The Reasons Merchants Should Dispute Chargebacks—and Why They Shouldn’t
Whenever a customer disputes a purchase on their credit or debit card, the merchant has an important decision to make: Do they fight the chargeback, or do they agree to the dispute and the resulting refund? There are pros and cons to both decisions, so it's important to weigh those before automatically deciding that disputing the chargeback is the right one.
Because chargebacks can be a significant burden to merchants, the better course of action, of course, is to prevent customer chargebacks altogether and avoid lost revenue. For one, the merchant typically pays a chargeback fee for every chargeback initiated regardless if they dispute it or not—and the total cost of chargebacks is significant: A Javelin study reports that fraud and chargeback management consumes between 13% and 20% of a merchant’s operational budget.
Benefits of Disputing Chargebacks
Merchants should balance the value of the transaction, the reason for the chargeback and if they have enough compelling evidence before deciding to dispute a chargeback.
The major benefit of disputing a chargeback is the potential to save the revenue from the sale—but that only happens if the merchant prevails in the dispute. In order to prevail, the merchant must present compelling evidence that the promised good or service was provided. Evidence can include:
- Delivery confirmation (proof of receipt of product or service)
- Proof of product or service usage
- Copy of the refund or return policy agreed to by the customer
- AVS (address verification system)
- CVV (card verification value) matches
- IP address of the device used for online purchases
- Exact time and date of purchase
- Geographic location of the device
- Correspondence with customers (emails or phone records)
A merchant typically has 20 to 45 days to dispute a chargeback after they’re notified of the customer’s dispute. The acquirer (the company processing the credit and debit transactions) can provide more information on the specific timelines.
Along with compelling evidence, the merchant must also provide a chargeback rebuttal letter that clearly explains why their evidence shows that the chargeback is not warranted. Here’s an example:
Sample Chargeback Rebuttal Letter
Reasons Not to Dispute Chargebacks
While merchants may be tempted to dispute every chargeback to avoid lost revenue, there are some reasons merchants should not dispute chargebacks. Here are three important reasons:
- The reason for the chargeback may indeed be the merchant’s fault—after all, mistakes do happen. For example, the merchant may have made a billing error or the product may have been shipped to the wrong address. In that case, the merchant will want to take action to remedy their mistake instead of trying to fight the chargeback.
- Satisfied customers are important to merchants, and chargebacks can be a source of friction with a customer. So, a merchant needs to consider whether they might lose a valued customer whenever they consider disputing a chargeback.
- The chargeback process is time-consuming and costly for merchants. They might spend hours pulling together the compelling evidence and letter needed to dispute the chargeback. If the disputed purchase was $50, it may not be worth the burden and associated fees.
The Power of Chargeback Prevention
Merchants should do all in their power to prevent chargebacks from happening in the first place, so they don’t have to spend the time and effort disputing them later on.
Collaborative tools from Ethoca can help reduce chargebacks and fraud in two ways. The first is Ethoca Alerts, which alerts merchants of cardholder disputes in near real-time before a chargeback is initiated. This can allow merchants to cancel and stop shipments, suspend accounts or proactively refund a transaction to avoid having to go through the costly chargeback process.
The second is Ethoca Consumer Clarity™, which helps reduce transaction confusion and the resulting cases of friendly fraud by sharing rich purchase detail like clear merchant descriptors, merchant logos, digital receipts and more. Recent research by Ethoca and the Aite Group found that one large merchant was able to prevent 65% of all disputes from becoming chargebacks by providing more detailed transaction information.
It only makes sense that merchants consider chargeback prevention strategies as a key way to avoid losing revenue. So, the next time a customer disputes a charge, consider whether it’s worth the cost and effort to dispute it—and put your resources toward preventing chargebacks before they happen.