What is a Dispute?
A payment dispute is a claim filed by a cardholder or issuing bank (the bank that issued the payment card to their customer) on a payment transaction undertaken by a merchant.
It starts when a cardholder challenges a transaction on their card statement by contacting the bank to “dispute” the legitimacy of the charge. The cardholder may claim the transaction amount is incorrect, for example, or that an order was never delivered. In some cases, the cardholder may even claim that they do not recognise the transaction at all.
When a cardholder raises a dispute with their bank over a transaction, the dispute is at the Inquiry stage (Retrieval Request) and it progresses to a Chargeback (funds credited back to the customer's payment card) if a resolution was not reached during the inquiry stage. There would also be cases wherein the dispute raised is an upfront Chargeback.
Retrieval Request vs Chargeback
A Retrieval Request is simply a request by the bank for information to support the transaction. The bank wants to see legible copies of the actual sales ticket (or online order), and the transaction authorisation. (Note: American Express calls these requests “inquiries” while Visa and MasterCard use the label “retrieval.”)
Merchants reply to retrieval requests by providing the requested information to the bank via Oolio. When the bank is satisfied with the information supplied, the retrieval request is closed. If the documents provided fail to satisfy the bank’s questions, or if they’re not submitted in a timely manner, then the dispute will move on to the chargeback phase.
Chargebacks occur when a cardholder requests a refund for a transaction directly from their issuing bank (or when a Retrieval Request fails to provide the required supporting documents). The customer may declare the transaction illegitimate because the goods weren’t delivered — weren’t as advertised — or arrived damaged — therefore the cardholder would demand his/her money back.
The issuing bank investigates a charge, determines it is illegitimate, sends a withdrawal request to have the transaction amount deducted from the merchant’s account (via the payments processor), and returns it to the cardholder. This can happen with no input on the merchant’s part.
Therefore, a chargeback is considered a forced payment reversal.
Merchants can challenge chargebacks by providing transaction records, shipment records, proof of delivery, copies of any correspondence with the customer, and proof of money transfer — if the merchant has already refunded the purchase.
Specific and limited timeframes for response vary and must be honoured.
If the documentation provided supports the merchant’s dispute, a chargeback reversal occurs.
How will Oolio process a Retrieval Request or a Chargeback?
Depending on the reason for the dispute, the issuing bank or scheme will either send a retrieval request or a chargeback. The following schemes send through automatic chargebacks (resulting in a debit in the merchant settlement statement) unless there is a request for information:
Amex
Visa
Mastercard
Other schemes (like EFTPOS) will send the retrieval request, and the merchant is required to provide evidence to challenge the dispute and support the validity of the transaction. If the evidence provided is not accepted by the scheme/issuer, a chargeback will be processed, and the merchant account will be debited.
Oolio will contact you if we receive a retrieval request or chargeback relating to your business.
High Level Chargeback Process Timeframe
- Customers can raise a chargeback within 60 to 120 days of the purchase or payment for the goods/services, or in the case of future-dated items such as; airline tickets, sport match tickets, the 60 to 120 day time limit begins once the customer receives the goods/service.
- The card issuer initiates a chargeback to the merchant - As soon as the chargeback is received by Oolio from the issuer or scheme, Oolio will send a dispute notice to the merchant’s nominated email address, and merchants have 5 days to provide supporting documents to challenge the dispute if needed.
- If the required days have elapsed and no evidence is submitted or the dispute is unchallenged, the chargeback becomes final.
Note: Even in cases whereby the customer advises they have withdrawn the dispute the merchant must respond to the dispute/chargeback and submit evidence of this in order for the dispute to be ruled in the merchants favour and the case closed.
- Card Issuer reviews evidence received and decides whether the customers claim is legitimate - When evidence is submitted, the issuer is given a 20-45 days window (depending on the scheme) to evaluate the evidence and decide the outcome. If the evidence is not compelling enough or the issuer denies the evidence the customer is refunded and the merchant is debited the transaction and charged a dispute fee.
- Arbitration - The merchant can decide to have the case escalated for review via an arbitration process which incurs additional fees (i.e. Visa charges a US$500 filing fee) payable by the merchant. The arbitrator’s verdict is final and cannot be appealed.
- In general, the full lifecycle of a dispute, from initiation to the final decision from the issuer, can take as long as 2-3 months to complete.
Dispute/Chargeback Fees and Penalties
It’s important that merchants understand the chargeback process and actively manage these requests to reduce the financial impact of these cases.
When a dispute or chargeback is successful (issuer refunds the customer) the merchant may incur dispute fees ranging from $20 to $100 for each case in addition to the transaction refunded. Additional fees will apply if the merchant decides to escalate a dispute for review via the arbitration process.
In addition, if your business continues to receive large volumes of chargebacks you may be placed on a monitoring program and subject to fines or termination of your payment services. For this reason, active management of disputes is a necessary component of managing payments.
Useful Links
For additional information on dispute types and evidence that can be provided to challenge these see the payment scheme dispute guides in the links below.
Mastercard Chargeback Guide: https://www.mastercard.us/content/dam/public/mastercardcom/na/global-site/documents/chargeback-guide.pdf
Visa Dispute Resolution Guide: https://www.visa.com.au/content/dam/VCOM/download/merchants/chargeback-management-guidelines-for-visa-merchants.pdf
Amex Chargeback Guide:
https://www.americanexpress.com/content/dam/amex/au/en/merchant/static/chargebackcodeguide.pdf