What Is a Payment Dispute?
A payment dispute is a rather useful service for customers that protects them from financial losses. But what about the sellers? In this article, we will explore payment disputes from the point of view of a business owner and discuss all the pitfalls of disputes for businesses.
A payment dispute is a pretty common thing for businesses, especially for e-commerce, yet many entrepreneurs still do not know all the details about disputed payments and how to deal with them. So, today, we are going to figure out what does dispute payment mean, its types, and which consequences for businesses disputes have. Thus, without any further ado, let us dive right into this topic.
What Is a Payment Dispute?
First of all, let us define a dispute. In fact, payment dispute meaning is not too complicated. A payment dispute is the procedure of claiming a reversal of the charge by a cardholder through their card-issuing bank. It is important to understand that a dispute is not a refund, meaning it has pretty nasty consequences for your merchant accounts. Additionally, disputes don’t usually come with a return of a product, and such a transaction leads to significant revenue losses, which is why it’s best to avoid payment disputes of all kinds.
What Does It Mean to Dispute a Transaction?
At first sight, it seems like dispute payment is something pretty common for customers, yet it’s not exactly true. So, what does it mean to dispute a transaction? In pretty much all cases, a disputed payment occurs when a cardholder isn’t sure about the validity of a transaction and reaches out to their card-issuing bank to request a money refund. In fact, disputes are a feature of Mastercard, Visa, and American Express that are aimed to protect cardholders from fraud. However, cybercriminals often use transaction disputes to their advantage, thereby causing financial losses to businesses and damaging their merchant accounts.
How Does the Payment Dispute Process Work?
Once we've figured out the dispute transaction meaning, it’s high time to dive into its workflow. So, when a transaction is disputed, the following process occurs:
- A cardholder notices a suspicious transaction
- They contact their card-issuing bank to get more details about the transaction and ask for a reversal
- The card issuer investigates the dispute claim and contacts merchants to get more info about the transaction
- The merchant has to provide the card issuer with documentation that proves the transaction was legitimate
- If the transaction is proved to be illegitimate by the card issuer, the cardholder is refunded, and the merchant is charged a dispute fee
As a rule, disputes happen due to billing errors, non-delivery of products/services, or genuine fraud. Yet fraud can affect both sides — the seller and the customer since both parties suffer from cyber criminals. Thus, both businesses and customers have to take precautionary measures to minimize the chances of them having to dispute a transaction or getting a disputed transaction.
Chargebacks vs. Disputes: What’s the Difference?
Pretty often, the terms “chargeback” and “dispute” are used interchangeably, but that’s not right to do so. You see, a payment dispute and a chargeback are not the same, though it’s sometimes pretty hard to tell the difference. So, let’s try to figure out what is what together.
Dispute
As we have already mentioned above, a dispute is the procedure of claiming a reversal of the charge by a cardholder through their card-issuing bank. They usually happen when a cardholder notices an unusual transaction that they believe they didn’t make. So, the cardholder contacts their card-issuing bank to deal with this problem and reverse the transaction. Yes, this definition does sound similar to a chargeback, yet still, a transaction dispute isn’t a chargeback.
Chargeback
The dispute payment meaning is clear, but what is a chargeback then? Well, a chargeback is basically a step in a transaction dispute cycle. They happen as a result of a dispute when the issuer confirms the cardholder’s dispute is legitimate and requests the merchant to refund them. For example, if the issuer discovers and confirms that the customer did not receive the goods/services they paid for and, therefore, becomes a fraud victim. Thus, the main difference between a dispute and a chargeback is that a chargeback is the final stage of a transaction dispute.
Legitimate and Illegitimate Transaction Disputes
Certainly, not all the payment disputes are the result of customers getting scammed. As we have previously mentioned, both parties suffer from online fraud, therefore, businesses often struggle with illegitimate payment disputes that have pretty nasty consequences for their merchant accounts as well as revenue. So, what is the difference between a legitimate and illegitimate dispute? Let’s see.
Legitimate Dispute
To cut a long story short, the one and only reason for a legitimate dispute is genuine payment fraud. That includes unauthorized transactions that happened due to criminal activity as well as merchant fraud (cases when the merchant did not fulfill their obligations before the customer or intentionally misled them). These are the only cases of legitimate payment disputes and nothing else can fall under that category.
Illegitimate Dispute
An illegitimate dispute is one that is failed for any other reason other than fraud. In fact, illegitimate disputes are often called friendly fraud since, pretty often cardholders issue them when they simply forget they made a certain transaction. Moreover, in some cases, cardholders can even open a dispute claiming that they did not receive the goods (while they, in fact, did) or that a transaction wasn’t authorized, which is a fraud aimed at the seller. Obviously, illegitimate payment disputes are not a good thing for businesses since false fraud claims and chargeback requests can seriously damage their merchant accounts and lead to revenue losses. Thus, businesses must implement chargeback fraud prevention solutions on their websites.
How Can Merchants Prevent Disputes from Becoming Chargebacks?
As we’ve previously mentioned, businesses must prevent payment disputes from becoming chargebacks since they have a lot of nasty consequences, including revenue loss, fees and penalties, approval rate reduction, and, in the worst-case scenario, merchant closure. But how to efficiently prevent chargebacks? Below are some tips for you.
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Implement chargeback prevention solutions
The only way to prevent dispute fraud is by implementing chargeback prevention solutions like Ethoca and Verifi (both available within Germius). Such systems automatically detect suspicious payments and block them before a transaction is made, which significantly lowers the chances of getting chargebacks. Additionally, chargeback prevention alerts analyze every dispute request and refund customers before the chargeback procedure is started, therefore protecting you from fees and penalties. -
Collect evidence
It is impossible to prevent 100% of disputes, meaning you will still have to deal with some. But it’s better to win in a dispute if you end up having one. So, make sure to collect the transaction and shipping data in order to prove your right in case of a dispute. -
Make sure your return and refund policies are clear
Another way to prevent chargebacks is informing your customers about your return and refund policies, so that they won’t be able to claim you misled them. Thus, make sure to present this info on your FAQ page as well as some pop-ups with important details about refunds on your order and payment pages. -
Keep in touch with your customers
A lot of friendly fraud (aka illegitimate disputes) happen due to poor communication with customers. Therefore, you have to make sure to keep in touch with your dear customers. Update them about the status of their order, including payment and shipping details, and make sure you are easy to reach out in case your customers have any questions or concerns — a good customer support service is a must.
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Create a trustworthy atmosphere on your website
Your customers have to feel safe on your website, so that after a purchase they do not have second thoughts about the legitimacy of your store that drive them to open a dispute. Thus, make sure your website is easy-to-navigate and has an up-to-date design, as well as that you use safe payment methods only and have actual customer reviews of the products you sell. A trustworthy atmosphere on your website is 50% of success. -
Provide high-quality product photos and descriptions
The most common reason for returns and refunds is customer dissatisfaction with the product. But in cases when return and refund aren’t possible for some reason, angry consumers might open disputes. In such a case, detailed descriptions and high-resolution photos will be the evidence that will help you win a dispute, not to mention the fact that product descriptions and photos will prevent customers from buying products that won’t satisfy them. -
Cooperate with reliable shipping partners only
Last but not least, make sure you sell your goods through reliable shipping companies only. You see, when a customer does not receive their order, the chances are they will open a dispute. Cooperation with a reliable shipping company will minimize these risks. Additionally, don’t forget to keep in touch with your customers, so in case of a shipping emergency, they will reach out to you first instead of opening a transaction dispute.
As you can see, there are plenty of ways to prevent a transaction dispute from happening. So, make sure to try them, and you will surely see your dispute rate drop.
Final Thoughts
A transaction dispute is something every business owner wants to avoid since it often comes with plenty of complications and penalties. Luckily, today dealing with disputes is easier than ever thanks to chargeback prevention alerts. So, protect your business with Germius and fear no more.
