Jessica Velasco |Friday, December 8th, 2023 | 10 minutes
A transaction dispute is a consumer complaint related to a credit or debit card purchase. Transactions are most commonly disputed because of fraud (unauthorized charges) and a lack of merchant follow-through (merchandise not as expected, services not performed, credit not issued, etc.).
When a transaction is disputed, the money originally paid to your business may be revoked and returned to the cardholder. And, the reputational damage associated with the dispute could impact your ability to process future transactions.
Since so much is at stake, it is essential to understand disputes and what it takes to protect your hard-earned revenue. Check these three need-to-know pieces of information:
- Disputes vs. Chargebacks
- The Dispute Process
- How to Avoid a Transaction Dispute as a Merchant
Disputes vs. Chargebacks
The terms ‘disputes’ and ‘chargebacks’ are often used interchangeably. In the broadest sense, the two words do usually mean the same thing and yield a similar outcome. In fact, Visa® recently replaced ‘chargeback’ with ‘dispute’ in all of the card brand’s rules and processes.
However, the most accurate explanation of the two terms is this:
All chargebacks are transaction disputes, but not all transaction disputes are chargebacks.
The classification is based on which set of rules are governing the situation.
While some people use the terms synonymously, others think of disputes and chargebacks as a progression. Because of tools like prevention alerts and order validation, the following is a common thought process.
If the merchant is able to resolve the dispute, the situation might not advance to a chargeback.
And that’s an ok way to think of the terms too — just like it’s fine to use them interchangeably.
Don’t let the semantics confuse you. Ultimately, it really doesn’t matter which word you use. What matters is knowing how to minimize the impact that disputes have on your business’s bottom line.
The Dispute Process
The following is a simplified explanation of the dispute process and how a consumer complaint may turn into a chargeback.
Expand each section to learn more about the different phases.
If a chargeback is issued, there may be additional phases involved in the dispute resolution workflow. For example, cases of friendly fraud can be challenged. You, the merchant, would respond with a well-documented argument — which includes compelling evidence — in an attempt to recover the lost revenue.
Usually, chargebacks are the final tool in the issuer’s tool box. A dispute analyst will first try other techniques to resolve the issue, saving the chargeback process as a last resort.
How to Avoid a Transaction Dispute as a Merchant
If transaction disputes and chargebacks are a new concept for your business, there are several things you should know.
The better you understand disputes, the better you’ll be able to manage them. And it’s never too soon to start learning — the more proactive you are, the less money you’ll lose.
Familiarizing yourself with consumer protections is a key step in the learning process. Take some time to understand why disputes happen, what the consequences are if they aren’t managed effectively, and tips to minimize their impact on your business.
Why do disputes happen?
According to card brand regulations, there are dozens of reasons why someone files a dispute. To simplify things, we’ve broken those reasons down into three categories: merchant error, criminal fraud, and friendly fraud. Most merchants assume criminal fraud is the biggest threat. But in reality, friendly fraud is usually much worse.
What if I get a lot of disputes?
Many in the payments industry consider dispute activity to be a reflection of your business’s reputation and credibility. The rate at which transactions are disputed is a metric to measure risk — the more disputes you receive, the riskier it is to do business with you. If your business receives more disputes than what is considered normal, there could be fines and penalties.
How do I manage disputes?
Managing disputes is a two-part process. First, you need to prevent as many disputes as possible. Then, you need to fight the disputes you couldn’t prevent. This will enable you to protect the maximum amount of revenue.
Resolve Transaction Disputes with Kount
At Kount, we aim to remove the complexities of transaction disputes. If managing disputes and chargebacks seems like more than you can handle right now, let us help.
We’ll make it easy to get disputes under control and protect your revenue. Sign up for a demo today to learn more.
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