Chargebacks were created as a way to protect credit card customers from fraud committed by thieves or dishonest merchants. When a cardholder has been defrauded and files a chargeback, the merchant has no choice but to accept the chargeback and take the financial hit.
However, some customers abuse the chargeback system to try to get their money back when no fraud has occurred. These chargebacks are often referred to as friendly fraud. Fortunately, merchants can fight friendly fraud chargebacks and recover their lost revenue. Let's talk about what merchants need to know in order to recover revenue lost due to chargebacks.
That leaves friendly fraud chargebacks—chargebacks that have been granted by the issuing bank despite being based on false claims.
We estimate that up to 32% of chargebacks may be friendly fraud, and that represents a lot of revenue in jeopardy for merchants. Friendly fraud may occur due to genuine error or confusion on the cardholder’s part, but it’s also common for it to be a deliberate attempt to defraud the merchant.
When merchants find themselves on the receiving end of friendly fraud, they can fight these chargebacks by disproving their claims and persuading the issuing bank to return their money.
The rules governing chargebacks are set by the major card networks, and the card networks allow merchants the chance to fight back against chargebacks they believe to be false or invalid by presenting the charge a second time along with a statement explaining why the chargeback should be reversed and compelling evidence that backs up the merchant’s argument.
The standards for what constitutes compelling evidence will vary according to the reason code of the chargeback being contested. This means that meticulous and organized record-keeping is essential for effective chargeback revenue recovery.
To assemble the right evidence to fight and win chargebacks, you may need documents such as the following:
Once you understand why the chargeback has occurred and what type of evidence is needed to fight it, you can represent the charge along with your letter rebutting the cardholder’s claims and the evidence you have compiled.
It’s important for merchants to be strategic and selective about fighting chargebacks. Wasting your time—and the issuing bank’s—by fighting legitimate chargebacks isn’t going to help your business.
By analyzing your chargebacks and understanding the different types, reason codes, and scenarios under which certain chargebacks can be fought and beaten, you can target your chargeback revenue recovery efforts on winnable disputes.
The card networks have specific rules for when and how merchants can fight chargebacks. It's vital that merchants understand the rules for each card network and follow the correct procedures for each one’s process.
Merchants should always be aware of the applicable deadlines for the card networks they're dealing with. Whenever they receive notice of a chargeback they intend to fight, representment should be submitted as soon as possible.
When the issuing bank decides to reverse a chargeback after examining the evidence, the transaction amount will be returned to the merchant. However, chargeback fees aren't refunded, and chargebacks that are reversed still count against a merchant's chargeback ratio.
Depending on the card network, the merchant may or may not be able to appeal the bank's decision through a process called arbitration. However, this is usually inadvisable, since losing an appeal means hundreds of dollars in fees.
Chargeback revenue recovery and the representment process can seem daunting to many merchants, especially when their time and resources are already stretched thin.
A chargeback management firm can take a lot of the pain out of developing and implementing an overall strategy for fighting and preventing chargebacks.
By analyzing your chargeback data to determine the root causes of your disputes, the right experts can laser-focus your efforts on the vulnerabilities that will make the most significant difference in terms of reducing your overall chargeback burden. This should include effective representment tactics as well as proactive measures to stop preventable chargebacks before they impact your revenue.
Receiving a chargeback is never a good thing, but it doesn’t mean that that revenue from that sale is gone forever.
When merchants are able to stay on top of their chargeback activity, correctly classify chargebacks according to their reason codes and appropriate responses, and fight back with compelling evidence, invalid chargebacks such as friendly fraud can be reversed and returned to the merchant. For merchants who deal with a high rate of friendly fraud, this can add up to a lot of revenue.
The key to winning in representment and recovering your revenue is to have the facts on your side. That means understanding your chargeback data so you know how to pick your battles and knowing what kind of evidence to submit to guarantee the best possible outcomes.
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