What is a Chargeback?
This part of the process is sometimes referred to as the "1st Chargeback" or simply a "Dispute".
A Chargeback is a transaction reversal initiated by the cardholder's bank after the cardholder successfully disputes a credit or debit card charge made on their account. The cardholder may request a Chargeback if they believe the transaction to be unauthorised, or fraudulent, or if the goods / services were not delivered to their satisfaction. Chargebacks can also be incurred due to clerical errors.
If you would like to dispute a Chargeback issued against your business, the card networks have an appeals process you can follow to challenge the decision. This involves gathering and presenting evidence that demonstrates that the Chargeback was unwarranted or invalid based on their rules.
Fees are applied at different steps of the process to facilitate associated costs. Learn about chargeback fees.
The issuing bank assigns a Reason Code that indicates the reason for the Chargeback and subsequently the process you should follow in order to dispute it. Learn about chargeback reason codes.
Chargebacks are detrimental to your company's standing
When a customer resorts to contacting their bank to settle a dispute without first reaching out to your business directly, it may signal shortcomings in your customer service that could negatively impact your reputation.
Card schemes will monitor your transactions for high Chargeback rates to protect customers and promote fair practices. Merchants with Chargeback rates exceeding 1% of their total transactions may trigger further investigation to identify any problematic behaviour or policy violations.
What is a Re-Presentment?
This part of the process is sometimes referred to as the "Merchant Defence" or simply a "Challenge".
This is the process through which you can respond to a Chargeback by disputing it with evidence or documentation to support the claim that the original transaction was legitimate. Chargebacks you intend to challenge should be actioned immediately as re-presentment can only be accepted within a limited time frame that is determined by the card scheme involved and the reason for the Chargeback.
Learn how to respond to different kinds of Chargebacks.
What is Pre-Arbitration?
This part of the process is sometimes referred to as the "2nd Chargeback".
If the card issuer disagrees or feels that there is not enough evidence to accept the dispute, they have the option to initiate Pre-Arbitration in accordance with card network rules.
If an agreement still cannot be reached, the Pre-Arbitration may enter Arbitration, where an adjudicator will be assigned to review all evidence presented and pass a ruling.
What is Arbitration?
Chargeback Arbitration is the final phase of appeal when a Chargeback case remains unsettled after the initial dispute process between merchants and card issuers. It acts as a resolution mechanism when the parties fail to reach agreement through the preliminary appeal stages.
An adjudicator is assigned by the card networks to review the evidence presented by both parties and decide whether the Chargeback should be upheld or reversed. The decision is made in accordance with the applicable card network rules and regulations. As such, the decision is binding on all parties.
What is Pre-Compliance?
Card issuers may initiate Pre-Compliance cases for situations not covered under standard chargeback Reason Codes, such as addendum charges and processing errors. Examples include adding charges post-authorisation or transmitting clearing data outside card scheme rules. While Pre-Compliance cases do not impact your Chargeback ratio, you are still given the opportunity to submit a defence and respond to the Pre-Compliance inquiry.
What is Rapid Dispute Resolution (RDR)?
With Rapid Dispute Resolution (RDR), you can set pre-determined rules to automatically refund applicable disputes to avoid negatively impacting your Chargeback ratio. There is no need to manually submit evidence as this is addressed by RDR. These rules can be configured to target specific scenarios, such as certain Reason Codes, amounts, currencies etc.
To learn more about RDR and enable on your account, please get in touch.
What is Friendly Fraud or a First-Party Chargeback?
Friendly fraud happens when customers dispute legitimate purchases they made, falsely claiming non-receipt of goods or lack of authorisation.
Although some Friendly Fraud cases involve intentional deception, many occur due to innocent customer confusion regarding transaction details or order status. For instance, customers may genuinely forget about a purchase they made or fail to recognise the name of your business on their statement. Additionally, customers may not understand your refund policy and pursue this route instead.
