Chargebacks and chargeback management is probably the most frustrating and infuriating aspect of your credit card processing. If you are an ecommerce (online) merchant then it is very likely you already know that the chargeback (credit card dispute) process is severely flawed, abused by dishonest cardholders, violated by problem credit card issuers, and ultimately unfairly stacked against the merchant.
You know all these things, you are forced onto this unlevel playing field, but do you understand why this is the case, and do you know what you can do to most effectively fight back?
Understanding the "why" is the key to developing the "how" to most effectively fight back. So let's look at the "why" first. Chargeback and dispute management policies were developed prior to the internet and online sales. They were implemented to address disputes in situations where the customer, in person, presented the card to the merchant.
Although these policies have been updated several times over the past decade, they are still sadly lacking in many areas which are specific to online sales. The intent of the chargeback process is for a customer to report unauthorized transactions to their credit card issuer, or to dispute a transaction via their credit card issuer if they were not first able to resolve a legitimate issue directly with the merchant.
We know that 90%-95% of chargebacks do not meet this criteria, are not legitimate, and are simply the result of cardholder and/or card issuer abuse of a flawed system. So why is this system so open to abuse, and how is it abused? There is a multitude of reasons and explanations, actually too many to list on this website, but here are some of the most common...
Many card issuers are not honest, and do not follow the chargeback process with any integrity. This is probably the biggest problem. They will flag and discriminate against certain merchant categories or locations, file chargebacks against these merchants in an automated fashion, often without even first contacting the cardholder. In other cases they will contact the cardholder and bully the cardholder into agreeing to a chargeback. In these cases it is the card issuer, not even the cardholder, instigating the chargeback due to prejudice against certain merchant categories and locations.
Problem card issuers manipulate, rather than follow, the chargeback process. Rather than file a chargeback using the applicable "reason", they will choose the "reason" that is the most convenient for them and the most difficult for the merchant in the given situation.
For example, in cases where the cardholder is clearly not entitled to a refund, they will provide a reason that the merchandise was damaged, defective or not received, instead of the reason that a credit is due. In cases where the card issuer is flagging and filing automated chargebacks against a merchant, they will file false fraud claims which are the most difficult to defend. Some card issuers will actually file a false claim of "cardholder does not recognize transaction" simply to first "fish" to see what evidence and documentation the merchant has before they decide which reason they will use to file another chargeback.
The burden of proof in all chargebacks rests with the merchant. Proving that the cardholder authorized a transaction, received merchandise, agreed to Terms, or is not entitled to a refund, is far more difficult in an ecommerce or telephone environment than when a customer makes a purchase in person. Card issuers are supposed to review the evidence and documentation provided by the merchant with the cardholder – many card issuers do not follow this process and simply ignore the evidence provided by the merchant.
After you receive a credit for a chargeback reversal, things are definitely not over - regardless of what chargeback reason is being disputed, or what evidence has been provided by the merchant, card issuers are able to further dispute any chargeback using the "arbitration process", essentially "reversing your reversal credit".
There are many card issuers which simply ignore your evidence, don't bother speaking to the cardholder, and simply make a habit of further filing any merchant chargeback reversals to the arbitration level.
There are potential fees involved at the arbitration level and these problem issuers know that many merchants will either not want to risk further fees, do not understand the arbitration process, or don't even know that the initial chargeback reversal credit has been cancelled.
Many merchants are not fully aware of dispute management policies and what constitutes solid evidence – these merchants are vulnerable to unscrupulous cardholders who know they can scam a merchant using a false claim of fraud, credit is due or non-receipt of merchandise.
The most important thing to understand in attempting to prevent and dispute chargebacks is that the cardholder's credit card issuer is not your friend. They are not honest, not dealing with fairness or integrity, will knowingly make false statements, will ignore your evidence, and will ultimately manipulate the process in any way they can to cheat you out of the revenue for your sale. If 90%-95% of chargebacks are not legitimate then somebody is lying – and it isn't you.
Just like a person who is a pathologic liar, these problem card issuers have specific patterns of behaviour, repeatedly make the same mistakes, and can become predictable.
To effectively prevent and fight chargebacks you need to develop a vast spectrum of knowledge regarding the various card issuers, the most common tactics and deceptions used by each, the patterns and process of each, the most common mistakes of each - to a point where you can anticipate and mitigate against the lies and fabrications of each specific card issuer. If you simply file a chargeback rebuttal believing the process is fair, honest and balanced then you don't stand a chance. These are some of the most important facts to understand if you want to be effective in preventing chargebacks and fighting back to save lost sales revenue...
Getting an initial chargeback reversal is simple and easy. With some basic instructions a 10-year old child could win a chargeback reversal 100% of the time for any kind of chargeback. All that is required to win a chargeback reversal is that you file a document which addresses the chargeback in any small way. It is your processor, not the cardholder's card issuer, which accepts and processes the initial chargeback reversal. When you win an initial chargeback reversal, you are definitely not finished in the majority of cases.
When you file your initial chargeback rebuttal, you should expect that the card issuer will not accept the credit you receive, will have this credit reversed, and will move the case to the arbitration stage. You need to write your chargeback rebuttal in a way that anticipates the arbitration stage, and is the most effective at making the card issuer hesitate in filing arbitration and gives you the best chance of winning at arbitration should the case proceed that far.
Many merchants are not aware of the arbitration stage which is so consistently abused by credit card issuers, and referred to by some merchants as a "second chargeback". Some merchants do not notice that the credit they received for a chargeback reversal becomes an offsetting debit at some later point in time, sometimes a month later.
Some merchants think that when there is a second debit the case is closed, decision final, and there is nothing further they can do.
It is important for merchants to reconcile this in some way, to get an idea of how many of their chargeback reversal credits are remaining a credit, and not being cancelled out/debited back at a later stage due to card issuer abuse of the arbitration process.
Visa and Mastercard both require the card issuer to complete certain documents and/or questionnaires when filing a chargeback. These forms are often referred to as the "cardholder letter" or "issuer documentation". If these forms are not completed properly, or not provided to your processor, this invalidates the chargeback. Most of the time the cardholder is fabricating information, so these forms are also the place where you will find the mistakes the card issuer has made when making up the false narrative, and you can use these mistakes and inconsistencies to win your chargeback dispute. In fact, some of the larger card issuers have teams of sweat shop staff offshore cranking out these forms in bulk, and often these low paid/English is second language staff don't even bother to change things like dates, merchant URL, descriptor from one form to another.
There are some processors which are too lazy to provide merchants with the cardholder letters and other issuer documentation which is so helpful in effectively fighting chargebacks. Unfortunately, this includes some of the larger processors. If chargebacks are a problem for you and your processor will not provide cardholder letters and issuer documentation, then you should find another processor if at all possible. Without access to these documents you really have no chance in effectively fighting chargebacks.
Visa and Mastercard both have policies which outline what constitutes "compelling evidence" the merchant can provide to support its position. The policies also state that the card issuer must address the evidence provided by the merchant. Card issuers will either ignore evidence provided by you, or attempt to meet their obligation to address the evidence by cleverly responding to the evidence indirectly. It is important not only to provide the evidence, but to include direct questions such as "does the cardholder deny they sent this email", "does the cardholder deny this PO Box is assigned to them", etc so that it will be very evident which evidence the card issuer did not address when the case moves to the arbitration stage.
If is definitely worth disputing all chargebacks and all viable arbitration cases. Remember, most of the trouble is problem card issuers doing things in an automated and bulk fashion, with as little diligence and time as possible. These problem card issuers would far rather attack merchants who do not fight back and cause them to expend any extra time. We have observed that there is a correlation between how hard the merchant fights back and how hard a card issuer targets that certain merchant.
First of all, if you are only getting a handful of chargebacks and chargebacks are not threatening your business or your merchant account, then you are lucky and you don't need help from anyone else.However, if you are being flooded with chargebacks and it seems like you are being targeted in some of the ways we described above, then you either need to take action or find a company like Cascadia Pay to take action on your behalf.
This stuff is not rocket science, the information is out there, so it is possible for you to develop expertise over time and if you have the time, the patience and the staff then "have at it" on your own and give it your best shot. You can see from the website we will freely give advice and information, so even if you are going to take this on by yourself you can always contact us and we will give you any helpful advice and information we can think of – we are all on the same side here. The reasons you would want to consider a third party like Cascadia Pay to tackle your chargeback problems are as follows.
To effectively deal with chargebacks you need expertise, and we have expertise – 15 years of it. The initial chargeback reversal is a simple task, but writing the case in a way that best prevents a further arbitration filing and will win an arbitration ruling (if necessary) if far more difficult and complex. The initial reversal is almost irrelevant – the arbitration process is everything.
A high level of expertise is required to determine when to submit a case to the arbitration level, and when to give up when a card issuer files to the arbitration level, because there are additional fees to the losing party at this level which are far larger than a chargeback fee.
If you are already using a third party chargeback management company they may not be filing arbitration cases for you. For many merchants, simply getting chargeback reversals is not ultimately recouping much revenue, as a majority of cases are debited again and pushed back to the arbitration stage.
We will customize a solution for you. What this means is that we will review your entire business and create templates for each chargeback reason code which apply specifically to your business, what supporting documents and evidence you have on hand, what kinds of chargebacks you receive and which card issuers are targeting you.
We will likely also provide you with suggestions about things you can change in your process which would help prevent and fight chargebacks, but it will be up to you whether or not you want to change your business model in any way to accommodate these suggestions. We will provide a comprehensive reporting system you can access to view breakdowns of your chargebacks by various categories and filters such as reason code, win/loss %, initial chargeback, arbitration, $ amount, card type and card issuer. You can also view the status of each active chargeback as it reaches different stages in the process. We will decide which cases to challenge at the arbitration level, and if we lose we will absorb any additional arbitration fees.
This last reason really depends on your business model and your own personality. If you are the kind of person who gets irritated wasting time on unnecessary things, or is really fed up with all the dishonesty, corruption and manipulation in so many of our institutions, then you will likely save yourself much anger, stress and frustration having Cascadia Pay deal with your chargebacks. There is more than enough abuse of process and intentional dishonesty by card issuers and cardholders to drive any merchant crazy. Think of us as the pest control company eliminating all the rats in the attic, or the sanitation company keeping the sewer clean.
If you are a "seasoned merchant" you may prefer to cut to the chase and submit the full chargeback management application form. Simply click on the link below, download and complete our application form and send it back to us:Chargeback ApplicationAsk A Question