

These statistics highlight the need for merchants to implement effective fraud detection strategies to prevent true fraud. By using tools like advanced fraud analytics and machine learning, merchants can identify and prevent true fraud, protecting both their business and their customers.  

Chargeback #2: Friendly fraud  

Friendly fraud happens when a customer seeking a refund chooses to bypass the merchant and go directly to the issuing bank to achieve their desired outcome. This can occur if a merchant has a confusing return policy or if the merchant has no refund policy at all.   

After receiving the product, some customers may claim that they were unaware of the purchase or that they returned the product without receiving credit. This can happen with digital services as well. Regardless of the type of purchase, the customer is seeking to use the product or service without paying for it and is trying to defraud the merchant through dishonest means.  

Friendly fraud can be combated by merchants having clear return and refund policies clearly listed on their websites. Having excellent shipment tracking and delivery confirmation that requires a signature can also help avoid friendly fraud. 

Tip to prevent chargebacks  

Here are some tips we’ve compiled to help manage chargebacks:  

1. Use proper authorization protocol: When processing card-not-present (CNP) transactions, use AVS and CVV2 to confirm the purchaser’s identity. Protocols like 3D Secure 2.0 can add an extra layer of security to online transactions and cut down on chargebacks.  
2. Make sure the billing descriptor is clear: Many disputes happen because of confusion or miscommunication. Merchants can eradicate these types of chargebacks by using clear billing descriptors, which include the merchant’s name (DBA) and other details that identify the business. When the customer checks their card statement after making a purchase, there will be less confusion about when or with whom the purchase was made.  
3. Clearly present policies, terms, and conditions: Having clearly articulated and posted terms and conditions, return policies, and refund policies can help to cut down on chargebacks.  
4. Optimize customer service: Merchants should have properly staffed customer service phone lines that minimize wait times. Allowing customers to contact by email can be beneficial as well—so long as emails are promptly (within 24 hours) returned. Also, consider implementing chat lines to quickly address customer issues.  
5. Work with a reputable payment processor: Working with a trusted payment processor that offers consultative services regarding chargeback management can save merchants hundreds of thousands of dollars in the long run. Having a chargeback prevention plan—and a chargeback management strategy—is essential to guarding hard-earned profits against both true and friendly fraud.  

Chargeback vs. refund — What’s the difference?  

With a chargeback, the issuing bank drives the action, while with a refund, the customer deals with the business directly. Refunds and chargebacks are similar in that they both stem from the cardholder and result in the merchant losing money. Chargebacks, on the other hand, are much more costly and can have long-term effects on the business. Both a refund and a chargeback are instigated by a former customer who is unhappy with their purchase and is trying to get their money back.   

When it comes to who handles the money for refunds, the business is in control of the funds up for dispute, and their payment processor must return funds to the customer. Until the payment processor initiates this transfer, no money moves anywhere. For chargebacks, the customer’s bank is in charge and will usually go ahead and pull the funds in question from the business’s account to hold on to while they sort out whether the chargeback request is valid.  

How long do chargebacks and refunds take?  

The process of a refund usually takes three to seven business days, but chargebacks can take anywhere from a few weeks to several months. It can take longer if the business contests the disputed charge.  

How do chargebacks impact the merchant?  

Similar to a refund, when a customer initiates a chargeback, merchants still lose the revenue from the initial sale, as well as the interchange fees, shipping fees, and any other return costs that are sustained.  

Chargebacks, on the other hand, are going to incur a handful of other costs. If a merchant’s account gets terminated due to excessive chargebacks, their business goes on the MATCH list. The MATCH list shows which businesses are blacklisted for having too many chargebacks and makes them unable to secure a new bank account (even with a different service provider) for five years minimum. If they can get a bank account at all, they will be considered a high-risk merchant account which will run them excessive fees and terms, predatory practitioners, and revenue-limiting reserves.  

Debit card chargebacks vs. credit card chargebacks — What’s the difference?  

Although there are many similarities between debit and credit cards, they offer different levels of protection when it comes to chargebacks and fraud. With credit card fraud, the funds technically belong to the bank, not the cardholder, thus, the bank may be more invested in trying to recover the money. With debit cards, the funds belong to the cardholder rather than the bank. Also, in the case of credit card fraud, the cardholder’s liability is limited to no more than $50. For debit card fraud, the cardholder is limited to no more than $500.  

What are the costs of chargebacks for merchants?  

Every time a chargeback gets filed; merchants get hit with a transaction fee. This transaction fee can range from $20 to $100 per transaction, and the merchant must pay this even if they fight it and win. If the customer files a chargeback and keeps the merchandise, the merchant also loses that revenue and any potential revenue from reselling it.  

Extra fines could be levied against the merchant if their monthly chargeback rates exceed the predetermined chargeback threshold. These fines can go up to $10,000, and if chargeback rates continue to exceed the threshold, the bank can terminate the merchant’s account entirely.  

Who is responsible for chargebacks?  

In the process of chargebacks, both merchants and consumers have a role to play. Both sides must understand the protocols, but cardholders need to be aware that chargebacks should only be used in serious cases, such as fraudulent charges. In some instances, both the merchant and the customer may be found liable when a chargeback is disputed. In such cases, the bank may issue a partial chargeback, where only a portion of the transaction is returned to the cardholder.  

Merchants should strive to minimize the risk of chargebacks, and it’s also important for them to challenge invalid chargebacks. By consistently disputing illegitimate chargebacks, banks may be less likely to issue claims against them. Implementing fraud detection strategies can also help merchants identify and prevent fraud before it occurs.  

Let us help you take control of chargebacks  

It’s clear that monitoring and managing chargebacks are critical aspects of running a business. Both merchants and consumers must be informed and vigilant to minimize the risk of chargebacks. It’s vital for merchants to adopt strategies and tools to help them detect and prevent chargebacks. This is where PAYARC can help by providing merchants with the tools and resources they need to effectively monitor and manage chargebacks, ultimately leading to a more secure and successful business.  

If you want to take control of your chargebacks, talk to an expert at PAYARC today!