Dispute Resolution Best Practices

Table of Contents

1. Best practices for transactions
2. Refund processing
3. Chargeback representment
4. Arbitration
5. Visa's merchant tools
6. How to prevent disputes
7. Know the chargeback rules
8. How long do merchants have to respond to a dispute?
9. What happens to the merchant when a cardholder disputes a charge?
10. How often do merchants win chargeback disputes?

In the card payments industry, there is no higher authority than the big card networks: Visa, Mastercard, American Express, and Discover. They make the rules, and the banks that want to issue cards under their branding are required to follow them. So when one of the card networks releases guidelines for merchants to follow when transaction disputes occur, merchants should pay close attention. 

In 2019, Visa published a guide outlining merchants' best practices for dispute resolution. Their objective is to help merchants know what to do in these situations so that they can follow the rules and make timely, informed decisions that foreground the best interests of their business.

For your convenience, we'll summarize the key takeaways that will help merchants deal with chargebacks and disputes more effectively.

Best practices for transactions

Merchants can strengthen their position against chargebacks by following best practices for transaction processing before they occur. That way they are more likely to have compelling evidence and an airtight case against any improper chargebacks that may follow.

Visa advises merchants to accept all types of Visa cards and to adhere carefully to their basic payment acceptance rules for all transactions.

They also emphasize the importance of including all the proper authorization and transaction data in the authorization requests you submit, which includes the following:

• Correct transaction date
• Merchant Category Code
• Merchant/transaction type indicator
• Country/state code
• Special Condition Indicator

Authorizations processed without this data will be vulnerable to chargebacks that you won't be able to defend against.

Refund processing

Normally it's a good thing to process refunds quickly, but not once a dispute has been initiated. If you see a chargeback, it's too late to resolve the dispute by issuing a refund. Doing so will just double your potential revenue loss and complicate the dispute resolution process.

However, whenever you communicate to a customer that you will be processing a refund for them, it is important to do so as soon as you possibly can.

Delays in refunding are a frequent cause of cardholder frustration and "friendly fraud" chargebacks.

When issuing credits, always use the same currency and merchant business name used in the original transaction. Refunds to Visa cards must be preceded by a purchase return authorization. This enables cardholders to see pending refunds on their bank statements in real time, which should help to reduce impatience and customer service inquiries.

Chargeback representment

When merchants fight their chargebacks by making a second presentment of a disputed charge, compelling documentary evidence will be required to prove that the original charge was valid and should be upheld. Visa specifically mentions "compelling evidence" as the appropriate response to disputes carrying condition codes 10.4 (other fraud—card absent environment) and 13.1 (merchandise/services not received).

Visa also advises merchants to seek advice from their merchant banks for guidance on what would constitute valid compelling evidence for a given dispute and reminds them that compelling evidence is not a guarantee that a dispute will be decided in the merchant's favor. While Visa doesn't go into detail on what constitutes compelling evidence, here are a few basic examples from us here at Chargeback Gurus:

• Transaction receipts, especially if the receipt has a customer signature
• Proof that the shipping address was the same as the cardholder's billing address
• Shipment tracking and delivery confirmation
• Records of any communication with the customer
• Information on any previous purchases from that customer
• Information on identity verification, such as customer IP address, location data, or use of two-factor authentication

The evidence you present should be tailored to the reason code of the chargeback. For example, if the customer is claiming they never received the item they ordered, information proving it was the cardholder who made the purchase isn't going to help, as that's not the fact in dispute.

In addition, it helps if you can tailor the evidence to the specific issuer that will be deciding the case. Unfortunately, there is no universal standard for what issuing banks will view as sufficient evidence to reverse a chargeback, but chargeback management firms will have experience dealing with most major issuers and will know what evidence they find most convincing.

Arbitration

Visa sounds some cautionary notes regarding arbitration for merchants, emphasizing the importance of understanding your rights under the arbitration process before filing. Merchants need to know what remedies will or will not be applicable for their specific dispute and should be fully aware of the fees they might incur if the matter is settled in favor of the cardholder.

Visa's merchant tools

To make life a little easier for merchants, Visa offers some online tools designed to help them manage disputes and other transaction-related issues.  The one merchants should be most familiar with is Order Insight, also formerly known as VMPI before the two programs merged earlier this year.

This system allows merchants to communicate with issuing banks to provide information about transactions the cardholder wants to dispute. This can prevent chargebacks before they occur by helping the cardholder recognize or remember the transaction, or by dissuading fraudsters through demonstrating the merchant's verification of the customer's identity.

Order Insight can also allow a merchant to preempt a legitimate or low-value chargeback with an immediate refund, satisfying the customer and preventing a chargeback and its associated fees and consequences.

Visa states that merchants who receive a high volume of chargebacks for transactions that are unrecognized or believed to be fraudulent by the cardholder, merchants who deal in small-value transactions, and merchants who are experiencing a surge in chargebacks related to digital goods are the merchant types most likely to see a reduction in disputes by using Order Insight.

Visa also offers an online dispute guide geared toward smaller merchants and a more comprehensive step-by-step guide for responding to specific chargeback reason codes.

How to prevent disputes

While the information above has hinted at it throughout, the ultimate goal of implementing these best practices is to prevent disputes. With that in mind, Visa recommends several paths that merchants can take to do just that:

• Use Order Insight to reduce time and effort for resolution. Order Insight is built around providing richer data within transactions so that issuing banks can make better decisions regarding disputes. When a cardholder calls to dispute a charge, Order Insight can give the bank information to provide to the customer or to demonstrate that the customer's claims are false.
• Use an easily recognizable merchant descriptor. Many chargebacks can come from individuals not recognizing a charge on their account statement. If you provide the customer-facing name of your company and a customer service phone number, that can help customers recognize the charge. 
• Use chargeback prevention alerts to help manage disputes. With the recent increase in online shopping and chargebacks, having tools in place to help you deal directly with customers can help minimize chargebacks that can impact your merchant rating. Chargeback prevention alerts work by pausing the chargeback process and giving you time to refund a transaction to a customer immediately. This can cut down on chargebacks due to poor service or misunderstandings.

It’s also important to note that when working with Visa, their dispute resolution requirements take priority. That is, you should understand your bank’s dispute requirements, but when they differ from Visa’s, you should go with Visa’s requirements.

Know the chargeback rules

Keeping up with each card network's own special rules, procedures, and best practice recommendations can feel overwhelming, but the benefit of doing so is crystal clear. Staying in compliance with their guidelines and following their dispute-handling suggestions gives you the best chance of winning disputes and holding on to your revenue.

Keep in mind that you don't have to figure all this out on your own. A good chargeback management firm will not only know the ins and outs of Visa's rules (as well as Mastercard's and the rest). They'll also be able to step in directly to handle technical processes like VMPI communication as well as work with you to train your staff and adjust your business operations to stay in compliance with both the existing rules and any future mandates.

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