How to Dispute a Chargeback and Win

Today’s ecommerce business walks a fine line between providing a frictionless customer experience and protecting themselves and their customers against fraud. And despite their attempts to do everything right, businesses often find themselves dealing with chargebacks. Why? Because chargebacks have become a business model for fraudsters. When companies can’t prevent chargebacks, they must have an approach to winning chargeback disputes.

But what does that look like?

Obviously, businesses want to avoid chargebacks by preventing fraud. But when you consider that friendly fraud and chargeback fraud have become so prevalent and hard to detect, businesses also need to do more than have a solid offense – they have to be willing to fight chargebacks.

This is critical, especially since a company’s chargeback ratio can get them into more financial trouble, with increasing fees and even chargeback monitoring programs. While the time and effort spent disputing chargebacks take a toll on revenue and productivity, the high costs related to out-of-control chargeback rates can be even more damaging.

Chargebacks cost the ecommerce industry about US$125 billion. For every $100 in chargebacks, the company loses $240.

What steps should companies take when they learn that they are subject to a chargeback?

First and foremost, determine whether a chargeback dispute even makes sense.

When Should Companies Dispute a Chargeback?

Some businesses see chargebacks as the cost of doing business. Usually, these are enterprise retailers that can assume the cost of lost sales, shipping, merchandise and fees. From their perspective, as long as they keep their chargeback rate under the 1% threshold, it may not be worth filing a dispute.

But that’s not the case for small and midsize businesses. They don’t have the luxury of eating all of the costs associated with chargebacks. In fact, too many chargebacks can be the downfall of a business dependent on every revenue dollar.

That’s why companies need to have criteria that make it worth expending the time, energy and resources needed to fight a chargeback.

Criteria for chargeback disputes

Companies should definitely dispute a chargeback in the following situations:

• They are confident the transaction was legitimate and want to put a stop to customers who take advantage of them. About 86% of chargebacks are deemed fraudulent, and 40% of customers who file one fraudulent chargeback will file another within 90 days.

• They have compelling evidence to refute the chargeback.
• They’ve already refunded the purchase. This is where a customer is committing chargeback fraud – an increasingly common problem in the post-pandemic era.
• The cost of disputing the chargeback is less than the chargeback-related costs. For example, if a company is nearing the point where they might be put on a monitoring program and incur more fees, it’s worth it to dispute almost every chargeback.

Once the decision to dispute a chargeback has been made, the real work starts. Now it’s time to dive into the reason for the chargeback.

What Is the Chargeback Reason Code?

For every chargeback, a card issuer assigns a reason code that clearly describes why the customer is challenging the transaction. Some reason codes are more frequently abused than others, which can contribute to data analysis about fraud trends and activity. Using this data to identify patterns helps prevent chargebacks – it also helps companies make a case when disputing a chargeback.

In fact, Visa issued a new rule in April 2023 – referred to as “Compelling Evidence 3.0,” which gives ecommerce businesses more options when presented with a chargeback. Specifically, the new rule can be used to reverse the transaction fraud status associated with Reason Code 10.4: Other fraud, card-absent environment, when the situation allows.

Essentially, the rule allows businesses to present at least two other undisputed transactions processed on the same card within the last 120 days. This is great news for companies that track transaction data because it can be used in the chargeback dispute process.

One last point to note on this: card issuers modify their reason codes and their rules, which means businesses need to keep of those changes or risk losing chargeback disputes.

All of this is good, but if companies miss the opportunity to dispute a chargeback, it’s all for nothing.

When Is the Response Deadline?

Card issuers have strict and well-documented deadlines that every business must follow when disputing a chargeback. Businesses must know how much time they have to respond to a chargeback dispute and be prepared to submit their compelling evidence within that time frame. It’s also essential to stay apprised of changes card issuers make to their chargeback procedures.

For example:

• Mastercard gives businesses 45 days to respond to a chargeback.
• Visa gives businesses 30 days.
• American Express gives businesses 20 days.
• PayPal gives businesses only 10 days.

What happens if a business fails to respond in those timeframes?

Not only is it assumed that the business accepts the chargeback, but rules like the Visa Claims Resolution initiative subject businesses to additional fines if they don’t submit any response at all.

What Makes an Airtight Chargeback Dispute?

When it comes to winning a chargeback dispute, businesses need to submit evidence that proves the transaction was valid.

This “compelling evidence” can include information such as:

Correspondence between the business and customer

Any communication that takes place related to the specific purchase, including questions about the product, as well as order and shipping confirmations.

Customer data

Information pertaining to the customer such as user name, IP address, CVV data, address verification system (AVS) data, etc. can help make the case for a valid purchase.

Proof of delivery

Every product shipped should have some sort of delivery confirmation – whether it’s a photo of the package on their front porch or a delivery signature. Retailers selling digital goods or services should have digital receipts confirming delivery and demonstrating the customer logged in, downloaded, viewed and used a digital order.

Website heat mapping data

Businesses that track cardholders’ IP addresses when they first enter a website can use that data to also track the customer’s activity across their website. This includes pricing pages, search activity, product reviews and more. All of this is useful information in a chargeback dispute.

Proof that the customer used the product or service

One advantage of social media is that companies can often see their customers using products or services in Instagram, Facebook and TikTok posts. Businesses can submit screenshots of a customer’s public social media account that shows the disputed goods being used. Or if available, they can submit timestamped posts or recorded videos of the customer flaunting the purchase.

Don’t underestimate the value of rebuttal letters

A well-written rebuttal letter that succinctly outlines the submitted evidence can be a highly effective way to dispute a chargeback, as long as it meets certain criteria:

• It’s succinct — A rebuttal letter can be less than one page in length.
• It’s objective — Keep emotion out of the letter and focus on the facts.
• It’s specific — Address the specific reason code and purchase details and highlight the evidence that invalidates the claim.

The biggest takeaway here is that companies need to establish an easy-to-use, well-organized storage system to document transaction details. This way, submitting compelling evidence will be easier and faster.

One of the best ways to dispute a chargeback is to prevent them in the first place.

How to Prevent Fraud and Chargebacks

Ecommerce businesses should consider partnering with fraud prevention solutions providers like ClearSale to protect against both fraud attacks and increasing chargeback levels.

Our hybrid solution includes a highly effective automatic approval algorithm that “learns” as transactions are processed. Globally experienced fraud analysts assess the small percentage of orders flagged for review with the goal of locating as many additional approvals as possible. Fraudulent transactions are identified and declined.

Highly trained human analysts along with advanced machine learning address the friendly fraud threat in real time. Not only can we help protect your business over the long term, but we also guarantee transactions 100% against fraudulent chargebacks.

By applying this global lens and a large database of orders across industries, we’re able to quickly recognize fraud trends and help clients eliminate fraud threats and prevent chargebacks — all while approving more orders, faster.

Chargeback management

Through our partnership with enterprise chargeback management service provider ChargebackOps, ClearSale offers full-scale chargeback management:

• Total Chargeback Protection allows businesses to recoup a portion of losses due to fraudulent transactions.
• Chargeback Guarantee reimburses the transaction amount plus the chargeback amount for any unauthorized transaction that’s approved.
• End-to-End Chargeback Management delivers comprehensive chargeback mitigation and resolution services, including team training, data audits and timely responses to issuers.

Give your business a fighting chance to defend its reputation and keep its hard-earned revenue. Contact a ClearSale analyst today to learn why so many businesses around the world use us as their trusted partner in the fight against fraud and chargebacks.