Winning chargeback disputes is a challenge for merchants, with success rates typically hovering around 20-40%, depending on the industry and the quality of the evidence provided. Many disputes are lost due to insufficient documentation, delayed responses, or lack of expertise in presenting a compelling case.
While there isn't a guarantee to win a chargeback dispute as a seller even if you are in full rights, there are some steps that you can take to increase your chances significantly.
If the issuer does not believe that the merchant's evidence disproves the cardholder's claim, the chargeback will stand. While merchants can appeal the case by requesting arbitration from the card network, it isn't usually a good idea to do so.
Merchants are often responsible for the chargeback costs—including both refunding the purchase and any associated fees. Here's a look at the impact chargebacks have on merchants: Lost revenue, as merchants generally are obligated to refund the customer's purchase when a chargeback is granted.
The issuer (cardholder's bank) is responsible for determining the winner and loser, but your processor inspects the case first. Only certain cases are forwarded on to the issuer for decisioning. If your chargeback response doesn't advance, you can't win.
Compelling evidence: If you have strong compelling evidence that shows the customer's dispute is unwarranted, then you have a good chance of winning the chargeback dispute and keeping the sales revenue (because the consumer won't receive the chargeback refund).
Merchant Win Rate Percentage. Midigator suggests that 77% of merchants win, on average, 30% of chargebacks across all industries [2]. This rate boosts to 43.82% when it comes to friendly fraud chargebacks. But sinks to 9.27% regarding true fraud chargebacks.
Chargeback fees are charged by the business's “acquirer,” which is the financial institution working on behalf of the merchant. The merchant will have an account with this acquirer, which will accept payments for products and services.
Companies despise them for several reasons. They not only result in lost revenue but also involve additional fees, consume valuable time, and can damage the reputation of a business. Moreover, high chargeback ratios can lead to higher processing fees or even the termination of the ability to accept credit cards.
Merchants win chargeback disputes approximately 20-30% of the time, though this success rate can vary widely based on factors such as the industry, the quality of the evidence presented, and the specific reason for the chargeback.
However, dispute claims are not always successful. If your credit card provider declines your dispute, you remain responsible for paying the disputed amount. A denied dispute means the funds go back to the merchant, and the seller has no obligation to refund you or make things right.
Merchants carry the 'burden of proof' in chargeback disputes: In a chargeback scenario, merchants must identify the item, date, amount, and buyer. Merchants are required by law to respond within 30-45 days or the chargeback is automatic.
A large number of chargebacks can impact on merchants' relationships with banks or payment processors. If a merchant is constantly losing a large number of chargebacks, it can lead to higher fees or, in severe cases, a loss of the ability to accept certain types of payments.
Most Common Reason for Disputes
Four different categories are used to classify chargebacks. These categories vary slightly based on the card brand but can generally be thought of as fraud, cardholder disputes, authorization issues, and processing errors.
Chargeback fraud, also known as "double dipping," is a common form of fraud by consumers that violates any of several fraud laws in California. While it is difficult to convict because of the challenges in proving intent, chargeback fraud can have serious legal implications if you are charged or convicted.
However, even with up to three-quarters of all chargebacks being reported as illegitimate, merchants only win 18% of cases when appealing chargebacks. These recently-released findings come as eCommerce merchants process more card-not-present transactions than any other time of year.
If the issuing bank determines that the merchant has not provided compelling evidence, the temporary credit to the cardholder for the transaction amount will become permanent and the merchant loses the chargeback amount, plus fees.
It can be hard to do. While many major brands have dedicated team members who specialize in fighting chargebacks, you need to evaluate whether fighting the revenue will be worth as many as 10-12 hours of your time.
How do banks investigate charges? Banks hire full-time fraud professionals to investigate suspicious, unusual, and unauthorized transaction activity. These specialists analyze transaction data, monitor rules-based fraud detection information, and respond to fraud tips or disputes submitted by cardholders.
Chargeback fraud, in law, can sometimes be considered a form of payment card fraud or wire fraud. So can chargeback fraud result in jail time? Technically, yes, but usually only in extreme circumstances where it's used to steal very high values or volumes of products and services.
From a financial perspective, you not only lose the money, but also the product or service that you sold to the customer as they won't return it. Financial losses aside, chargebacks also have a negative impact on your bank and card network, and this can damage your credit reputation.
Of those who've disputed a claim, 96% were given a successful resolution the last time they tried. As for why they disputed a claim, 75% had an unauthorized charge, 21% didn't receive the goods they paid for or they were defective, and 21% challenged a subscription charge.
Yes, merchants can take cardholders to court for chargebacks, particularly if they believe the chargeback was fraudulent or unjustified. To do this, the merchant would file a lawsuit in small claims court, seeking to recover the funds that were charged back, plus any additional damages or costs incurred.