Dispute Recovery for Merchants
Far too many consumers seem to think that payment dispute processes are just a convenient way to get out of paying for a purchase. It can be frustrating for merchants to lose revenue to payment reversals that are based on false claims of fraud or subjective disputes that could have been resolved directly.
The good news is that when you get an illegitimate dispute, you don’t have to take it. Dispute recovery processes like chargeback representment can give merchants a chance to reverse the dispute and reclaim their lost revenue. What sorts of dispute recovery options are available to merchants, and how can they be utilized effectively?
- What is Dispute Recovery?
- Why is it Important for Merchants to Engage in Dispute Recovery?
- How Does Dispute Recovery Work?
- Tips for Successful Dispute Recovery
Most payment methods offer options for customers to dispute unauthorized or fraudulent transactions, as well as a way for merchants to contest invalid disputes. With credit card payments, dispute rights are enshrined in law as the chargeback process that we all know (and are stuck dealing with), but all of the card networks give merchants an opportunity to represent disputed charges by submitting evidence to the issuing bank. In highly contested claims, merchants can even appeal to the card network itself for arbitration.
Fraudulent chargebacks, along with other forms of first-party misuse, cost merchants as much as $89 billion per year.
According to our internal data, fraudulent disputes, or “friendly fraud,” are the number one cause of chargebacks, exceeding both true fraud and merchant error.
Ignoring illegitimate disputes can cause significant revenue loss for merchants. This is especially true where credit card chargebacks are concerned, as these carry their own added penalties and negative consequences. Engaging in dispute recovery is an important practice for merchants who want to protect their revenue, their good reputation, and their ability to offer the payment options of their choosing.
What is Dispute Recovery?
Dispute recovery is the practice of contesting disputes, using compelling evidence to get them reversed, and winning back your revenue. Chargeback representment is the dispute recovery process for credit card disputes.
Credit card chargebacks hit merchant accounts automatically as soon as the issuer escalates the dispute. To recover them, merchants have to make a proactive choice to represent the charge, and they only stand a chance of succeeding if they submit the right compelling evidence along with it.
Let’s look at PayPal as an example of how dispute recovery can work on third-party payment platforms. On PayPal, merchants are given twenty days to decide how to respond to a buyer dispute. If they opt not to issue a refund or otherwise satisfy the buyer, the dispute becomes a claim for PayPal to resolve. Here again, compelling evidence is required in order to obtain a favorable ruling.
Most payment platforms provide a way for merchants to respond to false or erroneous disputes. It’s important to read the terms of each payment method you accept so you understand ahead of time what to do when you receive an illegitimate dispute.
Why is it Important for Merchants to Engage in Dispute Recovery?
When you lose revenue to a dispute, you’re not just out the amount of the payment reversal. You also lose the cost of the merchandise you sold, and many providers—including the credit card networks—charge additional fees for disputes.
Declining to fight illegitimate disputes also means you’re likely to invite more of them.
Friendly fraud is often intentional, perpetrated by professional cybercriminals as well as ordinary disgruntled shoppers. When somebody realizes they can get away with cyber-shoplifting by fraudulently disputing a charge, they will often do it again, targeting the same merchant over and over.
Fighting back the first time not only prevents any revenue loss, it also shows that fraudster that trying to cheat you out of an honest sale is a waste of their time. Some fraudsters even go so far as to share tips about vulnerable merchants to other fraudsters—not just on the dark web but on popular social media platforms like Reddit and TikTok. That’s not the kind of publicity any merchant needs.
How Does Dispute Recovery Work?
The most common form of dispute recovery is the chargeback representment process. This requires the merchant to represent the disputed charge and submit compelling evidence that refutes the dispute claim.
To engage in chargeback representment, you will typically need to initiate the process with your acquiring bank. Along with a representment of the charge, you’ll attach your compelling evidence documents, and you may be required to write up a rebuttal statement that briefly explains why you are representing the charge and how the evidence backs up your position.
The issuing bank will receive the evidence, review it, and decide whether to uphold or reverse the chargeback. Issuers process a lot of disputes, and they won’t be spending a lot of time on any given case. They’ll be doing a quick review to see if the evidence submitted matches the card network requirements as specified in the reason code description.
If it does, they should accept the representment and return the disputed funds to the merchant account. If it doesn’t, the chargeback stands and the dispute is over unless you appeal it to the card network (and risk liability for an arbitration fee costing hundreds of dollars).
Tips for Successful Dispute Recovery
- Analyze your disputes as soon as you receive notification of them. Research the transaction involved and try to determine whether the dispute is valid or not. Fighting valid disputes is pointless, but it’s always worth trying to recover the fraudulent or erroneous ones.
- Read chargeback reason code descriptions carefully, especially if they include any transaction modifiers. The card networks will often spell out exactly what evidence you need to successfully represent a chargeback.
- Make sure your sales agreements, terms and conditions, and other policy documents clearly address your common dispute scenarios—for example, your return and refund policies. Make sure your customers read and sign these documents prior to finalizing a sale.
- Plan ahead so you always have the right compelling evidence ready at hand when an illegitimate dispute lands on your desk. Keep receipt copies, transaction records, order histories, and logs of all correspondence between you and your customers.
Dispute recovery is important for merchants, but it can also be a challenging and time-consuming process. If you find yourself accepting questionable disputes because you don’t have the time or resources to fight them, it may be helpful to seek out a chargeback management firm that provides dispute recovery services. The right partner can help you fight fraud and abuse, win back your revenue, and implement comprehensive and effective dispute prevention strategies.
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