What is Chargeback Representment?
When we talk about how to “fight and win” against chargebacks, what are we really saying? For the most part, what we’re referring to is chargeback representment. This is the part of the dispute process where the merchant has a chance to contest the chargeback and convince the issuing bank to reverse it and give back the disputed funds. It’s called representment because the merchant is “presenting” the charge a second time. Understanding how chargeback represenment fits within the overall dispute process is crucial to fighting back effectively.
To dispute a transaction and obtain a chargeback, cardholders must give their issuing bank a reason why the charge was invalid and they shouldn’t have to pay it. The issuer may ask some questions and try to dissuade cardholders from filing a baseless dispute, but in most cases the cardholder will receive a chargeback if they demand one.
Chargeback representment happens when the merchant does not agree with the cardholder’s claims and does not want to accept the chargeback. Upon receiving notice of the chargeback, they can submit the transaction again, along with evidence that proves its validity. This evidence is first received by the merchant’s acquiring bank, who sends it back upstream to the issuing bank, who makes a decision and notifies the merchant and the cardholder.
Representment is the most important phase of the chargeback process for merchants. There are many parties involved in a dispute: it starts with a customer, who raises a complaint with their issuing bank, which contacts the acquiring bank, which notifies the merchant. Chargebacks encompass this entire process that flows from the customer through the banks to the merchant.
What Happens If I Ignore Chargeback Notifications?
Merchants are obligated to respond to all chargeback notifications they receive. They can either accept the chargeback, or they can respond by representing the transaction. No response defaults to accepting the chargeback, but some card networks will fine merchants who fail to submit any response at all. The purpose of these fines is to motivate merchants to respond quickly, speeding up the process so that disputed funds aren’t tied up in a provisional status for a long time.
When the merchant accepts the chargeback, the cardholder keeps the funds and the matter is settled. The merchant loses the disputed amount and the goods the cardholder purchased, and has to pay chargeback fees. Their chargeback ratio also goes up, which can affect their terms with their payment processor.
The card networks keep pushing for faster, more streamlined dispute phases. Visa, for example, updated its chargeback rules in 2018 and imposed a 30 day time limit for merchants to respond to a dispute with chargeback representment.
Keep in mind that representment is not a tug-of-war between the merchant and the cardholder until one of them gives up. The merchant must submit compelling documentary evidence along with the representment, and if either party wishes to contest the matter beyond this point, the dispute process moves into an entirely new phase that ultimately leads to arbitration from the card network.
When It Comes to Representment, Are All Merchants the Same?
Merchants have the right to fight their chargebacks, and chargeback representment is the process through which they can do so. Successful representment is based on the evidence the merchant is able to present. The right kind of compelling evidence can vary, depending on what type of merchant is involved in the chargeback case.
For our purposes here, there are three types of merchants:
- Merchants who offer physical goods for sale
- Merchants who offer digital goods, like software or website subscriptions
- Merchants who offer digital services, like online marketing or debt counseling
Within these types, especially the second, there is also the variation of one-time sales and recurring sales, as in a subscription that bills customers on a monthly basis.
Each type of merchant has different forms of evidence to gather and present when fighting a chargeback, but some evidence is applicable in every situation.
What Constitutes Compelling Evidence for Representment?
Choosing the right kind of evidence to submit largely depends on the reason provided for the chargeback. All chargebacks come with a reason code that spells out the cardholder’s justification for disputing the transaction. The reason code will give merchants some direction in determining what kind of evidence to send along.
Some card networks will include “transaction modifiers” with the reason code. These provide additional details about the chargeback, which may be industry-specific (travel, for example), that can carry implications for what kind of evidence will be needed.
One thing that every chargeback representment should include is a rebuttal letter that lays out the merchant’s case, explaining why they are fighting the chargeback and what elements of the cardholder’s claim will be refuted by the rest of the evidence provided. Rebuttal letters should be brief and to the point.
You must also provide a transaction record that shows that the AVS and CVV information you collected matches the customer's payment credentials. Some issuers and card networks will reject your representment right off the bat if you can’t establish that you did your basic due diligence when the transaction was initially processed. This alone can be sufficient to win against claims that the card was used without proper authorization.
It's also a good idea to provide a copy of your sales terms and conditions, highlighting or excerpting the relevant parts. If your customers have to check a box indicating that they have understand and agree to abide by them when they place their order, include a record of that too. Many cardholders rush to file chargebacks before they have attempted to work through their issue with the merchant, which they are required to do.
Copies of communications between the merchant and the customer may be relevant as well, if they show that the merchant was in the process of making a good faith effort to resolve whatever problems the customer was having. You may also need to provide copies of receipts or invoices, especially if they contain special requests or instructions from the customer that related to the chargeback reason.
It can also be helpful to provide the customer’s past order history, if that exists, to show that the customer previously had no issue with similar or identical purchases.
With respect to the three merchant types mentioned earlier, here are our specific documentation recommendations:
- Physical Goods Merchants should provide an invoice that describes what product was purchased, when and how it was shipped (with tracking information included), any refunds issued, and copies of any interactions between the customer and the merchant.
- Digital Goods Merchants should provide documentation such as invoices, IP logs, internal data, social media postings, or anything else that proves the customer made use of the software or subscription they purchased. On chargebacks against a recurring billing, it can be helpful to attach receipts for previous billings that the customer did not dispute, to demonstrate that they accepted these charges in the past.
- Digital Services Merchants may have a hard time furnishing proof that digital services like consultations have actually been used by customers who initiate chargebacks. For these merchants, it is important to obtain a written agreement, either physically or electronically signed, before providing service to a customer. Other than that, the best evidence is relevant documentation such as invoices, social media postings related to the receipt of your services, IP logs, etc.
Less-common types of chargebacks may require highly specific forms of evidence. For example, if an international customer claims they were overcharged because an unfavorable exchange rate was used, you may need to provide proof that they agreed to dynamic currency conversion.
What Are the Potential Outcomes of Chargeback Representment?
Once the representment reaches the issuing bank, they will review the evidence and make a decision. They will typically notify your payment processor first, and the merchant can find out the outcome from the payment processor’s online portal, or by emailing or calling them.
If the bank decides in favor of the cardholder, they keep their provisional credit for the disputed funds, the merchant is out the funds, product, and fees. If they decide in the merchant’s favor, the transacted funds are returned to the merchant account and the cardholder loses their provisional credit. Either way, this brings the representment phase of the dispute process to a close.
However, representment is not always the end of the story.
Customers and banks can pursue the chargeback further, to the pre-arbitration stage. Your option at this point is to accept arbitration from the card network or provide new evidence. The best way to avoid pre-arbitration is to present the best, most compelling evidence you can in the chargeback representment phase.
If you lose your chargeback representment, you can request arbitration yourself, but there's a catch. According to Visa's new rules, whoever loses the case pays the fees for arbitration, which can run as high as $500. Previously, the initiator of the chargeback was responsible for these fees, but no longer. We do not recommend collection agencies for recovering fees—some of them act abusively, and customers can complain to state and local authorities. Association with abusive collection agencies can hurt your business.
Another option, if the chargeback amount is over $500, is to have an attorney represent you. A letter from an attorney can be enough to make some people decline to pursue a weak chargeback case.
If a merchant loses the chargeback again after representment, that may be an indicator that they didn’t submit the right evidence. It may also mean that they’re fighting a chargeback they can’t win. Chargebacks that result from true fraud, or those that are caused by merchant errors, cannot be beaten with truthful, accurate evidence. It’s better for merchants to accept chargebacks that they know to be valid and only invest time and effort into fighting “friendly fraud” chargebacks where the cardholder is being dishonest.
What Are the Options for Handling Chargeback Representment?
There are three real options merchants have when it comes to handling chargeback representment.
- Let it go. Accept the chargeback as a cost of doing business. For chargebacks that have a legitimate basis, this is usually the best approach. It may also be acceptable if you get chargebacks very infrequently.
- Fight chargebacks with an in-house team. Recommended if you have high-volume or high-dollar-amount chargebacks. The advantages are security and minimal cost, but it can be difficult for an in-house team to keep up with all of the policy changes banks and card networks make to the chargeback process.
- Hire a chargeback management company. The right company will have a solid knowledge of the industry, along with the tools and resources to effectively fight chargebacks and identify their root causes. They can be available 24/7, and can provide useful suggestions, reporting, and insights that can help you identify your vulnerabilities and incur fewer chargebacks. However, they can be expensive, and the wrong company can drain your money while providing little in the way of useful representation.
Whether you opt to deal with chargebacks on your own or hire an outside company, it is to your great benefit to understand exactly how representment works. As part of any sale, you should be documenting and recording the information you will need to submit as compelling evidence if the sale later turns into a chargeback. You must be conversant in the timeframes allowed for your responses, the right forms of evidence to submit for your specific business and the industry you’re in, and the meanings of any reason codes and transaction modifiers that might be applicable to you.
Something to remember is that when you don’t fight chargebacks, you’re essentially telling the bank that the cardholder’s claims are true and valid. Accepting too many chargebacks can give you a bad reputation with issuers and prejudice them against you in future disputes. It also allows friendly fraudsters to get away with theft by deception, giving them positive reinforcement to repeat this harmful practice.
It’s also true that ineffective chargeback representment—in other words, submitting the wrong kind of evidence, or fighting unwinnable chargebacks—can do more harm than good. Don’t tie up the bank’s time and resources, much less your own, by representing with irrelevant or incomplete evidence.
The secret to maintaining a winning record against friendly fraud and other beatable chargebacks is to know what kind of evidence to submit, how to craft a persuasive rebuttal letter, and when to just accept a valid chargeback. To really protect yourself, you need effective representment procedures in place, along with proactive measures to prevent the chargebacks that can’t be fought.