An Overview of Credit Card Dispute Management
When you’ve got a real problem, you employ specialists. These days, many merchants are finding that payment disputes and chargebacks are growing out of control and putting too much of their hard-earned revenue in peril.
A dispute management unit—whether it consists of a multi-person team or a defined set of duties to be taken on by a manager or owner—is proving to be indispensable for both merchants and financial institutions. What do dispute management teams do for merchants and banks, and how can merchants ensure that their dispute management needs are being adequately covered?
Today’s consumers have fully embraced e-commerce and digital payments, but their generous spending habits are accompanied by high expectations. Problems with delivery, product quality, billing, and other issues can quickly lead customers to withhold payments, and if they’ve already paid via credit card, they usually won’t hesitate to call their bank, dispute the transaction, and demand a chargeback.
Merchants can’t afford to just absorb chargebacks as an inescapable part of doing business. Chargebacks will quickly drain your revenue, jack up your chargeback rate, and get you branded a “high-risk” merchant. A vastly better approach is to use dispute management to minimize chargebacks and other negative consequences of customer disputes.
What Does Dispute Management Involve?
Dispute management needn’t be limited to just chargebacks. A dispute management position can deal with any situation where a customer doesn’t want to pay a bill or invoice that they owe, and in that capacity, the position can be considered as part of an accounts receivable division.
In broad strokes, when a customer communicates their intention to dispute a bill, dispute management will take the following steps:
- Investigate the claim
- Determine whether or not it is valid
- If valid, adjust the charge on the customer’s account and update billing accordingly
If the claim is found to be invalid, dispute management’s responsibility is to document their reasons for denying the claim, with evidence if needed.
In the context of chargebacks, the customer’s dispute will arrive in the form of a chargeback to your merchant account (unless you receive early warning through a chargeback alert service). Dispute management’s role remains essentially the same.
They must look up the chargeback reason code, research the transaction, and determine whether or not the chargeback is valid. Valid chargebacks must be accepted, but chargebacks that are based on false claims should be fought via the chargeback representment process.
When dispute management submits a chargeback representment, they will need to include their documented evidence that disproves the cardholder’s claims. If the evidence is sufficient and compelling, the issuing bank should reverse the chargeback.
Why Is Dispute Management Important?
Dedicated dispute managers help merchants resolve customer problems that might otherwise lead to chargebacks, damaged customer relationships, and harm to your brand reputation. Dispute management protects your revenue from so-called friendly fraudsters and can often help you recover your funds when illegitimate chargebacks are filed.
What Are Common Customer Disputes?
About a third of all credit card disputes result from true fraud, but many other issues can and should be worked out directly with the merchant. In fact, issuing banks are not supposed to process chargebacks for certain types of subjective disputes unless the merchant has stopped communicating with the customer. For example:
- Billing errors where some element of the bill is wrong, such as the amount, or even the billing method itself.
- Damaged or missing goods.
- Complaints about product quality, or that the goods delivered did not match the description provided prior to purchase.
When the customer brings these claims to the merchant first, dispute management can work with the customer to find an acceptable solution that preserves the relationship and avoids a chargeback. On the other hand, when your first notice of the customer’s issue comes in the form of a chargeback, dispute management can respond to the issuing bank with communication records proving that the customer never reached out to them as required.
What Is the Issuer’s Perspective on Dispute Management?
Merchant dispute managers have counterparts who work at issuing banks. Dispute management is a similar process for the issuer: they take in cardholder claims, review them for validity, and if the cardholder has a valid dispute, they file a chargeback for them.
Merchants should know that while the vast majority of banks are operating in good faith, they are under market and regulatory pressures that do not always lead to fair and accurate chargeback decisions. Card-not-present credit card usage has been on a sharp and steady increase in recent years, which is good news for merchants and issuers in terms of revenue, but it also brings a commensurate increase in fraud and disputes.
Many issuers are still figuring out how to effectively deal with a volume of dispute claims that only keeps growing. At the same time, they are obligated to abide by laws like Regulation Z of the Truth in Lending Act, which imposes strict time limits on the resolution of cardholder disputes.
As a result, it’s not uncommon for issuers to err on the side of trusting their customer rather than taking too much time investigating the claim, and chargebacks go through that have the wrong reason code or are based on false claims.
With these circumstances in mind, it is extremely important for dispute managers to not only fight back against invalid chargebacks with representment, but to make sure that their rebuttal letters and evidence packets are extremely concise and easy to understand. The issuer may only have a few minutes in which to review it and make a decision, after all. It’s up to the merchant’s dispute management team to make that decision as straightforward and clear-cut as possible.
Every merchant needs dispute management. The only question is what form it should take. Dispute management is a time-consuming, detail-oriented process, and merchants who try to handle everything themselves may struggle to give it the attention it needs.
Hiring a dispute management specialist takes the pressure off, but small merchants may not be able to afford to keep a dispute manager full-time—and dispute management really is a full-time job.
A workable solution for many merchants of all sizes is to contract dispute management through a firm that handles fraud and chargeback prevention. The right company will be able to lend their expertise to your dispute management scenarios as they occur, and also help you come up with ways to keep disputes from happening in the first place.