Tips for Minimizing Chargebacks

Although Merchants have the opportunity to respond to a dispute with a representment, the number one line of defense is implementing policies & procedures to avoid them in the first place. Here are some suggestion that Merchants can utilize to mitigate disputes being initiated against them:

Include Rules for Returns, Exchanges, & Cancellations:

Merchants are responsible for implementing & publishing their own return, refund, and cancellation etc. policies. Clear disclosure of these policies can help them avoid misunderstandings and potential cardholder disputes. The issuing bank and Card Brands will likely support the Merchant's policies, provided they are clearly disclosed to cardholders.

In both face-to-face and eCommerce environments, the cardholder must receive a disclosure of the Merchant’s terms & policies at the time of purchase. For guaranteed reservations made by telephone, the merchant may send the disclosure after the fact by mail, email, or via text message.

Merchants meeting these requirements a) helps them prevent misunderstandings with their customers, and therefore disputes, and b) is likely their best form of representment should a dispute be initiated against them. Failing to meet these disclosure requirements will potentially increase the number of disputes initiated against them, and make it harder for them to win when that happens.

Disclosures for Card-Present Merchants:

For card-present transactions, the Card Brands require that the following (or similar) disclosure statements are legibly printed on the face of the transaction receipt near the cardholder signature area or in an area easily seen by the cardholder.

If the disclosure is on the back of the transaction receipt or in a separate contract, it must be accompanied by a space for the cardholder's signature or initials.

These disclosures should be pre-printed on the Merchant's transaction receipts. If not, the Merchant should write or stamp their refund, return policy etc. information on the transaction receipt near the customer signature line before the customer signs (be sure the information is clearly legible on all copies of the transaction receipt). Failure by the Merchant to disclose their policies at the time of a transaction could result in a forced-refund should the cardholder dispute the payment.

Disclosure Statement

What It Means

No Refunds or Returns or Exchanges

The Merchant's business does not issue refunds and does not accept returned merchandise or merchandise exchanges.

Exchange Only

The Merchant's business is willing to exchange returned merchandise for similar merchandise that is equal in price to the amount of the original transaction. However, they will not issue a refund for returned items.

In-Store Credit Only

The Merchant's business takes returned merchandise and gives the cardholder an in-store credit for the value of the returned merchandise.

Special Circumstances

The Merchant and cardholder have agreed to special terms (such as late delivery charges or restocking fees). The agreed-upon terms must be written on the transaction receipt or a related document (e.g., an invoice). The cardholder's signature on the receipt or invoice indicates acceptance of the agreed-upon terms.

Timeshare

The Merchant must provide a full credit when a transaction receipt has been processed and the cardholder has canceled the transaction within 14 calendar days of the transaction date.

Disclosure for Card-Not-Present Merchants:

For card-not-present payment environments, the Card Brands recommend the following disclosures.

Transaction Method

What It Means

Phone Order

For proper disclosure, the Merchant's refund and credit policies may be mailed, emailed, or texted to the cardholder. As a reminder, the merchant must prove the cardholder received and/or acknowledged the policy in order for the disclosure to be valid. 

Internet or Application

The Merchant's website must communicate its refund policy to the cardholder in either of the following locations:

  • In the sequence of pages before final checkout, with a "click to accept" acknowledgment button, checkbox, or location for an electronic signature.

  • On the checkout screen, near the "submit" or click to accept button. The disclosure must not be solely on a link to a separate web page.


Card Brand Suggested Receipt and/or Invoice Requirements:

Card Present: The following are the Visa requirements for all transaction receipts generated from electronic point-of-sale terminals (including cardholder-activated terminals). It is recommended that Merchants provide itemized receipts when possible.
Card-not-Present Transaction Receipt Requirements: The following are the Card Brand requirements for all manually printed transaction receipts in the card absent environment.

Best Practices for Merchants to Prevent Disputes

Most disputes can be attributed to improper transaction-processing procedures and can be prevented with appropriate training and attention to detail. The following best practices will help merchants minimize disputes.

Card-Present Merchants:

  • Declined Authorization:

    • Do not complete a transaction if the authorization request was declined.

  • Expired Card:

    • Do not accept a card after its "Good Thru" or "Valid Thru" date. A chip card and the chip-reading device work together to determine the appropriate cardholder or verification method for a transaction (either signature, PIN or CDCVM). If the transaction has been PIN verified, there is no need for a signature.

  • Card Imprint for Key-Entered Card-Present Transactions:

    • If, for any reason, a Merchant must key-enter a transaction to complete a card-present sale, make an imprint of the front of the card on the transaction receipt, using a manual imprinter. Do not capture an impression of the card using a pencil, crayon, or other writing instruments as this does not constitute a valid imprint.

    • Even if the transaction is authorized and the receipt is signed, the transaction may be disputed (e.g. if fraud occurred) and the receipt does not have an imprint of the account number and expiration date. This applies to all card-present transactions, including key-entry situations where the card presented is chip and the terminal is chip-enabled. When a merchant key-enters a transaction, an imprint is required regardless of the type of card and terminal capability.

  • Legibility:

    • Ensure that the transaction information on the transaction receipt is complete, accurate, and legible before completing the sale. An illegible receipt, or a receipt which produces an illegible copy, may be returned because it cannot be processed properly. The growing use of electronic scanning devices for the electronic transmission of copies of transaction receipts makes it imperative that the item being scanned be very legible.

  • Fraudulent Card-Present Transaction:

    • If the cardholder is present and has the account number but not the card, do not accept the transaction. Even with an approval from the issuing bank, the transaction can be disputed and the Merchant forced to refund if it turns out to be fraudulent.

  • Card-Absent Merchants:

    • Merchants should be using Address Verification Service (AVS) and Card Verification Value 2 (CVV2) Dispute Protection.

  • AVS:

    • The Merchant received an AVS positive match "Y" response in the authorization message and if the billing and shipping addresses are the same. The Merchant will need to submit proof of the shipping address and signed proof of delivery.

    • The Merchant submitted an AVS query during authorization and received a "U" response from a card issuer. This response means the card issuer is unavailable or does not support AVS.

  • CVV2:

    • The Merchant submitted a CVV2 verification request during authorization and received a "U" response with a presence indicator of 1, 2, or 9 from a card issuer. This response means the card issuer does not support CVV2.

    • Merchant submitted a CVV2 verification request on a Mail/Phone Order Transaction or an Electronic Commerce Transaction during authorization and received an "N" response with a presence indicator of 1 from the card issuer. The issuer approved the transaction with the no-match response

Sales-Receipt Processing:

  • One Entry for Each Transaction:

    • Ensure that transactions are entered into point-of-sale terminals one-time only and are deposited only once. Merchants may receive a duplicate transaction dispute if:

      • They entered the same transaction into a terminal more than once.

      • They deposit both the merchant copy and bank copy of a transaction receipt with their bank.

      • The deposit the same transaction with more than one acquirer.

  •  Proper Handling of Transaction Receipts:

    • Ensure that incorrect or duplicate transaction receipts are voided and that transactions are processed only once.

  •  Depositing Transaction Receipts:

    • Deposit transaction receipts with the Merchant's acquirer as quickly as possible, preferably within one to five days of the transaction date; do not hold on to them.

  •  Timely Deposit of Credit Transactions:

    • Merchants should deposit credit receipts with their acquirer as quickly as possible, preferably the same day a refund is generated.

General Customer Service:

  • Prepayment:

    • If delivery of the merchandise or services to be provided to the cardholder will be delayed, advise the cardholder in writing of the delay and the new expected delivery or service date.

  •  Item Out of Stock:

    • If the cardholder has ordered merchandise that is out of stock or no longer available, advise the cardholder in writing. If the merchandise is out of stock, let the cardholder know when it will be delivered. If the item is no longer available, offer the option of either purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it.

  •  Ship Merchandise Before Depositing Transaction:

    • For card-not-present transactions, a Merchant should not capture payment until they have shipped the related merchandise. If customers see a transaction on their monthly card statement before they receive the merchandise, they may contact their card issuer to dispute the charge.

    • Similarly, if delivery is delayed on a card-present transaction, do not deposit the transaction receipt until the merchandise has been shipped.

  •  Requests for Cancellation of Recurring Transactions:

    • If a customer requests cancelation of a transaction that is billed periodically (monthly, quarterly, or annually), cancel the transaction immediately or as specified by the customer. As a service to customers, Merchants should advise the customer in writing that the service, subscription, or membership has been canceled including the effective date of the cancellation.

How to Respond to the Various Dispute Types

Merchants can respond to most disputes directly in the Payrix Portal. Visit our guide to learn how.

Fraud Disputes

EMV Counterfeit Fraud

Why did I get this dispute?

This is when a cardholder claims that their EMV chip-enabled card was fraudulently used in a card-present environment. The issuing bank may initiate an EMV Counterfeit dispute if either of these scenarios occurred:

  • The transaction did not take place on a chip-reading terminal device.

  • The transaction was chip-initiated and, if the transaction was authorized online, Payrix did not transmit the full chip data to the processing bank in the authorization request.

What caused the dispute?

The cardholder has a chip card, but the transaction did not take place at a chip terminal or the chip data was not properly read by their terminal.

How should I respond if:

  • The transaction took place at a chip terminal:

    • Provide documentation to support that the transaction was chip read and evidence that the full chip data was transmitted.

  •  The Merchant acknowledges that the transaction did not take place at a chip terminal:

    • Accept liability for the dispute

  • The Merchant has already processed a refund or credit for the transaction:

    • Provide documentation of the credit or reversal; include the amount and the date it was processed. 

  • The cardholder no longer disputes the transaction:

    • Provide a letter or email from the cardholder stating that they no longer dispute the transaction.

How to avoid EMV Counterfeit disputes in the future:

  • Make sure the Merchant's terminal devices are EMV-compliant and the correct Cardholder Verification Method (CVM) was obtained (e.g. signature, PIN, etc.).

  • Obtain an imprint (either electronic or manual) for every card-present transaction.

  • Train merchant staff on the proper procedures for handling terminal issues.

EMV Non-Counterfeit Fraud

Why did I get this dispute?

The issuing bank received a call from their cardholder who is insisting that they did not authorize or participate in a transaction that the Merchant processed with their card. This dispute type happens when a transaction was completed in a card-present environment with a PIN-preferring chip card that was reported lost or stolen, the transaction qualifies for EMV Liability Shift, and one of the following occurred:

  • The transaction did not take place at a chip-reading device.

  • A chip-initiated transaction took place at a chip-reading device that was not EMV PIN-compliant.

  • The transaction was chip-initiated and, if the transaction was authorized online, Payrix did not transmit the full chip data in the authorization request.

What caused the dispute?

The most common cause of this dispute is that a PIN-preferring chip card was used either at a non-EMV terminal or a chip transaction was initiated without full chip data.

How should I respond if:

  • The transaction took place at an EMV PIN compliant terminal:

    • Provide documentation to support that the transaction took place at an EMV PIN compliant terminal.

  • The Merchant agrees the transaction was not completed at an EMV PIN-compliant terminal:

    • They should accept liability for the dispute

  • The Merchant has already processed a credit or reversal for the transaction:

    • Provide documentation of the credit or reversal; include the amount and the date it was processed.

  • The cardholder no longer disputes the transaction:

    • Provide a letter or email from the cardholder stating that they no longer dispute the transaction.

How to avoid this dispute in the future:

  • Make sure the Merchant’s terminal is EMV-compliant and the correct Cardholder Verification Method (CVM) was obtained (e.g. signature, PIN, etc.).

  • Obtain an imprint (either electronic or manual) for every card-present transaction.

  • Train merchant staff on the proper procedures for handling terminal issues.

Other Fraud Card Present Environment / Condition

Why did I get this dispute?

A cardholder is claiming that they did not authorize or participate in a key-entered or unattended transaction conducted in a card-present environment. The transaction was completed in a card-present environment with a card that was reported lost or stolen.

What caused the dispute?

The most common causes of this type of dispute are that the Merchant:

  • Did not ensure that the card was either swiped or that the chip was read.

  • Did not make a manual imprint of the card account information on the transaction receipt for a key entered transaction.

  • Completed a card-absent transaction, but did not identify the transaction as an internet or mail order/ phone order.

How should I respond if:

  • The card was chip-read or swiped and the transaction was authorized at the point of sale:

    • Provide a copy of the authorization record as proof that the card's magnetic stripe or chip was read.

  • A manual imprint was obtained at the time of sale. (Does not apply to the Europe region)

    • Provide a copy of the manual imprint.

  • The Merchant agrees the transaction was not chip-read, swiped or manually imprinted:

    • They should accept liability for the dispute

  • The Merchant has already processed a credit or reversal for the transaction:

    • Provide documentation of the credit or reversal; include the amount and the date it was processed. •

  • The cardholder no longer disputes the transaction:

    • Provide a letter or email from the cardholder stating that they no longer dispute the transaction.

How to avoid this dispute in the future:

  • Make sure all card-present transactions are either chip-read or magnetic stripe-read.

  • If Merchants are unable to swipe or read the chip, make a manual imprint of the card.

Other Fraud Card-Not-Present Environment / Condition

Why did I get this dispute?

The cardholder's bank has filed a dispute stating that their cardholder did not authorize or participate in a transaction conducted in a card-absent environment (i.e., internet, mail-order, phone-order, etc.).

What caused the dispute?

The most common causes of this type of dispute are that the Merchant:

  • Processed a card-absent transaction from a person who was fraudulently using an account number.

  • The cardholder had their account number stolen by fraudulent means.

  • The cardholder does not recognize the Merchant’s business name on their card statement (statement descriptor)

How should I respond if:

  • The transaction was verified using AVS, CVV2, and/or other tools:

    • Provide a copy of the authorization record as proof.

  • The Merchant has already processed a credit or reversal for the transaction:

    • Provide documentation of the credit or reversal; include the amount and the date it was processed.

  • The cardholder no longer disputes the transaction:

    • Provide a letter or email from the cardholder stating that they no longer dispute the transaction.

How to avoid this dispute in the future:

  • For card-absent transactions, consider using all available Card Brand tools - e.g. Verified by Visa, CVV2 and the Address Verification Service (AVS) - to help reduce fraud. Contact Payrix for more information on these important risk-management tools.

  • Always request authorization for mail order, telephone order, internet, and recurring transactions, regardless of the dollar amount.

  • Always make sure the Merchant properly identifies card present and card absent transactions.

Authorization Disputes

Why did I get this dispute?

The Merchant processed a transaction after receiving a No Authorization or Decline response, or if the Merchant captured a payment after the authorization code had expired.


What caused the dispute?
The most common cause for this type of dispute is when a Merchant did not obtain any authorization from the issuing bank or captured an approved payment after the authorization had already expired.

How should I respond if:

  • The payment had a valid authorization code:

    • Provide a copy of the authorization record as proof.

  • The Merchant has already processed a credit or reversal for the transaction:

    • Provide documentation of the credit or reversal; include the amount and the date it was processed.

  • The cardholder no longer disputes the transaction:

    • Provide a letter or email from the cardholder stating that they no longer dispute the transaction.

How to avoid this dispute in the future:

  • Always authorize every transaction in accordance with the Card Brand Rules.

  • Capture approved payments within a short timeframe (generally within 24-hours) of authorization

  • Train staff on the proper procedures for handling terminal issues.

  • Keep records of transactions.

Merchant Processing Errors

Why did I get this dispute?

The cardholder disputes transaction data and/or payment details submitted by the Merchant. Generally, this dispute category is when the cardholder acknowledges the transaction occurred, but the Merchant committed an error rendering the payment invalid.

What caused the dispute?

  • The cardholder claims the transaction was sent with an incorrect transaction code. i.e. a sale that should have been a refund.

  • The cardholder claims they were charged in an incorrect currency amount or did not agree that Dynamic Currency Conversion (DCC).

  • The cardholder claims they were charged on an incorrect account number.

  • The cardholder claims they were charged an incorrect amount.

  • The cardholder claims they were charged multiple times.

  • The cardholder claims they already paid by other means. i.e. check or cash.

How should I respond if:

  • The transaction was properly processed according to the Merchant's systems or terminal:

    • Provide a copy of the authorization record or records and any additional transaction documentation.

  • The Merchant agrees that the transaction was indeed processed in error or incorrectly:

    • They should accept liability for the dispute.

  • The Merchant has already processed a credit or reversal for the transaction:

    • Provide documentation of the credit or reversal; include the amount and the date it was processed.

  • The cardholder no longer disputes the transaction:

    • Provide a letter or email from the cardholder stating that they no longer dispute the transaction.

How to avoid this dispute in the future:

  • Always authorize every transaction in accordance with the Card Brand Rules.

  • Be diligent to ensure payment data & details are correct

  • Train staff on the proper procedures for handling terminal issues.

  • Keep records of transactions especially when circumstances such as different currency rates are involved.

Customer Complaint Disputes

Why did I get this dispute?

The cardholder disputes details regarding services rendered or the quality of the merchandise purchased from the Merchant.

What caused the dispute?

  • The cardholder claims the merchandise or services were not received.

  • The cardholder claims they were charged for a subscription, service, or good that was already canceled.

  • The cardholder claims that merchandise or services were defective/unsatisfactory quality.

  • The cardholder claims they received counterfeit merchandise.

  • The cardholder claims they have not received Cash, Gift Card or other Transaction Value.

How should I respond?

  • Provide a copy of the authorization record(s) and any additional transaction documentation - e.g. proof of services or delivery.

  • If the specified delivery date has not yet passed, provide documentation to support the expected delivery date, or provide documentation to support you were able to provide merchandise or service and that the cardholder canceled prior to the delivery date.

  • Provide specific information (invoice, contract, etc.) to refute the cardholder's claims. Quality disputes are where the customer does not agree with the condition of merchandise or service received (e.g., a car repair situation or quality of a hotel room).

    There may be instances where you will need to obtain a neutral third-party opinion to help corroborate your claim against the cardholder. Provide as much specific information and documentation as possible to refute the cardholder's claims. It is recommended that you address each point that the cardholder has made.

  • Advise that you have not received the returned merchandise and the cardholder never attempted to return or cardholder has not canceled services. However, double-check your incoming shipping records to verify prior to response.

  • Provide evidence that you addressed or are addressing the cardholders the issue (e.g. you repaired or replaced the product).

  • If the customer claimed they were billed after the services were canceled, supply proof that the bill in question covered services used by the customer between the date of the customer's prior billing statement and the date the customer canceled.

The Merchant has already processed a credit or reversal for the transaction:

Provide documentation of the credit or reversal; include the amount and the date it was processed.

The cardholder no longer disputes the transaction:

Provide a letter or email from the cardholder stating that they no longer dispute the transaction.

How to avoid this dispute in the future:

  • Always authorize every transaction in accordance with the Card Brand Rules.

  • Implement EMV chip reading for all card-present transactions.

  • Train staff on the proper procedures for handling terminal issues.

  • Keep records of transactions including proof of delivery, documentation/confirmation of satisfactory completion.

  • For returning customers, retain evidence of their card usage at your business. Thus, you’ll be able to show the issuing bank that the same device and card used in the disputed transaction was used for previous transactions that were not disputed.

Examples of Valid Dispute Response Documentation

Ultimately, what is considered a valid dispute response (i.e. “compelling evidence”) depends on the dispute reason, the Card Brand, and several other variables. However, generally speaking, these are the types of documents a Merchant should submit when responding to a dispute:

Credit Card Authorization Documentation:

Card Brands consider the following as acceptable ways of documenting a cardholder's approval for a transaction:

  • For a Mail/Phone Order Transaction: a signed order/authorization form

  • Copy of identification presented by the cardholder

  • Details of identification presented by the cardholder

  • Evidence that the transaction was completed by the cardholder or a member of the cardholder's close family.

Proof of Delivery or Satisfactory Services:

Recorded or written confirmation from the cardholder of receipt of goods or that the services were satisfactory is one of the best protections a Merchant can have. Examples of this kind of evidence include:

  • Evidence, such as photographs or emails, to prove a link between the person receiving the merchandise/services and the cardholder, or to prove that the cardholder is in possession of the merchandise and/or is using the merchandise or services.

  • Cardholder signature on a pick-up or delivery form.

  • For card-absent transaction environments in which the merchandise is delivered to the cardholder, documentation (evidence of delivery and time delivered) that the item was delivered to the same physical address for which the Merchant received an AVS match of Y or M. A signature is not necessarily required as evidence of delivery.