Understanding Disputes and Chargebacks: A Guide for Merchants : Peach Payments

As a merchant, it's crucial to understand the concepts of disputes and chargebacks, as they directly impact your business operations and financial health. Here’s a comprehensive guide to help you navigate these processes.

What Are Disputes and Chargebacks?

Dispute: A dispute occurs when a cardholder contacts their card-issuing bank to request a return of their funds. This mechanism is designed by card networks like Visa, Mastercard, and American Express to protect cardholders from fraudulent activities.

Chargeback: A chargeback is a subsequent action initiated by the issuing bank following a dispute. It involves a forced payment reversal to the customer, typically when the merchant cannot provide valid documentation to refute the dispute.

Common Reasons for Disputes (for a comprehensive list please see below)

Not as Described: The cardholder claims the goods were not received or were significantly different from what was expected.
Not Recognized: The cardholder does not recognize the charge on their bank statement.
Fraud: The cardholder asserts that they did not authorize the purchase (e.g., due to stolen card information).
Admin Error: Issues such as duplicate billing, incorrect amounts billed, or unreceived promised refunds.

The Chargeback Lifecycle

Filing the Dispute: The cardholder files a dispute through their bank, generally within 120 days after purchase, though some schemes allow up to 365 days.
Issuer Review: The issuing bank reviews the case, assigns a reason code, and initiates the dispute.
Card Scheme Handling: The card scheme receives the dispute and forwards it to the acquirer.
Merchant Notification: The acquirer shares the dispute information with either Peach Payments (if you hold an aggregation account) or with you the merchant if you have a direct account with the acquirer.
Merchant Response: The merchant reviews the dispute and provides a defense document if they choose to challenge it. This defense must be submitted within 7 days, including all relevant information to Peach or directly the acquiring bank (depending on your account setup.
Decision Making: The acquirer forwards the merchant’s decision through the scheme to the issuer, who reviews the defense and decides to accept or decline.

Additional Steps

Second presentment: If the issuer declines the merchant’s defense, The merchant can send new case material and evidence to the acquirer for submission. In this case, all the information goes directly to the card scheme (either Visa or Mastercard) rather than the issuer. The card scheme can then begin the arbitration process.
Arbitration: If the second chargeback is declined, arbitration is possible but often not recommended due to high fees (up to $500 plus the disputed amount).

Useful Documentation for Defending a Chargeback

Copy of the signed or swiped merchant sales voucher
Itemized billing/invoice
Return policy or terms and conditions
Proof of delivery or services rendered
Any other supporting documentation relevant to the transaction

Important Note

In cases of fraudulent disputes where no 3D Secure (3DS) authentication was applied, the merchant may lack representational rights and will be liable for the chargeback.

Visa & Mastercard Chargeback Reason Codes

Visa Reason Codes

Fraud

57: Fraudulent Multiple Transactions
62: Counterfeit Transaction
81: Fraud – Card-present Environment
83: Fraud – Card-Absent Environment
93: Visa Fraud Monitoring Program
10.1: EMV Liability Shift Counterfeit Fraud
10.2: EMV Liability Shift Non-Counterfeit Fraud
10.3: Other Fraud: Card-Present Environment/Condition
10.4: Other Fraud: Card-Absent Environment
10.5: Visa Fraud Monitoring Program

Authorization

70: Card Recovery Bulletin or Exception File
71: Declined Authorization
72: No Authorization
73: Expired Card
74: Service Code Violation
11.1: Card Recovery Bulletin
11.2: Declined Authorization
11.3: No Authorization

Processing Errors

12.1: Late Presentment
12.2: Incorrect Transaction Code
12.3: Incorrect Currency
12.4: Incorrect Account Number
12.5: Incorrect Amount
12.6: Duplicate Processing/Paid by Other Means
12.6.1: Duplicate Processing
12.6.2: Paid by Other Means
12.7: Invalid Data

Point-of-Interaction Error

74: Late Presentment
76: Incorrect Currency or Transaction Code
77: Non-Matching Account Number
78: Incorrect Transaction Amount or Account Number
82: Duplicate Processing
86: Paid by Other Means

Consumer Disputes

30: Services Not Provided or Merchandise Not Received
41: Cancelled Recurring Transaction
53: Not as Described or Defective Merchandise
75: Transaction Not Recognized
85: Credit Not Processed
90: Non-receipt of Cash or Load Transaction Value at ATM
13.1: Merchandise/Services Not Received
13.2: Cancelled Recurring Transaction
13.3: Not as Described or Defective Merchandise/Services
13.4: Counterfeit Merchandise
13.5: Misrepresentation
13.6: Credit Not Processed
13.7: Cancelled Merchandise/Services
13.8: Original Credit Transaction Not Accepted
13.9: Non-Receipt of Cash or Load Transaction Value

Mastercard Reason Codes