Disputes and Chargebacks: A Complete Guide to Protecting Your Business

A bank dispute arises when a client contests a charge that has been made to their account. This could be due to fraud, an error, or dissatisfaction.

It’s essential to understand what a transaction dispute is in order to protect your business.

Although we often use these terms interchangeably, there is an important difference between the two.

● Dispute: An initial disagreement between the client and the seller or provider. This could be because of a scam, an unauthorized purchase, or a service not delivered.

● Chargeback: The result when a dispute is not settled, and the bank returns the money charged to the client.
The transaction must be inspected by both the bank that issued and the bank that received the payment before the money can be returned. The seller/provider has the opportunity to justify the charge and may be able to reverse the chargeback in their favor.

Remember, although all chargebacks begin as disputes, not all disputes lead to chargebacks.

The process of a payment dispute or a refund request by an online customer involves several steps. It starts when the cardholder initiates the claim. This is what happens when you dispute a transaction:

Make sure you know the main reasons why bank disputes arise. This can help you manage them better, or even avoid them altogether.

1. Cancellation of the service or purchase: The customer believes they canceled their order, but they have still been charged for it.
2. Subscription not canceled correctly: The user claims they canceled their subscription, but they have continued to receive recurring charges.
3. Duplicated charges: The client was charged more than once for the same thing.
4. Fraud: The purchase was made without the consent of the cardholder.
5. Incorrect amount charged: The amount charged was different from what the buyer expected.
6. The product or service was not received: The customer did not receive the item or service they ordered, but have been charged for it anyway.
7. The product received did not match the description.
8. Unknown transaction: The cardholder does not recognize the charge. This could be due to fraud, or could be an act of friendly (chargeback) fraud on the part of the cardholder.

Key stats: 74% of businesses reported an increase in friendly fraud in 2023.

Chargebacks present a significant challenge for businesses. There are often costs on top of the disputed amount.

Mastercard cited examples such as administrative costs, processing fees, and possible loss of inventory [pdf].

• Reputation: A client who has a bad experience could have negative repercussions on your brand’s public image. Top customer service is recommended to help prevent misunderstandings with clients and users.
• Financial cost: Chargebacks involve more than simply the return of the money charged and production and transportation costs. They also come with a fixed fee for the payment processor, which can be between $15 and $30 (approx. €13-27).
• Time and resources: Analyzing and defending each case requires specialists in the field and knowledge of the sector. Not all businesses will be able to manage this.
• Risk of suspension: Payment processors may impose a limit on the number of chargebacks. If you go past this limit, they could close your account. Solutions like Macropay’s smart routing can help you reduce these risks.

Here are some statistics about the annual cost of chargebacks:

1. According to Sift’s Q4 2023 Digital Trust & Safety Index, 65% of consumers that have made a chargeback claim in the last year have done it more than once. This points to repeated behavior that increases costs to companies.
2. The same report revealed that 27% of consumers admit to having made a fraudulent chargeback claim. In other words, they received a refund for a legitimate charge, leading to unjustified losses for businesses.

According to Statista, 62% of all e-commerce transactions in the US will be completed through mobile devices like smartphones by 2027. Since transactions are not carried out in person with the physical credit or debit card, the e-commerce sector is particularly vulnerable to chargebacks.

Chargebacks in e-commerce occur at a rate of 0.6–0.8% of all transactions.

The tourism and travel sectors, as well as the entertainment industry, face unique challenges with chargebacks. This is particularly evident in cases of “services not provided” or “services not as described”.

For this reason, Mastercard has created specific codes for disputes in these sectors.

Subscription services and online businesses have also been hit hard by chargebacks. Depending on the type of service, the rate of chargebacks can be between 0.5–1% of transactions.

Preventing disputes is essential for your company’s financial health and customer satisfaction.

These practices can help you to reduce the rate of chargebacks.

1. Clear descriptions of products and services

• Provide detailed and accurate descriptions of your products and services on your website or sales platform.
• For example, include the technical specifications, dimensions, materials, or any other relevant information.
• Use high-quality photographs showing the product from various angles.
• If you offer a service, state exactly what it includes. If applicable, you should also make clear what is not included.
• Keep availability information and delivery times up to date.

2. Transparency in return and cancellation policy

• Make sure users can easily find your return and cancellation policy on your website.
• Use clear and simple language. Avoid complicated legal jargon.
• Specify deadlines for returns and cancellations.
• Outline the process to request a refund or cancel an order.
• Make clear any conditions or exceptions in your policies.
• Consider offering a grace period or a satisfaction guarantee to improve customer loyalty.

3. Excellent customer service

• Provide multiple options to contact your company: for example, email, phone, live chat, social media, etc.
• Make sure your contact details are visible and easy to find on your website.
• Quick responses to queries and complaints is essential. Ideally, you should reply within 24 hours.
• Train your customer service team to deal with issues effectively and with empathy towards clients.
• Establish a tracking system to make sure no query goes unresolved.
• It’s a good idea to offer proactive support, like follow-ups after the purchase, or providing guides for using the product.

If you stick to these best practices, you will not only help to prevent disputes. You will also improve the experience for your customer base. Customer satisfaction usually leads to brand loyalty, positive reviews, and recommendations.

At Macropay, we offer advanced solutions to optimize how you manage disputes.

• Expertise: Our risk management team has more than 15 years of experience and the knowledge to handle each case in the best way possible. You can rely on us to improve your success rate when chargebacks arise.
• AI: Our machine learning system rapidly identifies, classifies, and responds to chargeback claims, regardless of the payment processor. We provide specific automatic responses to each case and improve the percentage of disputes won.
• Personalization: We categorize chargebacks into 13 different types. This helps us to better understand the user and offer more effective responses.
• Automation: Import your chargebacks into our API and don't worry about the process. The only thing you have to do is analyze how your results improve!

Do you want to protect your business against chargebacks and improve your dispute management? Contact Macropay today and find out how we can help you optimize your payment processes.