Chargeback Management Masterclass: Prevention Solutions

The following are supporting documents that can refute ‘merchandise/services not rendered’ chargebacks: 

• Proof that the dispute is invalid (the cardholder is required to provide a reasonable description of goods/services in the dispute — if this is not stated, the dispute is invalid)
• Documentation to prove that the cardholder or an authorized person received the merchandise or services at the agreed location or by the agreed date/time
• Compelling evidence such as proof of delivery of physical merchandise, log-ins with IP address from merchant portal, documentation to support the cardholder received merchandise but has a dispute of a different nature, and emails between cardholder and merchant.

To challenge ‘merchandise/services not as described’ chargebacks, you can use these documents: 

• Proof the dispute is invalid (the cardholder must make the merchandise available for return, cancel the transaction, and state in the chargeback the action that was taken — if this is not done, the dispute is invalid)
• Proof that the cardholder requested and was granted a way to return the merchandise but the cardholder didn’t actually follow through with the return
• Documentation to prove that the merchandise or service matched what was described (including the description of the quality of the merchandise or service) or was not damaged or defective
• A rebuttal to the cardholder’s claim, including details of contact made with the cardholder and any attempts to resolve the dispute

If transactions are taken in the physician’s office, using a terminal for full chip-and-PIN read will protect against liability in the case of fraud. 

If transactions are online, look into gateway services that specializes in health care providers. Also look for a service provider that has advanced fraud tools like IP address and device ID tracking. By collecting advanced data on online transactions, you can better screen for transactions that may be fraudulent.

There are two steps that you can take to fight this. 

The first step is to utilize a pre-transaction fraud tool, like Kount, Vesta, Forter, etc. to help identify customers that have a high likelihood of fraud. These tools detect high-risk behavior by consulting a wide range of algorithms that are built into their systems and continually updated based on the data they collect every day. 

The second step is to take advantage of the new Visa CE 3.0 initiative that goes into effect April 2023. CE 3.0 revolves around a simple but effective assumption: if a cardholder has made other purchases with your business and those purchases weren’t disputed, the current dispute isn’t actually fraud. You need to be able to show certain data elements (like IP address and device ID) are consistent across multiple transactions. If you can do that, the cardholder’s fraud claim will be overturned. You can learn more about CE 3.0 here. 

And it’s important to note that in addition to blocking potential fraud, the tools mentioned above — Kount, Vesta, Forter, etc. — can also help provide the data needed for CE 3.0.

It can be helpful to report the fraud to the issuing bank. If you report it, the bank may look into the cardholder’s behavior. It will not resolve the issue for you as the merchant, but it could help bring about future changes. 

Unfortunately, there is little law enforcement interest in individual fraudulent transactions. They are typically looking for large attacks with hundreds if not thousands of transactions and six or seven figure losses.

When the case is still a part of the chargeback cycle (chargeback, chargeback response, and/or pre-arbitration), analysts at the issuing and acquiring bank are involved. These analysts review the case closely to assist their client (cardholder and merchant respectively) in making a proper decision. 

If the case goes to arbitration, then an analyst at the card brand (Visa, Mastercard, etc.) will join the review process and issue a final decision. 

Unfortunately, there is not a database of users that like to chargeback. 

However, there are several fraud tools that can provide this type of information. They maintain negative databases of cardholders that have issued chargebacks previously. This data is utilized when they “scrub” a transaction and decide whether or not to accept the sale. Tools like Kount, Vesta, and Forter all have this information within their database.  

Additionally, if you use an order management system, you can track prior customers that have either requested a refund or issued a chargeback. This data can help you decide if you want to restrict this customer from purchasing from you in the future.

The most important thing you can do is to collect as much cardholder information as you can: card number, name on card, expiration date, billing address, phone number, and CVV.  

For all transactions, require a full AVS match prior to approving the sale. And always require that the shipping and billing address match. 

Additionally, you can collect the email address and send a confirmation email with a return receipt. Validate that the phone number matches your customer name and that the address is tied to your customer.  

This doesn’t eliminate the risk of a chargeback for fraud but it will help you eliminate some fraud and put you in a better position to rebut any chargeback.

Yes, CVV should always be collected on any transactions where the card is not present — online or over the phone, recurring transaction or single sale.

Unfortunately, the card brands no longer offer a tool to verify the cardholder’s name via the authorization process. Moreover, card brand rules do not require the authorized user’s name to match the name on the actual card.

When an RDR case is sent from issuer to acquirer, it travels the same rails as if it were a chargeback. The difference is the RDR code received includes an “M” at the beginning. 

Processors are still catching up with this technology, so reporting sometimes does not reflect your true chargeback ratio. The easiest fix is to discuss the issue with your processor’s chargeback team. Ask if they can provide a report of all transactions with a status M. You can also utilize RDR reporting to tell which are true RDR cases and confirm these transactions will not count against your ratio.

While the merchant should not receive a chargeback notification, they should receive notification of the case (Visa RDR or Mastercard Collaboration) so you are able to reconcile in your CRM. 

At Midigator, we handle this scenario by obtaining tracking data from our clients, and then our system screenshots the proof of delivery for submission. This can be replicated by merchants directly, and it’s important to include it if possible. Proof of delivery is compelling evidence and forces the issuer to address the documentation provided. 

By providing compelling evidence and enriched data, you have the best chance of success. Unfortunately, even if you are able to provide the cardholder’s signature upon delivery, the cardholder can still persist and say the package was not received. In this scenario, the cardholder would win the dispute. The hope is by submitting a complete picture of the transaction — from authorization to delivery —  the cardholder will back down and admit the package was received. 

There is no silver bullet to stop all fraud chargebacks. However, the more data collected at the time of the transaction, the better. AVS, CVV, IP address, and device ID all can help prevent fraudulent chargebacks.

Both Visa and Mastercard are not obligated to make a decision within a certain timeframe. Historically, once an official arbitration is filed, a response can be expected in three to nine months. How long you have to wait for a decision often depends on how backlogged the arbitration teams are and how cases are being queued up for review.

One key thing is to utilize the technology already available to you. For example, if you sell an online newspaper subscription, submit access logs detailing when the cardholder is logging into the system. Also include an IP address, if possible, as this can tie into the order being disputed. Provide any information available to you that shows the cardholder not only received the order, but is utilizing it. The upcoming release of CE 3.0 will also have some updates surrounding this scenario. 

If a dispute goes to arbitration, then Visa and Mastercard are listening to the recording. Until that time, an audio file is not listened to by either the acquiring or issuing banks. When providing compelling evidence, it’s best to send images and hard data, no audio or video files. 

The ARN (or acquirer reference number) is a 23-digit unique number assigned to every sale and every credit by the Visa and Mastercard system. The number consists of a merchant’s processing BIN, the Julian Date it was centrally processed, and then a unique identifier.

When there is a dispute, regardless if it results in a chargeback or credit, it is ultimately the ARN that is being disputed. The ARN from a credit and the ARN from a sale can be used to resolve each other. It’s an important number located in the settlement file of a transaction, not the authorization file.