Chargebacks can be a persistent problem for merchants, acting as a constant drain on their revenue unless they implement effective preventive measures. Unfortunately, no matter what merchants do, chargebacks will continue to roll in. There’s no way to prevent credit card fraud one hundred percent of the time or ensure that issuing banks never err when granting a chargeback to a cardholder.
The most frustrating chargebacks to receive are the illegitimate ones. Merchant error chargebacks are never fun, but you can learn from them and dramatically reduce their occurrence. It may sting that the liability for credit card fraud falls on merchants, but true fraud is, after all, the primary thing chargebacks were created to remedy. When you get an invalid chargeback, you’re being penalized for somebody else’s mistake, or worse, being actively defrauded.
The good news is chargebacks don’t have to be a cost of doing business. Merchants can (and should) get fraudulent and illegitimate chargebacks reversed in most cases. The process can take some time and attention, as the burden of proof is on the merchant to show why the chargeback should not have been granted. When it’s successful, however, it does result in the return of the disputed funds. Unfortunately, you don’t get your chargeback fees refunded, and the original chargeback still counts against your chargeback ratio. Even still, a properly optimized chargeback strategy can return a surprising amount of lost revenue to your bottom line.
The process of requesting a chargeback reversal is called chargeback representment because you’re re-presenting the transaction—along with the evidence that proves your case—to the issuing bank. If the evidence is on the merchant’s side, the issuer should decide to reverse the chargeback.
Returning that lost revenue to your organization is only one element to consider. Fighting chargebacks is important not just from a revenue recovery standpoint, but also because it discourages the practice of friendly fraud. Friendly fraud occurs when cardholders misrepresent the facts of a dispute in order to obtain a chargeback to which they are not actually entitled. Sometimes this happens because the cardholder is genuinely confused or forgetful, but often it is deliberate. Merchants who don’t take the time to fight friendly fraud may find themselves becoming repeat victims of it.
There is a method to successful chargeback representment. Following these tips will help ensure that you win when the truth is on your side and that you won’t waste time on hopeless cases:
Practice Good Record-Keeping
To win a chargeback representment case, you need to include the right evidence. While you will need to supply a rebuttal letter outlining your argument, issuers aren’t going to be won over by lengthy written explanations. Each chargeback reason code has specific pieces of evidence that can be used to support a reversal, and that’s what the issuer will be looking for.
The only way to make sure you have the right evidence ahead of time is to maintain careful and complete transaction records, including elements such as:
- Transaction receipts
- Fraud check results
- Cardholder authentication data
- Shipping and delivery confirmation
- Signed proof of completed service
- Access logs for digital products
- Customer communication logs
- Contract/service agreement if available
It’s also important to keep copies of all communication with your customers. While many chargeback cases will be decided strictly on the merits of the data-based evidence, some disputes can get into subjective territory, and cardholders are always supposed to contact merchants to work out delivery and quality issues before resorting to a chargeback. In these cases, proof of who said what can sometimes be the deciding factor.
Analyze Your Chargebacks
Before you can fight a chargeback, you need to know what it’s for, what the reason code is, and why it happened. You can get the answers to these questions by analyzing each chargeback and the transaction data it relates to.
The most important piece of information is the reason code, which tells you what kind of chargeback you’re dealing with and what evidence is needed to fight it. However, the reason code doesn’t necessarily tell you a complete or accurate picture of what the dispute is all about. Issuers may be simplifying complex disputes when they fit them into predefined reason codes, and cardholders don’t always tell the whole story when they’re asking their bank for a chargeback.
Analyzing the transaction data and communication records associated with the chargeback can fill in a lot of the missing context and tell you whether or not the chargeback is valid according to the card network rules.
Pick Your Battles
The secret to getting chargebacks reversed is to pick fights you can win. That means that you should always fight chargebacks that are invalid, meaning that the reason code justifying the chargeback is based on false or erroneous information, and you have the evidence to prove it.
It’s especially important to fight friendly fraud chargebacks that are carried out on purpose as a form of cyber-shoplifting. Customers who get away with it once are likely to continue doing it, so don’t make yourself an easy target.
Some invalid chargebacks are based on good faith errors. For instance, it’s not uncommon for cardholders to dispute charges simply because the merchant descriptor looks strange and unfamiliar to them. You can fight these chargebacks, but it’s just as important to understand why they’re happening and whether there’s anything you can do to prevent them in the future (like coming up with a better merchant descriptor).
On the flip side, it’s a waste of everyone’s time to fight chargebacks that you know are legitimate, so it’s important to look carefully at the facts and be sure.
Most importantly, be transparent, honest, and ethical in your approach to managing chargebacks. When your team is at fault, accept that growth opportunity and use it to improve your service. Teach your analysts to find cases where the organization should have genuinely refunded the customer or where your service didn’t live up to your brand’s values. Make every effort to understand who or what contributed to those underlying circumstances in your customer’s journey and learn from it in a positive way. If you instill into your team a “make it right” mentality, your chargebacks will reduce even further, and your business will only grow.
Submit Relevant and Compelling Evidence
The last thing to do is re-present the disputed charge along with a rebuttal letter and your evidence. This must be done before the deadline for a chargeback response, which will depend on the card network involved.
Your rebuttal letter should be concise and easy to understand, explaining the reason why you believe the chargeback is invalid and what evidence you are providing to prove it. Remember, the person reviewing your case may not understand your business or the service you provide. A great rebuttal letter explains (in as few words as possible) who you are, what you have provided your customer, and why they should favor you in the case.
Your chargeback representment evidence should be relevant and compelling, which means it should match the evidence requirements specified by the reason code and directly support your version of events. For example, if a cardholder falsely claims that they never received an item they ordered, the right compelling evidence would be a signed delivery confirmation slip that shows it was delivered to the address they provided at the time of sale.
A chargeback reversal doesn’t necessarily mean the dispute is over - things can always escalate to arbitration by the card network if neither side is willing to accept the results of the issuer’s decision.
While representment isn’t a perfect cure for invalid chargebacks, it’s an essential tool that merchants should get comfortable utilizing. By following an effective strategy for fighting chargebacks, merchants can recover significant amounts of revenue that otherwise would have been lost to third-party errors and fraud.
About the Author
Suresh Dakshina is the President and cofounder of Chargeback Gurus. He is a certified e-commerce fraud prevention specialist and a certified payments professional and certified chargeback management professional who knows first-hand the challenges business owners face, especially when it comes to chargebacks and fraud. Suresh holds a Master’s degree from the University of Southern California and has consulted Fortune 5000 companies for over a decade on chargeback and fraud minimization. Suresh is a veteran speaker and works closely with the major card networks on chargeback process optimization and compelling evidence policies.