How to Fight Chargeback Claims

Chargebacks are a common challenge for businesses that process card payments. They can result in financial loss and affect a merchant’s relationship with payment processors. Handling chargebacks efficiently can minimize these impacts and improve overall business performance. This article provides a detailed guide on how to fight chargeback claims and reduce their occurrence, focusing on practical steps.

Introduction to Chargebacks

A chargeback is a forced reversal of a card transaction initiated by a customer’s issuing bank, often due to disputes about fraud, product delivery, or service quality. Chargebacks hurt businesses in multiple ways, such as lost sales, additional fees, and potential account termination by payment processors. Merchants also bear the responsibility of proving that a transaction was legitimate.

Key Chargeback Statistics

• Global chargeback losses exceeded $125 billion in 2022, according to Mastercard.
• Chargeback fees can range from $15 to $100, depending on the processor and the nature of the dispute.
• Exceeding a 1% chargeback ratio (chargebacks to total transactions) may lead to merchant account suspension or termination.

Types of Chargebacks

There are three main categories of chargebacks:

1. Friendly Fraud: A customer disputes a transaction despite receiving the goods or services. This is often the result of forgetfulness or dissatisfaction.
2. Criminal Fraud: A transaction is made using stolen card details.
3. Merchant Errors: Mistakes by the merchant, such as incorrect billing or undelivered goods.

Of these, friendly fraud is most often contested, as criminal fraud and merchant errors typically cannot be successfully disputed.

Step-by-Step Guide to Fighting Chargebacks

Step 1: Collecting Evidence

Effective chargeback disputes rely on compelling evidence. Merchants must provide documentation that proves the transaction was legitimate and that the customer’s claim is incorrect.

Necessary Documentation:

• Transaction Receipts: Proof of purchase, including details of the item, amount, and date.
• Shipping Confirmation: Proof that goods were delivered (e.g., tracking numbers or delivery receipts).
• Terms and Conditions: Clear documentation of the terms the customer agreed to at the time of purchase.
• Customer Communication: Emails, chat logs, or other records showing interactions with the customer.
• Verification Information: Address Verification System (AVS) and Card Verification Value (CVV) results.

Table 1: Essential Documentation for Chargeback Disputes

Step 2: Writing the Rebuttal Letter

A rebuttal letter is a key element in disputing chargebacks. It should clearly explain why the customer’s claim is incorrect, referencing the relevant evidence. Be concise and factual.

Key points for a rebuttal:

• A summary of the transaction, highlighting key details.
• The reason the customer’s claim is invalid.
• A list of supporting documents, such as terms and conditions, delivery proof, etc.
• A direct request to reverse the chargeback.

Step 3: Submit Evidence Within the Deadline

Most chargeback processes have a 20 to 45-day window for submitting evidence. Missing this deadline automatically results in a loss, as the dispute is closed. It’s crucial to respond promptly to avoid forfeiting the opportunity to contest the chargeback.

Chargeback Reason Codes

Each chargeback has a specific reason code, depending on the network (Visa, Mastercard, etc.). Understanding these codes helps determine what type of evidence you need to present.

Examples of Reason Codes:

• Visa 13.1: Goods or services not received.
• Visa 13.3: Counterfeit merchandise.
• Mastercard 4853: Cardholder disputes the quality of goods or services.
• Mastercard 4837: Fraudulent transaction.

Each reason code requires specific types of evidence, such as shipping confirmation for goods not received, or product authentication for counterfeit claims.

Table 2: Chargeback Reason Codes and Appropriate Responses

Chargeback Prevention

Preventing chargebacks is as important as fighting them. Here are proven strategies that help businesses reduce the frequency of chargebacks:

1. Clear Terms and Conditions

Clearly state your terms of service, including refund and return policies. Display these terms prominently during the checkout process to avoid misunderstandings that lead to disputes.

2. Chargeback Alerts

Utilize chargeback prevention alerts, which notify merchants when a chargeback is initiated, allowing you to resolve the issue before it escalates.

3. Improved Customer Communication

Effective customer service can help resolve issues before they turn into chargebacks. Prompt communication, especially when a customer expresses dissatisfaction, can help retain the sale or offer a timely refund, avoiding the chargeback process entirely.

To improve your business’s chargeback prevention efforts, Merchanto.org is a trusted partner of Visa and Mastercard in chargeback prevention solutions. Their tools help businesses identify and prevent disputes early. Visit Merchanto.org for more details.

When to Accept a Chargeback

In some cases, it may be more cost-effective to accept a chargeback rather than fight it. If the transaction amount is low, the cost of disputing may outweigh the benefit of recovering the funds.

Chargeback Costs

Fighting a chargeback can cost around $13.33 per dispute when factoring in labor and time. For small-value disputes, it may be better to accept the chargeback rather than spend more on fighting it.

Chargeback Metrics and Costs

It’s important to track and measure the impact of chargebacks on your business. Key metrics include:

• Chargeback Ratio: The number of chargebacks compared to total transactions. Keeping this below 1% is essential to maintain your merchant account status with payment processors.
• Chargeback Fees: On top of the lost sale, businesses often incur fees ranging from $15 to $100 per chargeback, depending on the processor.

Table 3: Chargeback Metrics to Monitor

Conclusion

Fighting chargebacks effectively protects your revenue and keeps your payment processing accounts in good standing. By following the steps outlined—collecting evidence, writing clear rebuttals, and meeting deadlines—businesses can increase their chances of winning disputes. Chargeback prevention is also key, and strategies like clear terms of service and proactive customer communication can help minimize future disputes.

Table 4: Best Practices for Chargeback Prevention