Dispute and Chargebacks

What is a Chargeback? #

A dispute (also known as a chargeback) occurs when a cardholder questions your payment with their card issuer.

When a customer disputes a transaction successfully to get their money back, the charge is returned to their card. Chargebacks play a vital role in the payment ecosystem, particularly in the cards industry. By offering customers the ability to raise disputes/chargebacks, it boosts their trust and confidence in using debit and credit cards for payments.

Chargeback vs Refunds #

	Chargeback	Refunds
Who initiates the process	Customers initiate through the bank that issued their card.	Merchant initiates to repay a customer who is returning a product or is dissatisfied with goods or services
Who the customer deals with	The issuing bank facilitates the chargeback process on the customer’s behalf.	The customer works with the merchant to resolve the problem and collect their payment.
What happens to the funds	The disputed funds are collected from the merchant’s account and held until a decision is made	After the merchant initiates the refund request, funds will be returned to the customer’s balance
How long the process takes	Can’t be estimated, depends on the process	Less than 14 work days – depends on the issuer
Fees	Can be up to USD 100 or more	None

What can cause Chargebacks? #

Customers may contact their card issuer for refunds due to reasons like identity theft, unauthorized transactions, or fraud. Merchants should engage with customers to confirm the causes for chargebacks for clear communication.

1. A buyer does not want to use the product
2. The product does not meet the expectations of the buyer
3. The buyer is not happy with the service of the merchant
4. A buyer does not recognize the purchase of the product which could be because the cardholder’s card was stolen, or because of social engineering

In some cases, a cardholder might raise a dispute on purpose to keep the goods/purchase without settling the payment. This is commonly known as ‘friendly fraud.’

When a cardholder raises a dispute/chargeback, the process might be different depending on the card network, but typically follows a standard scenario as shown below :

1. The dispute begins when a cardholder raises a chargeback directly to the issuing bank. The issuing bank will then review the transactions and decide whether or not the customer has grounds to file a chargeback.
2. If the issuing bank decides to grant the cardholder the chargeback, the bank will notify the card network (e.g. VISA, Mastercard), and the network will forward it to the acquiring bank (the merchant’s bank).
3. Once received by the acquiring bank, the acquiring bank will then forward the chargeback to Payex as the merchant’s payment facilitator.
4. The merchant will then be notified of the chargeback by Payex and can choose to accept or challenge the chargeback by providing a defense document. Merchants must defend the chargeback within a certain time frame depending on the card network’s policy.
5. The issuer will then review the defense document and decide whether to accept/reject the defense. If accepted, Payex will return the funds back to the merchant.

Fighting the Chargebacks #

When determining a judgment for a chargeback, transparency will prevent you from losing. Transparency means that you have recorded and maintained all interactions with the cardholder, details of the transaction, and anything that will confirm that the cardholder acknowledged/is aware of the product that they were purchasing. Some examples of evidence that you can provide:

1. Screenshot of the account that the cardholder used
2. Screenshot of the invoice of the product that the cardholder bought + screenshot of the product
3. Screenshot of the payment details (e.g. masked card number, name, email, phone number, shipping address, etc.)
4. Screenshot of the invoice/payment reference from Payex (external ID/order ID) with the reference details from the merchant that match
5. Screenshot of the shipping proof
6. Screenshot that the cardholder has received the product
7. Screenshot that the cardholder has used the product

The evidence can be sent to merchantsupport@payex.io The more relevant the evidence that you send, the more you are likely to win the chargeback. If Payex does not have enough evidence that support a successful reversal of the chargeback, we will request additional documentation. A certain period of time will be given (depending on the issuing bank) to submit all documentation to us.

Chargeback Results #

If the acquiring bank deems that the supporting evidence is not enough, Payex will be informed, and there will be additional time to gather more evidence. The bank will review the evidence received and notify Payex of the chargeback results.

Chargeback will surely cost the merchants/businesses the disputed amount along with the chargeback fees. Therefore, preventing chargeback is more important than fighting it.

Here’s how you can minimize this from happening:

• Protect Transaction with 3D-Secure (3DS)
  • Have authentication (3DS) enabled before charging to give you more protection from chargeback liability
• Allow Foreign Cards only based on the Use Case
  • Be mindful of accepting foreign cards and accept new countries on a case-by-case approach
• Good Fraud Prevention Strategy
  • Manually review transactions and cancel transactions with suspicious characteristics
  • Pass your customer’s billing details upon charge. Using an Address Verification Service (AVS) can make your charge much more solid
  • Remains vigilant and implement appropriate measures to identify and mitigate suspicious patterns
• Good Chargeback Management Strategy
  • Clearly state return & exchange policies on product pages, checkout screens, and order confirmations
  • Use delivery confirmation for every shipment, and use signature confirmation for expensive orders, create a transparent shipping and billing process
  • Clear acknowledgment proof from the customer’s end on your TnC (e.g. have a clear customer acknowledgment (ie. signature) for a non-refundable deposit, etc)
  • Use the same business name when possible on websites, order confirmations for expensive orders
  • Keep all customer correspondence and transactional records until after the chargeback window has passed
  • Include a clear product description on your website
  • Respond to customers’ inquiries as quickly as possible