Chargeback Recovery: What is It and How Does it Work?

Chargeback recovery helps you boost your working capital and gain credibility.

Nobody, I mean absolutely nobody, likes dealing with chargebacks.

It’s a labyrinthine whirlwind that takes your time and focus away from core business functions.

Every eCommerce merchant facing chargebacks always wishes those disputes would vanish forever.

Unfortunately, there’s no silver bullet for stopping con artists from trying to game the chargeback system. What we can guarantee, however, is a battle-tested chargeback recovery strategy that helps you manage and regain lost revenue. And you don’t have to give away your arm and foot in the process.

Our goal for this piece is to shed light on the chargeback recovery concept. We'd explain what it is, how it works, how to make your chargeback recovery efforts successful, and why you should always seek to reverse false chargebacks.

What Is Chargeback Recovery?

In simple terms, chargeback recovery is a technique that helps merchants prove that a chargeback is meritless. Chargeback recovery helps merchants regain revenues that you'd otherwise lose to friendly frauds. The process that makes it possible for a merchant to request a chargeback reversal is called chargeback representment.

That means the merchant is re-presenting (the legitimacy of) the transaction to the issuer with a rebuttal letter and compelling evidence that proves the chargeback is incorrect, unfair, or fraudulent.

The card issuing bank involved in the chargeback will evaluate your documentation and weigh them against the cardholder’s case.

If they think your evidence is compelling enough to establish the transaction's legitimacy, they will overturn the chargeback request and remit the disputed funds to you. You win.

The challenge is the chargeback representment process is an uphill battle that leaves merchants with a slim chance of success. But if you know the ropes, you can shift the odds in your favor.

How Does The Chargeback Recovery Process Work?

The chargeback recovery process demands that you respond to a chargeback request with sufficient documentation that validates the transaction, proves the customer received the order in good condition and shows why the chargeback request should be denied.

Here’s how chargeback recovery works:

Step 1: The cardholder files a chargeback case with their credit card issuing bank.

Step 2: The card issuing bank notifies the merchant acquiring bank about the chargeback, who, in turn, notifies you about the conditional refund.

You have to pick one of two options at this point:

a. Accept the chargeback and pay the accompanying chargeback fees. That closes the loop.

b. Fight the chargeback through the representment process.

For a successful chargeback recovery, you must gather every piece of documentation that shows:

• The transaction was legitimate
• No fraud happened; the actual owner of the card made the transaction or knew about it
• You shipped the order to the rightful owner at the address they provided
• The order met the expectations of what you described

And you must send that documentation to the acquiring bank within ten days.

Step 3: The acquirer receives your evidence and transfers the same to the issuing bank.

Step 4: The issuer reviews the evidence and gives a verdict. The outcome of the verdict could be any of the following:

1. You won. The funds are re-assigned to you, but you still pay a chargeback fee.
2. You lost. You lose the transaction funds, pay a chargeback fee, and incur other ancillary costs.
3. You won, but the cardholder submits additional evidence of wrongdoing. The case moves on to arbitration/second chargeback, which is bad news for you, the merchant.

Step 5: If you decide to appeal the second chargeback, you must ensure you have a compelling argument, can persuade the card network to issue an impartial decision, and the dollar value of the transaction makes up for the risk.

Even though only 2% of cases make it to arbitration, the card network’s ruling is final. And they could hit the guilty party with heavy, punitive charges.

What Do You Need For A Successful Chargeback Recovery?

With only a 12% success chance, the odds of chargeback recovery are stacked against merchants when a cardholder files a dispute.

But it’s not an entirely hopeless case if you do these:

Understand the Reason for the Chargeback

Chargeback reason codes help you tailor your evidence to the right issue.

The problem is the alphanumeric code only gives you an insight into what the customer told their bank, which does not always match their actual reason for contesting the bill.

The best practice is to still respond in line with that specific reason code – as doing otherwise will mean a 100% loss of the case. But it behooves you to provide sufficient evidence that could pierce the corporate veil of the cardholder’s intent and prove the dispute is meritless.

For starters you must reach out to the customer to hear or understand their side of the case.

• Do you know what the customer ordered?
• Did you ship the order to the billing address they provided, and is it consistent with what they have on record?
• Is there proof they received the order?
• Is there any previous non-disputed order from the customer?

And then you should do some leg work as well. If you don’t do some due diligence on the disputed order, it’ll be challenging to come up with airtight documentation.

That takes us to the next point.

Have Compelling Evidence

Your chargeback recovery efforts will only be as tangible as your back office.

Keeping proper transaction documentation is crucial, not only so you can show you did everything in the books and reverse a meritless chargeback. But such discipline helps you in other areas of your business too.

The standard procedure is to have an electronic filing system such as Google Drive, Filecenter, Ricoh scanner, etc., as you can readily access such tools.

Key documents to include are as follows:

• Sales receipt
• Tracking number
• Customer signature
• Customer service records
• A copy of the refund/return policy
• Relevant communications with the customer
• Proof of product or service usage, if digital goods were involved

Not having these pieces of real estate means you cannot win the case. And once you’ve submitted your compelling evidence, follow up with the bank on the disputed status after 7 to 10 working days.

Also, when the process is complete, it’ll be wise to block the cardholder to avoid future chargebacks. Research shows that most customers who dispute one charge will do it again in the future.

Automate your chargebacks to pre-empt chargeback losses

Credit card chargeback representment processes rarely, if ever, turn out the same way twice.

Additionally, the card networks are continuously changing chargeback rules – there’s no way the average merchant can keep up with the hysteria.

What’s more?

• The result of each case depends on human judgment, which can be flawed at times because two people can interpret the same regulation differently.
• Chargeback regulations do not sufficiently speak to present-day threats, technologies, and eCommerce trends because the concept originated from pre-internet business realities.
• The chargeback mechanism is consumer-centric, which makes banks and card institutions side with the cardholder when a dispute arises; the merchant is automatically guilty until proven innocent.
• The inefficiencies of chargeback laws create loopholes for scammers to game the system with friendly fraud.
• Merchants often lose more money fighting chargebacks forcing many online sellers to choose the path of least resistance by writing off those meritless charges as a cost of doing business.

Yet, you don’t have to struggle with the never-ending fruitless cycle of trying to recover lost revenue or eating those charges. Chargeflow’s fully automated chargeback solution helps vendors recover eCommerce chargebacks on autopilot. And you pay when you win, which means greater accountability and maximum ROI.

Why should you contest false chargebacks?

There are many sound reasons why you should fight meritless chargebacks.

1. Secure your cash flow

With today's economy, every hard-earned dollar clawed back from your bank account because of a false chargeback is a dollar that could’ve been working for you.

Fighting back gives you a chance to recover those dollars and optimize your business sustainability.

The last thing you need is to open a backdoor in your business to service someone’s expensive lifestyle and greed. And we’ve not talked about the fact that if you breach the chargeback limit, you could lose your processing rights.

2. Raise your credibility

Every friendly fraud you win adds to your credibility in the industry. Card issuers’ confidence in you will grow, and when a cardholder files a dispute in the future, they think twice before granting such a request outright.

More so, every chargeback recovery completed helps you equally indirectly send a message to the entire ecosystem that you take chargeback fraud to task and fight for your business. That translates to fewer cases and more time for you to focus on building your business.‍

3. Stimulate industry reform

Chargeback representment is a merchant’s opportunity to right the wrong and make a case that potentially helps correct an unfair system.

If you don’t use that card and speak up for yourself, you’re indirectly encouraging friendly fraud perpetrators to continue having a field day with your business.

But then again, what’s the point of spending ungodly amounts of resources and time in chargeback representment if you can’t win? Right?

That’s why Chargeflow remains your best bet for demanding accountability and fair play in the industry.