A transaction dispute can be regarded as the consumer-centric complaint linked with purchases from any debit or credit card. Transactions usually get disputed due to unauthorized purchases or fraud and the absence of merchant follow-through (services not performed, merchandize not expected, credit not issued, and so on).
As a transaction gets disputed, the money that has been originally paid to business might be returned or revoked to the respective cardholder. Moreover, the overall reputational damage in association with the dispute can impact the overall ability to ensure the processing of future transactions. As a lot remains at stake, it is important to understand common transactional disputes. It is also crucial to know what is takes to protect the hard-earned revenues of your business.
When will a Dispute Become a Chargeback? What is the Difference Between Disputes and Chargebacks?
Transaction-based disputes serve to be a major obstacle for merchants who are currently working in remote channels including e-commerce. Transactional disputes have become a crucial function in the modern payments ecosystem.
However, an increasing number of customers continue abusing disputes to obtain ample funds without even a valid reason. What will the process entail? As a merchant, how are you supposed to respond? Most significantly, what can you do to prevent disputes and get ample revenues?
The terms chargebacks and disputes are used interchangeably. In a wider sense, the terms imply the same thing while yielding a similar outcome. As a matter of fact, Visa recently replaced its term chargeback with the term dispute in all the processes and rules of the card brand.
Most chargebacks tend to start with a consumer-centric dispute. However, not all disputes will be unavoidably leading to a chargeback. A customer can go ahead with initiating a transaction dispute by reaching out to the issuer (the bank in association with the respective payment card that was used in the given transaction). The credit cardholder, in turn, will ask the bank to ensure the reversal of the charge. The bank continues examining the conditions and determining whether or not there is a legitimate reason to achieve the same. When the bank will accept the claims of the customers, then the dispute will move ahead to the stage of a chargeback.
Ultimately, chargebacks are known to have a significant and legitimate role in the payments industry. Eventually, when you know you are able to recover the amount you have lost to criminal frauds, unauthorized use, or even merchant abuse, then you will gain ample confidence in the aspect of payment cards.
Understanding Transactional Dispute
A transactional dispute takes place when the credit cardholder will register a formal complaint against the merchant with respect to a particular transaction. Most transactional disputes are due to unauthorized purchases or fraudulent claims. Still, one of such claims could be made when the item did not arrive, an item was delivered damaged, or the expected services were not delivered.
Transactional disputes are regarded as consumer rights that are protected by law. They were initially implemented during the early days of credit card usage as the means to garner consumer confidence. With this, every time a transaction gets disputed, you will lose out on the overall revenues you had earned out of the original sale. You are also required to incur additional fees and costs if you wish to challenge the existing dispute.
What Complaints are Regarded as Disputes?
There are multiple reason codes that are linked to a particular dispute if the same will advance to the chargeback condition. Some of the conditions under which the credit cardholder might consider raising a dispute will be categorized as:
Unauthorized or Fraudulent Charges
This takes place when the credit cardholder will not recognize a transaction or could not approve the existing transaction. In simpler words, the transaction might have been implemented by some criminal with the help of stolen information. Some of the common signs of fraud include:
- Multiple, identical items bought in rapid succession
- Items that were never ordered by the buyers but were added to the invoice later
- Transactions for which shipping information do not match the address of the cardholder.
The cardholder might be charged for products or services that are outside of or even distinct from the agreed upon durations and practices. Billing errors are known to account for charges that might be:
- Displaying the wrong amount or date
- Containing accounting or mathematical errors
- Not listing post-purchase returns or credits
- Not reflecting the established change of address
These refer to products or services that were not delivered as expected. These could also indicate products or services that were not able to live up to the promises made during the time of the purchase. Some of the instances could be:
- Missing items
- Faulty or damaged goods
- Abuse of the terms of services
- Failure to follow the respective regulations and codes
If any of the above criteria are met, the credit cardholder can go ahead with submitting the respective claims to the banks for further investigations.
Understanding the Dispute Process
The dispute process can be quite complicated. Some of the important steps involves in the process are:
- The cardholder filing a dispute: Not satisfied with the purchase they have made, a credit cardholder will go ahead with contacting the issuing bank to dispute the latest transaction. They might achieve the same with the help of the website of the bank or mailed letter, email, or phone. In some cases, the issuer will enable the credit cardholders to dispute the transactions directly with the help of a banking app or some third-party payment management platform.
- The issuer reviewing the case: The issuer will go ahead with examining the claims of the cardholder towards determining the legitimacy. They might make attempts towards requesting more information for trying and validating the sale. When the claim might appear genuine, the bank will offer the credit cardholder with a provisional refund for the initial transaction amount.
- The issuer filing a chargeback: Only when all other methods of resolution have been ruled out as the potential, a chargeback will be filed against you. From this point, the dispute will accelerate through a series of progressive steps. These steps will eventually cost you the overall fees, revenues, and even lost time.
Typically, the objective of completing the dispute process is around 30 days or even less for Visa. On the other hand, it is 45 days for Mastercard. Based on the level to which the dispute might have progressed, it could even take several months to get resolved.
Preventing Transactional Disputes
The chargeback process has not been successful in maintaining the overall pace of modern technological advancements. We continue using the methods of the pre-internet era. The outcome is that customers tend to feel free as well as encouraged to go ahead with filing disputes without facing the negative outcomes of the respective actions.
- The rising volume of transactional dispute cases will make it difficult for banks and other financial institutions to complete the important due diligence for all customer-centric disputes.
- If there is any legitimacy to the complaints of the customers, the case will eventually advance to the cardholder. Banks remain unwilling to compromise on the overall trust of the customers.
- Merchants usually do not deal with invalid customer-centric disputes. They will end up writing them off as inevitable costs of doing business.
- Misguided or misinformed consumers might erroneously relate the chargeback process to the refund. They are unaware of the fact that they are entirely different.
- Customers who wish to successfully file a chargeback or dispute might repeat the behavior again.
The best strategy, in this case, is to make use of a chargeback mitigation plan, including:
- The best practices for preventing criminal frauds
- Practices to eliminate errors
Once you have eliminated all possible threats, all remaining chargebacks will be instances of friendly frauds. These could be engaged with the help of tactical representation.
There can be no easy and quick solution for the prevention of transactional disputes. With the help of the right strategies, you can look forward to protecting your business and the overall bottom line.