Regardless of their cause or their legitimacy, there’s no denying that chargebacks (or, as Visa calls them, disputes) are costly for merchants. Every chargeback a merchant receives results in the loss of the transaction amount, the loss of the product, fees, other hidden costs, and an increase in that merchant's chargeback ratio.
As the world's largest credit card network, Visa sets the standard for how all chargebacks should work. While there are still differences in how each credit card network handles the chargeback process, understanding Visa disputes not only gives merchants detailed knowledge on the card network they'll be dealing with most often, but also provides an excellent starting point for understanding the processes of all the other major networks.
Visa disputes, like any chargebacks, take time and effort to deal with, especially since Visa started requiring merchants to affirmatively accept the disputes they don't want to fight. However, having an effective chargeback management strategy can go a long way toward protecting revenue and ensuring your chargeback ratio doesn't climb too high.
Managing disputes requires a two-pronged approach. You must employ best practices for avoiding disputes, then deal with the disputes you can't avoid effectively.
When disputes occur, it is always a good idea to follow the procedures and guidelines provided by the card network. When disputes escalate, it’s the card networks that handle arbitration, review the evidence, and make the final decision. That should be all the reason you need to follow their rules and document the steps you take in the early stages of a dispute. Their recommended procedures can also help you train your staff and improve operations to make disputes less likely to happen.
Visa has the highest purchase volume of the major card networks, so every merchant should be familiar with Visa’s dispute guidelines. We’ll walk you through the important parts.
Any time a customer is unhappy with a charge and calls their bank to raise objections, a dispute can result. The first thing that will happen when a Visa customer complaint turns into a dispute is that it will be assigned to one of four dispute categories: fraud, authorization, processing errors, and consumer disputes.
Fraud disputes may involve actual, criminal fraud, or they may be friendly fraud: Legitimate transactions reported as fraud by the cardholder out of ignorance or deception.
Disputes do not always arise out of direct interactions between the merchant and the customer. Acquiring banks and issuing banks can sometimes make mistakes that lead to disputes. Sometimes the banks can resolve a dispute without involving the merchant at all.
For disputes that are not born from fraudulent activity or merchant error, the cause is usually frustration, confusion, or dissatisfaction on the customer’s part. Maybe they feel buyer’s remorse after an aggressive sales experience, maybe the product doesn’t work as advertised, or maybe the merchant is taking too long to respond to customer service inquiries. Anything that bothers the customer enough to pick up the phone and call their bank can end up as a formal dispute.
Notification of a dispute will usually come from your acquiring bank. Sometimes you may receive an inquiry from the issuing bank asking for more information about the transaction, which is your chance to prevent a chargeback by responding quickly with as much information as possible. In other cases, you may simply receive notification that you've received a chargeback and your account has been debited.
When you receive a Visa dispute, look
For example, if the cardholder claimed the product was never delivered but you have records showing it was delivered and signed for, you probably have a good case for fighting that dispute through representment.
In representment, you'll submit a rebuttal letter with supporting evidence to the issuing bank, which will make a decision to either uphold or reverse the chargeback. If the chargeback is reversed you'll get back the transaction amount, but you'll still be responsible for paying any chargeback fees.
Some disputes, of course, can't be countered with evidence. If the transaction was genuinely fraudulent, or if the dispute was caused by a mistake on your part, you need to accept the chargeback. There is no point in challenging a dispute that you know has merit.
Disputes that result from fraud can't be contested, so it's even more important to prevent them. Following all recommended security and authorization procedures will prevent many fraudulent transactions that otherwise might slip through. For online merchants, AVS/CVV matching is the bare minimum, and 3-D Secure 2.0 is another effective and accessible fraud prevention tool.
More advanced tools can use machine learning to give each attempted transaction a risk score, automatically rejecting high-risk transactions or marking them for manual review.
A clear and well thought-out return policy, along with generally strong customer service, can also prevent disputes. Make sure your receipts are legible, your merchant information is concise and unambiguous on cardholders’ bank statements, and that any returns are processed as quickly as possible along with a purchase return authorization to allow the cardholder to track their pending refund.
When a customer approaches you directly with a problem they’re having, they’re doing you a huge favor. Even if their issue seems trivial and their remedy unreasonable, hear them out! Any time you can resolve a customer’s problem and issue a credit before they contact their bank, you are almost certainly preventing a costly and time-consuming dispute from happening.
When disputes occur for technical reasons—improper authorization, the wrong amounts, duplicate charges—merchant error is often the cause. Improved procedures, better staff training, and up-to-date payment processing technology can help lessen the frequency of these disputes.
With the COVID-19 pandemic
To address these challenges, Visa created the COVID-19 Issuer Dispute Monitoring Program. As part of the program, Visa is monitoring dispute volume for specific industries like airlines, entertainment, and lodging. They're also flagging any issuing bank with more than 50 invalid daily disputes. An invalid credit card dispute is one that:
Any issuers flagged by the program must reverse all invalid disputes within three business days. Failure to do so is non-compliance, which could ultimately lead to a loss of the ability to file Visa disputes.
Keeping up with each card network's own special rules, procedures, and best practice recommendations can feel overwhelming, but it's a case where the benefit of doing so is crystal clear. Staying in compliance with their guidelines and following their dispute-handling suggestions gives you the best chances of beating disputes and holding on to your revenue.
As a merchant, dealing with customer disputes is part of your regular business routine. Passively accepting them and allowing the default outcome to subtract from your revenue, however, should not be.
Acknowledging disputes, assessing their validity and the reasons behind them, and responding accordingly (fighting them whenever possible) must be the strategy you adopt if you want to keep your earnings, protect your business, and continually improve.
Fighting disputes and chargebacks can give you an edge over competitors who don’t fight them and therefore never gain insights into what aspects of their operations, marketing, and product design are alienating some of their customers.
Some merchants may worry that fighting chargebacks will make them seem anti-customer, but the truth is that learning from chargebacks and adapting your business to prevent them will actually make you a stronger company that’s more responsive to your customers’ needs.
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