Encyclopedia of Chargebacks

The financial organization that the merchant uses to process credit card payments and accept payments. Merchant acquiring is a critical component of the payment processing industry, enabling merchants to accept electronic payments from their customers. A merchant acquirer is a company or financial institution that provides payment processing services to merchants. The merchant acquirer acts as a middleman between the merchant and the card-issuing bank, facilitating the processing of credit and debit card transactions. The merchant acquirer is responsible for collecting, verifying, reconciling the transaction details, and depositing the funds into the merchant's account. In exchange for these services, the merchant acquirer charges the merchant a fee, which may include a percentage of the transaction amount and a per-transaction fee.

Address Verification Service (AVS) is a fraud prevention tool used in the payment processing industry to verify the billing address of a credit cardholder. The purpose of AVS is to help merchants and acquirers confirm that the person making the purchase is the cardholder and prevent fraudulent transactions.

AVS works by comparing the billing address provided by the cardholder during the transaction to the address on file with the card issuer. If the addresses match, the transaction goes through. The transaction may be declined or subject to further review if the addresses do not match.

AVS is typically used for card-not-present transactions, such as online or over the phone, where the cardholder's physical presence is not confirmed. AVS can be an effective tool for reducing fraud in these types of transactions, as it helps to verify the cardholder's identity. Some sample AVS responses and their meanings are as follows:

"Y" or "M" - Match: The billing address provided by the customer matches the address on file with the card issuer.

"N" - No Match: The billing address provided by the customer does not match the address on file with the card issuer.

"A" or "Z" - Partial Match: The billing address provided by the customer partially matches the address on file with the card issuer. This can occur if the customer's address is abbreviated or if the postal code is missing.

"U" or "W" - Unavailable or Not Verified: The card issuer's system was unable to verify the billing address provided by the customer. This can occur if the card issuer does not support AVS or if the customer's card was issued outside of the country.

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Arbitration is a form of alternative dispute resolution (ADR) in which two parties agree to resolve their dispute by a neutral third party (an arbitrator) instead of going to court. Arbitration aims to provide a quicker, more cost-effective, and less formal method of resolving disputes than going to court. In arbitration, the arbitrator makes a binding decision after considering evidence and arguments from both parties. The arbitrator's decision is final and binding and can only be overturned in limited circumstances.

Credit card authorization is obtaining approval for a credit card transaction. It is a vital step in the payment processing cycle as it helps ensure the cardholder has sufficient funds available to complete the transaction and helps prevent fraudulent activity.

When a buyer purchases a credit card, the merchant submits a request to their acquirer for authorization. The acquirer then sends the request to the card issuer, which checks the cardholder's account to see if sufficient funds are available to cover the transaction. If the card issuer approves the transaction, it sends an authorization code back to the acquirer, which passes it on to the merchant. The authorization code confirms that the transaction can proceed and the merchant can complete the sale.

If the card issuer does not approve the transaction, it sends a decline message to the acquirer, which passes it on to the merchant. In this case, the transaction cannot proceed, and the cardholder may need another payment method.

B2B is business-to-business, which refers to transactions between two businesses rather than between a company and a consumer. B2B transactions are a significant portion of the economy, as businesses rely on other companies to provide the goods and services they need.

In a B2B transaction, one business sells goods or services to another. For example, a manufacturer may sell its products to a wholesaler, or a software company may sell its software to a government agency. These transactions often involve more money and longer-term relationships than B2C (business-to-consumer) transactions.

B2C is business-to-consumer, which refers to transactions between a business and individual consumers. In a B2C transaction, a company sells goods or services directly to a consumer. For example, a retailer may sell clothing to a customer, or a restaurant may sell food to a patron. These transactions typically involve smaller amounts of money and shorter-term relationships than B2B (business-to-business) transactions.

Back-end protection is security measures businesses take to minimize the risk of chargebacks and disputes. This may include various fraud detection and prevention tools, as well as a chargeback management system to respond to efficiently and dispute chargebacks that do occur. Back-end protection helps to reduce the financial losses and operational expenses associated with chargebacks and helps to maintain the merchant's reputation with their acquiring bank and payment processor.

A card issuer is a financial institution, such as a bank or credit union, that issues payment cards, such as credit cards, debit cards, or prepaid cards, to consumers and businesses. The card issuer manages the billing and payment process for cardholders. Card issuing banks are card network members, such as Visa and Mastercard, but they can equally operate as both issuers and card schemes.

In a credit card arrangement, the card issuer extends credit to the cardholder, which the cardholder can use to make purchases. The card issuer charges interest on the outstanding balance, and the cardholder is responsible for repaying the borrowed funds. In a debit card arrangement, the cardholder's funds are directly linked to the card, and transactions are deducted from the cardholder's account balance.

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Card, not present (CNP) refers to a type of payment transaction where the credit card, debit card, or other payment card is not physically with the buyer at the time of the transaction. In a card-not-present transaction, the cardholder provides card information, such as the card number, expiration date, and security code, to the merchant through an online or telephone transaction.

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Card present refers to a payment transaction where the credit card, debit card, or other payment card is physically on the buyer and used at the point of sale (POS). In a card-present transaction, the cardholder physically hands the card to the merchant or inserts the card into a card reader to make a payment.

In a card-present transaction, the cardholder's identity can be verified through the card's magnetic stripe, chip, or other security feature, and the transaction can be processed in real time. Card-present transactions are considered lower risk than card-not-present transactions, as the cardholder's identity can be physically verified, reducing the risk of fraud.

Card present transactions are in brick-and-mortar retail environments, such as stores and restaurants. They can also occur at ATMs, parking garages, and other payment terminals where the cardholder is present and able to use the card physically.

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Card Verification Service (CVS) is a service offered by some payment processors and card issuers that provides an additional layer of security for card-not-present transactions. The purpose of CVS is to verify that the cardholder has the card and is authorized to make a purchase.

CVS requires the cardholder to provide additional information, such as the card's expiration date, the billing address, or other personal information, in addition to the card number and CVV code. The payment processor or card issuer then verifies this information with the card issuer to confirm the cardholder's identity and authorization to make the purchase.

CVS is used to reduce the risk of fraud in card-not-present transactions and is often required for high-risk transactions, such as large purchases or commerce from a new cardholder. The use of CVS is optional for merchants and is subject to the policies and procedures set by the card issuer and the payment network.

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Card Verification Value (CVV) is a security feature on most credit and debit cards. It is a 3- or 4-digit code printed on the card and is used to verify that the card is in the cardholder's possession at the time of a transaction.

In a card-not-present transaction, such as an online purchase, the cardholder is usually required to provide the CVV code to the merchant as a form of authentication. The merchant can then verify the CVV code with the card issuer to confirm that the card is in possession of the cardholder.

The CVV code is encrypted and not stored on the card's magnetic stripe or in the cardholder's account information, making it a secure form of cardholder verification. In the event of a data breach or a lost or stolen card, the CVV code is only valuable to a fraudster with the actual physical card.

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A cardholder possesses a credit card, debit card, or other payment card type. The cardholder uses the card to make purchases. In a credit card arrangement, the card issuer, such as a bank or financial institution, extends credit to the cardholder and charges interest on the amount of credit used. In a debit card arrangement, the cardholder's funds are directly linked to the card, and transactions are deducted from the cardholder's account balance. Cardholders can be individuals or businesses. They are typically issued cards by the card issuer and must be approved for a card based on creditworthiness and other factors.

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Carding is a form of eCommerce fraud that involves using stolen or fake credit card information to purchase goods or services online. This illegal activity involves the acquisition of credit card data, either through hacking, phishing, or other means, and using it to make unauthorized purchases. Carding is a serious crime and can result in significant financial losses for both the cardholder and the merchants involved.

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ChargeResponse is Chargeflow’s proprietary autonomous dispute response generator that provides quick and qualitative results in milliseconds, and assembles the world's most robust dispute response using 50+ different data points and AI & Machine Learning algorithms. The end result is a thorough, evidence-based dispute response with the highest win-rates across the industry.

Generating a dispute response might sound easy, but it certainly isn’t. There are over 100 chargeback reasons across the credit card networks, and each one requires a unique set of compelling evidence. Keeping tabs on these ever changing trends is a nightmare, which makes chargeback mitigation an uphill battle for merchants. ChargeResponse algorithms analyzes any chargeback reason to form best-in-class chargeback evidence based on hundreds of variables, from integrated frameworks to 3rd party sources.

ChargeScore® is Chargeflow’s unique dispute success-rate algorithm. By leveraging real-time information, big data, and machine learning algorithms, ChargeScore can forecast, with high accuracy, the success rate of winning a dispute, based on dispute reason, issuing bank, available evidence, 3rd party data, and historical win rates for the merchant, and more. With such informed chargeback mediation process, you can increase your dispute win rate from the 12% industry average to up to 75%.

Chargebacks are typically used for cardholders to recover funds in cases of fraud or if the goods or services received were not as described. A chargeback is when a cardholder challenges the validity of a transaction with their card issuer, such as a bank. The card issuer then initiates a process to refund the cardholder for the disputed amount and to recover the funds from the merchant.

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Chargeback abuse refers to a customer's malicious or fraudulent use of the chargeback system. It occurs when a customer disputes a legitimate transaction with their bank to reverse the payment and get their money back without a valid reason. This can result in significant financial losses for merchants and harm their reputations. Merchants can implement fraud detection systems, shipping and handling procedures, and clear return policies to prevent chargeback abuse. It is also vital for merchants to respond quickly and efficiently to chargeback disputes to minimize the impact.

The objective of chargeback accounting is to maintain accurate financial records. For accurate chargeback accounting, the bookkeeper must make room for both chargeback, reversals, and ancillary fees. These unpredictable costs can stretch into different accounting periods. Chargeback accounting involves essential best practices and ways to gather and compile relevant data and documents related to dispute chargebacks.

The bookkeeper must also remember that various banks and processors have different methods for handling chargebacks.

A chargeback alert is a notification sent to a merchant by the acquiring bank or payment processor to inform them of a chargeback initiated by a cardholder. The alert provides the merchant with information about the chargeback, including the reason for the dispute, the amount of the chargeback, and the deadline for the merchant to respond. A chargeback alert is usually sent by the acquiring bank or payment processor as soon as they receive notification of the chargeback from the card issuer.

The benefit of chargeback alert is that it helps you get a just-in-time notification immediately after the buyer files a complaint with their issuer. That gives you ample time to resolve the dispute before they turn into a chargeback. Chargeback alert is extremely crucial for merchants dealing with excessive chargebacks or those that have already breached the acceptable chargeback threshold.

Chargeback arbitration is a dispute resolution process used in the payment processing industry to resolve disputes between merchants and card issuers or acquirers. In chargeback arbitration, an impartial third-party, such as an industry association or a company specializing in payment processing disputes, reviews the evidence and makes a final decision on the outcome of the dispute

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Chargeback cancellation reverses a chargeback and restores the original payment to the merchant. That can occur when a customer, the acquiring bank, or the card issuer decides to withdraw the chargeback dispute and cancel the chargeback.

There are various reasons why a chargeback might be canceled, such as if the customer and the merchant resolve, if the customer realizes they made a mistake, or if the acquiring bank or card issuer determines that the chargeback was not warranted.

If a chargeback is canceled, the merchant's account will be credited for the original payment amount, and the dispute will be resolved. The merchant should keep records of the chargeback and the cancellation of their books.

Chargeback costs are expenses incurred by a merchant due to a chargeback. The costs associated with chargebacks can include direct financial losses, processing fees charged by the acquiring bank, administrative expenses for responding to the chargeback dispute, and reputational damage that can result in lost sales and decreased customer trust. The total cost of chargebacks can vary depending on the frequency and severity of the chargebacks and the specific costs associated with each chargeback.

A chargeback decision is the outcome of a chargeback dispute process. After reviewing the evidence and documentation submitted by the merchant and the cardholder, the acquiring bank or card issuer makes this decision.

The chargeback decision will determine whether the chargeback is valid or invalid. If the chargeback is valid, the merchant will not receive a refund and will be assessed fees for the chargeback. If the chargeback is found invalid, the merchant will receive a refund of the chargeback amount and will not be charged any fees.

Chargeback defenses are merchants' strategies and processes to dispute and recover chargeback revenue. The goal of chargeback defense is to minimize chargebacks' financial and reputational impact on a merchant's business.

A chargeback dispute is synonymous with chargeback representment, and it’s a process in which a merchant disputes a chargeback that a cardholder filed against their account. A chargeback dispute occurs when the merchant disagrees with the cardholder's reason for disputing the transaction and believes the charge is valid. During a chargeback dispute, the merchant submits evidence and arguments to the card issuer or acquiring bank to prove the charge is valid. If the dispute is successful, the card issuer will reverse the chargeback, and the merchant will retain the funds. If the dispute is unsuccessful, the card issuer will uphold the chargeback, and the merchant will lose the funds.

Chargeback fees are administrative fees charged by the issuing bank to the merchant for processing a chargeback dispute. They use these fees to cover the costs of investigating and resolving the dispute. Chargeback fees can vary depending on the card network, the type of card used, and the country where the transaction took place, but they are typically a percentage of the transaction amount, ranging from $20 to $100 or more.

Chargeback fraud is a type of fraud where a customer disputes a legitimate transaction to keep the goods or services received while receiving a payment refund. This type of fraud can occur when a customer knowingly makes a false claim, such as stating that the transaction was unauthorized or that the goods were never received, to get their money back.

Chargeback fraud can result in significant financial losses for merchants, as they may have to return the disputed amount to the customer. Additionally, frequent chargebacks due to fraud can harm a merchant's reputation and make it more difficult for them to process payments in the future.

Chargeback management means preventing, detecting, and resolving disputes initiated by cardholders over transactions processed on their credit or debit cards. The goal of chargeback management is to minimize the financial impact of chargebacks on a business, improve customer satisfaction, and protect the business's reputation and credibility.

Chargeback mitigation reduces the number of chargebacks a business receives and the associated financial losses. That can be achieved through a combination of strategies, including fraud prevention, customer service, product quality enhancement, clear communication, and chargeback defense.

Chargeback prevention alerts are notifications sent to merchants to help them prevent chargebacks before they occur. These alerts can provide information about potential fraud or disputes, allowing merchants to take action to resolve the issue before it results in a chargeback.

The acquiring bank, the card issuer, or a third-party chargeback management service may provide chargeback prevention alerts. They can include unusual or suspicious transaction activity, changes in a customer's behavior or spending patterns, or warnings of potential disputes.

By receiving chargeback prevention alerts, merchants can take proactive measures to prevent chargebacks and minimize their impact on their business. This can include reaching out to customers to resolve disputes or fraudulent activities before they escalate into chargebacks or making changes to their processes or systems to reduce the risk of chargebacks.

A chargeback prevention alert system can help merchants improve their chargeback management processes, reduce the number of chargebacks they receive, and minimize the costs and damages associated with chargebacks.

The chargeback process is a procedure for disputing a transaction and reversing a payment that has already been made. The process typically involves the customer contacting their bank to initiate a chargeback, usually due to a dispute or suspected fraudulent activity, bank investigation, merchant notification, merchant response, bank decision, and merchant appeal.

The following is a general outline of the chargeback process:

Dispute filling: The cardholder contacts the issuing bank and disputes a transaction, usually because of a problem with the product or service received, or because the transaction was unauthorized.

Investigation: The issuing bank investigates the dispute, gathers information from the cardholder (and sometimes from the merchant), and determines whether a chargeback is warranted.

Chargeback filing: If the issuing bank determines that a chargeback is justified, it debits the merchant's account for the amount of the disputed transaction and credits the cardholder's account.

Representment: The merchant may dispute the chargeback and provide compelling evidence to support their position. If the evidence is convincing, the issuing bank may reverse the chargeback.

Arbitration: If the issuing bank and merchant cannot resolve the dispute, the case may be sent to arbitration, where an independent party will make a final decision.

Final outcome: Based on the results of the investigation and representation, the chargeback is either granted or denied, and the funds are adjusted accordingly.

Note: The exact process and timeline may vary depending on the card network (Visa, Mastercard, etc.) and the country in which the transaction took place.

Chargeback rate, also known as chargeback ratio, is a metric that measures the number of chargebacks a merchant receives as a percentage of their total transactions. The chargeback rate can provide valuable insights into the health and performance of a merchant's business and help identify any potential issues or areas for improvement.

A chargeback rate is calculated by dividing the number of chargebacks a merchant has received in a given period by the total number of transactions processed during that period. For example, if a merchant processed 1,000 transactions and received ten chargebacks, their chargeback rate would be 1%.

A chargeback reason code is alphanumeric code banks use to describe the reason for a chargeback. The card issuer assigns the reason code to categorize the type of dispute the cardholder is filing.

Each reason code corresponds to a specific type of chargeback, such as fraud, authorization error, goods not received, or goods or services not as described. The reason code identifies the dispute type and guides the chargeback dispute process.

The use of reason codes helps ensure consistency and fairness in the chargeback process, as it allows merchants and card issuers to understand the basis for the dispute and respond accordingly clearly. Reason codes also provide a means for tracking and analyzing chargeback trends and identifying areas for improvement in the chargeback process.

Chargeback recovery is merchants' various steps to fight against friendly fraud and recover the revenue they would otherwise lose. Merchants do this through the chargeback representment process, which involves submitting a statement of rebuttal and documentation that support their claims.

The Chargeback recovery rate is the percentage of chargeback disputes successfully resolved in favor of the merchant. Merchants use this metric to track the effectiveness of chargeback management and recovery efforts and assess chargeback's overall financial impact on a business.

The chargeback recovery rate is calculated by dividing the number of successfully recovered chargebacks by the total number of chargebacks received. A high recovery rate indicates that a business effectively manages and prevents chargebacks. In contrast, a low recovery rate may indicate a need for improvement in chargeback prevention and management strategies.

Factors that can influence the chargeback recovery rate include the quality of compelling evidence, the timeliness of the response, the nature of the dispute, and the overall chargeback process and dispute resolution procedures.

Chargeback revenue is the amount of money a business loses because of a chargeback. Chargebacks can significantly impact a business's bottom line, as they can result in not only the loss of the transaction amount but also in additional fees and chargeback processing costs.

A chargeback threshold is a predetermined limit on the number of chargebacks a merchant is permitted to receive within a specified period. The chargeback threshold is typically established by the acquiring bank or card issuer, and they use it to monitor and manage the risk associated with a merchant's business.

If a merchant exceeds the chargeback threshold, it can result in increased fees, increased monitoring, or even termination of the merchant account. The chargeback threshold depends on factors such as the merchant's processing volume, type of business, and history of chargebacks.

The chargeback time limit is the fixed period within which various parties can respond to any phase of a chargeback dispute. Both cardholders, banks, and vendors must adhere to the card network's stipulated dispute deadline if they wish to initiate a chargeback or contest a claim.

Chargebacks TRUE cost refers to the apparent and hidden costs associated with chargebacks to your business. These costs range from the chargeback fees to the inventory fees as highlighted below.

‍Card transaction charges

eCommerce merchants are charged a specific percentage for every card transaction a cardholder makes. And if the cardholder goes on to charge back the transaction, the merchant does not get a refund on the card processing fee – they lose that money with the cost of the merchandise.

‍Chargeback fees

When a cardholder files a chargeback, the merchant acquirer also includes additional charges for their involvement in the mediation processes. The fee could be in the range of $20 to $100 and calculated based on the level of associated risks, i.e., the number of chargebacks the merchant received in a given period. Chargeback fees are non-negotiable for the most part, whether you win the dispute or lose.

Excessive chargeback penalties

Banks and card networks pay keen attention to merchants’ chargeback rates to ensure they don’t cross established thresholds. When the merchant enters the “high risk” category, the fees become astronomical. Excessive chargeback penalties can range from $5000 to $25,000.

‍High cost of operation and brand damage

Chargebacks don’t just take money away from your pocket. They also cost online merchants time, human resources, and brand equity. These are, perhaps, the most expensive aspects of dealing with eCommerce chargebacks. No one will do business with you if you cannot maintain a reasonable fidelity as a formidable brand in the industry. Banks can’t work with you because they’ll see your brand as high risk, and even if they happen to take your business, they’ll make you pay excessive fees to cushion their risks and future reputational crisis.

Inventory and overhead costs

eCommerce transactions involve several distinct deliverables, such as pick-up, packaging, warehousing, and shipping. These activities also involve costs. And when a scammer relieves you of the transaction revenue with a false chargeback, these overhead costs also affect your balance sheet. Inventory management expenses often represent about 20% of an average merchant’s losses due to chargebacks.

Chargeback compelling evidence is documentation or other proof submitted by a merchant as part of a chargeback dispute to support their case and prove the validity of the transaction. The evidence must be persuasive and clearly demonstrate that the transaction was authorized, that the goods or services were delivered as described, and that the cardholder received value for their purchase.

Examples of compelling evidence may include: A signed receipt, shipping label, digital confirmation of delivery, and clear and detailed description of the goods or services provided.

In some cases, audio or video recordings, screenshots, or digital evidence may also be considered compelling evidence.

The objective of compelling evidence is to provide clear and convincing proof that the transaction was legitimate and that the chargeback is invalid. The acquiring bank or card issuer will review the evidence as part of the chargeback dispute process and make a final decision based on the presented evidence.

Consumer clarity is the level of understanding and transparency a consumer has about a product, service, or transaction. It involves clear and concise communication of pricing, terms and conditions, product features and benefits, and potential risks or limitations. Consumer clarity is essential for building trust and confidence between consumers and businesses and ensuring that consumers can make informed decisions about their purchases.

Having high levels of consumer clarity helps to prevent misunderstandings, disputes, and chargebacks, as it allows consumers to fully understand what they are buying and what they can expect. It also protects consumers from potential scams or deceptive practices. In short, consumer clarity is vital to fostering a fair and trustworthy marketplace where consumers and businesses can transact confidently.

A credit receipt or credit transaction receipt is a credit card transaction record that serves as proof of payment. It is usually provided to the cardholder as a physical or electronic document after a credit card purchase has been approved and processed.

A credit receipt typically includes information such as the date and time of the transaction, the merchant's name and location, the purchase amount, the type of card used, and the last four digits of the card number. It may also include information about the card issuer, the payment processor, and applicable taxes or fees.

A credit receipt serves as a transaction record, and a cardholder can use it for personal accounting or resolving disputes with the merchant or the card issuer. The cardholder must retain and review their credit receipts to ensure that all transactions are accurate and authorized.

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Customer service is any support a merchant provides to customers before, during, and after a purchase. It involves addressing customer needs and ensuring customer satisfaction with a product or service. Customer service can take many forms, including phone support, email support, live chat, or in-person interactions. The goal of customer service is to provide a positive customer experience and to build customer loyalty. This can be achieved by providing accurate information, resolving issues efficiently, and handling customer complaints in a professional and empathetic manner.

In the context of payment disputes and chargebacks, data filling provides additional information or evidence to support a merchant's position in a dispute. This may include filling out dispute forms, providing transaction receipts, shipping records, customer service logs, or other relevant information that can help prove that the transaction was authorized and legitimate. Data filling aims to ensure that all relevant information is included in a dispute claim so that the card issuer can make an informed decision. Effective data filling can increase the chances of a successful dispute resolution and reduce the risk of chargebacks.

Data security protects sensitive information from unauthorized access, use, disclosure, destruction, modification, or disruption. This involves a set of policies, technologies, and procedures that are put in place to secure data from a wide range of threats, including hacking, phishing, malware, and theft. Data security aims to ensure the confidentiality, integrity, and availability of sensitive information, such as personal information, financial data, and confidential business information. This includes protecting data in storage (such as on servers and hard drives) and in transit (such as when transmitted over a network). Adequate data security requires ongoing efforts to stay up-to-date with the latest threats and to improve security measures continuously.

A dispute is when a cardholder questions a charge made to their account; the issuing bank may approve a chargeback.

Dispute response is the steps a business takes in answering a dispute or claim made by a customer or cardholder about a transaction made using a payment card.

In the context of chargebacks, dispute response refers to the actions taken by a merchant or acquirer to respond to a chargeback claim made by a cardholder. The dispute response process typically involves gathering and presenting evidence to support the merchant's position, such as transaction receipts, shipping records, and customer service logs.

The goal of dispute response is to resolve the dispute in a timely and fair manner while protecting the rights of both the cardholder and the merchant. Effective dispute response strategies can reduce the risk of chargebacks and minimize the impact of disputes on a business's bottom line.

Encryption is a secure communication technique involving converting plaintext into unreadable code (ciphertext) to prevent unauthorized access or tampering. Encryption is commonly used to secure data transmission over the internet, protect sensitive information stored in databases and computers, and secure digital communications such as email and instant messaging. The encryption process uses an algorithm and a secret key to transform the original data, and a corresponding decryption process is used to restore the original data. The secrecy of the key determines the security of the encrypted data. In encryption, even if a cybercriminal intercepts the ciphertext, it will be unreadable without the proper key, providing a secure way to transmit and store sensitive information.

Friendly fraud, also called "chargeback fraud" or "cyber shoplifting," occurs when a customer intentionally disputes a legitimate charge on their credit or debit card to obtain a refund for goods or services received. This type of fraud is called "friendly" because the customer is not acting maliciously against the merchant but is instead using the chargeback process as a form of consumer protection. Friendly fraud can be more challenging to detect and prevent than other forms of fraud because the customer has a legitimate card, and the transaction appears legitimate at first. Merchants can reduce the risk of friendly fraud by providing precise and accurate information to customers, responding promptly to customer inquiries and complaints, and implementing fraud prevention measures such as address verification and fraud monitoring.

Front-end protection, also known as client-side protection, is the measures taken to protect the front end of a website or application from malicious attacks and vulnerabilities. The front end is the part of a website or application that is visible to the user and interacts with the user's device (such as a computer or smartphone). Front-end protection involves implementing various technologies and best practices to prevent attacks such as cross-site scripting (XSS), cross-site request forgery (CSRF), and code injection. This can include implementing input validation and sanitization, secure coding practices, and security features such as content security policy (CSP) and subresource integrity (SRI). The goal of front-end protection is to ensure the security and stability of a website or application and to protect users' sensitive information from being compromised.

An invalid chargeback is when a cardholder disputes a transaction they made or if the dispute is based on false or incomplete information. Invalid chargebacks can also occur when a cardholder disputes a transaction that is not covered by the terms of their cardholder agreement or applicable laws and regulations. In such cases, the merchant or the seller may contest the chargeback, providing evidence to support their side of the dispute. The outcome of an invalid chargeback is determined by the credit card issuer or the payment network based on the evidence presented by both the cardholder and the merchant.

An issuer is a financial institution or organization providing consumers with credit cards. The credit card issuer is responsible for setting credit limits, determining interest rates, and managing the credit card accounts of its customers. They also provide support services such as dispute resolution, fraud protection, and account management. Examples of credit card issuers include banks, financial services companies, and retail stores.

A merchant is a business or individual who sells goods or services to customers in exchange for payment. Merchants can sell products or services through a physical store, an online platform, or other means. When a customer makes a purchase using a credit or debit card, the merchant is responsible for processing the card payment transaction and sending the payment to the acquiring bank or payment processor for settlement. The acquiring bank then deposits the funds into the merchant's account and remits the payment to the card issuer for processing.

A meritless chargeback is initiated without reasonable cause or justification, meaning the cardholder is disputing a valid transaction. Meritless chargebacks can result from a mistake by the cardholder or a lack of understanding of the transaction. They can be costly and time-consuming for merchants, as merchants must respond to the dispute and provide evidence supporting their position to overturn such disputes.

Monitoring Programs are systems established by card networks to ensure merchants can keep their fraud and chargeback issues within acceptable levels. If a merchant goes beyond the acceptable fraud or chargeback thresholds established by each network, such as Visa and Mastercard, they move the merchant into one of their monitoring programs. The monitoring program attracts monthly fines and additional fees until the merchant can sustainably reduce their dispute or fraud levels. Failure to actualize that objective within the given timeline can result in payment processing rights reversal, thereby putting your business in jeopardy.

A PIN (Personal Identification Number) is a confidential number used to authenticate a credit or debit card transaction. A PIN is used to verify the cardholder's identity and ensure that the person using the card is authorized to make the transaction. The cardholder is required to enter the PIN at a point-of-sale terminal, an ATM, or a similar device when making a purchase or accessing their account.

A payment gateway is a framework that enables merchants to securely accept customer payments through channels such as credit cards, debit cards, bank transfers, and e-wallets. The payment gateway bridges the merchant's website and the acquiring bank or payment processor. When a customer purchases on the merchant's site, the payment gateway processes the transaction and communicates with the card issuer or bank to obtain authorization for the payment. If the price is approved, the payment gateway sends a notification to the merchant and securely transmits the payment information for settlement. The payment gateway also provides merchants with various security features, such as fraud protection and data encryption, to ensure the safety of the transactions and customer data. The payment gateway is a critical component of the e-commerce infrastructure, as it allows merchants to securely accept electronic payments from customers and streamline their payment processing operations.

A payment processor is a company that specializes in facilitating electronic payments for merchants. The payment processor is a liaison between the merchants, the acquiring bank, and the credit card networks. The payment processor is responsible for handling the technical aspects of the transaction, such as securely transmitting payment information, obtaining authorization for payments, and settling the transactions. Payment processors play a critical role in enabling merchants to securely accept and process electronic payments from customers, and they are an essential part of the eCommerce infrastructure.

Processing fees are charges merchants incur for processing credit card transactions. Merchants pay these fees to the acquiring bank, payment processor, or credit card network, and they cover the costs of processing and settling the transactions, including authorization, clearing, and settlement. Processing fees typically include a percentage of the transaction value and a fixed charge per transaction. The processing fee amount varies depending on the type of card used, the country of the merchant, and the acquiring bank. The fees are essential for merchants, as they can impact their bottom line and affect their profitability. Merchants may pass on some or all of the processing fees to their customers through surcharges or higher prices for their products and services.

Processing rights are rights merchants and acquirers have to process transactions and manage disputes following card network rules and regulations. In payment card transactions, processing rights determine who handles transactions and disputes. They set the standards for processing transactions, including handling fraud, chargebacks, and disputes.

Processing rights are granted by card networks, such as Visa and Mastercard, to merchants and acquirers who meet their standards and requirements. These rights allow merchants and acquirers to process transactions, manage disputes, and access the network's processing and settlement systems.

Processing rights are essential for merchants and acquirers who wish to accept payment cards, as it allows them to participate in the payment card system and access the benefits and protections offered by the card networks.

Rapid Dispute Resolution (RDR), is one of the ways Visa helps merchants optimize their refund and chargeback processes for more effective dispute remediation. With RDR, merchants can respond to a dispute within 48 hours, providing evidence to support their case. Documentation deemed compelling evidence can include receipts, invoices, or other drafts showing the cardholder authorized the disputed transaction and delivery of goods or services as promised.

If the merchant's response meets that objective, dispute resolution will be in their favor, with the chargeback rejected. But if the merchant's response is invalid, the chargeback will proceed.

RDR also gives merchants real-time alerts of potential disputes, allowing them to proactively address and resolve issues before they result in a chargeback. Additionally, merchants can access detailed dispute information and case history, providing valuable insights into their transaction disputes and helping them identify and prevent future disputes.

A reason code is a numerical or alphanumeric code assigned to a transaction or dispute to provide additional information about the nature of the transaction or the reason for the dispute. Reason codes are used by the acquiring bank, payment processor, credit card network, or card issuer to provide a standardized and structured way of communicating the reasons for disputes. In credit card processing, reason codes are used to classify and communicate the reasons for declined transactions, chargebacks, or disputes. The codes vary depending on the card issuer, payment network, or acquiring bank.

A refund is when a merchant returns funds to a customer for goods or services that have been purchased. The customer or merchant can initiate a refund, which may be processed through a credit card, debit card, bank transfer, or other payment methods. A refund is to correct a previous transaction that was made in error, to return funds for goods or services that were not received or were unsatisfactory, or to accommodate a customer's request for a return. The refund amount is typically the same as the original purchase price, but it may be adjusted to reflect any differences in the product or service provided. Refunds are a standard part of retail and eCommerce transactions and are an essential component of customer satisfaction and relationship management.

Refund fraud refers to the practice of obtaining a refund for a purchase that was not actually made or that was made fraudulently. This type of fraud can occur when a criminal purchases using a stolen payment card or other illicit means and then requests a refund for the purchase after receiving the goods or services.

Representment is a way for merchants to defend themselves against chargebacks and recover revenue lost due to the chargeback. Representment is challenging a chargeback by submitting a dispute resolution request to the issuing bank or the payment network. Sellers use Representment to contest a chargeback they believe invalid or unjustified. The merchant provides evidence to support their case, such as receipts, invoices, shipping records, or customer service notes, and argues that the chargeback should be reversed. The outcome of a chargeback representment request is determined by the issuing bank or the payment network based on the evidence presented by both the cardholder and the merchant.

Return fraud occurs when a customer makes a false or misleading claim to a merchant to obtain a refund, credit, or exchange for goods or services that were not actually purchased or were not received in the condition claimed. Return fraud can take several forms, including receipt fraud, wardrobing, and false claims of damaged or defective merchandise. Return fraud can have a significant impact on merchants, as it results in lost sales and reduced profits. Merchants may implement various measures to prevent return fraud, such as requiring proof of purchase, implementing return time limits, or using technology such as barcode scanning or security tags to track and verify returns. Return fraud is a persistent challenge for retailers and e-commerce businesses, requiring careful management and continuous monitoring to minimize its impact.

Returns refer to a customer returning goods or services to a merchant for a refund or exchange. Returns can occur for various reasons, such as dissatisfaction with the product, receipt of damaged goods, or receipt of the wrong item. Making a return typically involves the customer contacting the merchant in person, by phone, or through an online system to initiate the return. The customer may be asked to provide proof of purchase and the reason for the return. Depending on the merchant's return policy, the customer may be required to pay return shipping costs, restocking fees, or other charges. The merchant then processes the return and issues a refund or exchange through either the original payment method or a different payment method. Returns are a standard part of retail and eCommerce transactions and play a vital role in managing customer satisfaction and loyalty.

Security is the measure taken to protect sensitive information, such as credit card numbers, bank account numbers, and personal data, during financial transactions. Payment security protects the consumer and the merchant from fraud, theft, and other forms of financial crime. This requires the implementation of secure payment technologies, such as encryption, secure socket layer (SSL) certificates, and two-factor authentication, as well as adopting best practices for data management and storage. Payment security also involves ensuring compliance with relevant regulations and standards, such as the Payment Card Industry Data Security Standard (PCI DSS), which sets standards for the protection of cardholder data.

A security threat is a potential danger or risk to an organization's information or systems' confidentiality, integrity, or availability. Security threats can come in many forms, including viruses, malware, hacking, phishing, social engineering, and physical theft or destruction. A security threat can result in the loss or theft of sensitive information, disruption of services, or damage to hardware or software. The consequences of a security threat can be significant, including financial losses, reputational damage, and loss of customer trust.

The transaction value is the amount of money exchanged for goods or services, and it is typically the amount that is recorded on a receipt, invoice, or bank statement. Transaction values can range from a few cents for a small retail purchase to millions of dollars for a significant real estate transaction. The transaction value calculates the fees or charges associated with a transaction, such as processing fees, exchange rates, or taxes. It is also used to determine the funds available for refund or dispute resolution in the event of a problem with the transaction.

A transaction is a formal agreement or exchange between two or more parties in which goods, services, or financial assets are transferred. In the context of payments, transactions refer to the exchange of funds for goods or services. A transaction typically involves using a payment method, such as cash, check, credit card, or electronic transfer, to complete the exchange.

Transaction volume is the number of financial transactions processed within a specific period, usually a day, week, month, or year. This measurement is often used in the context of payment systems, stock exchanges, and cryptocurrency markets to indicate the level of activity and demand for a particular asset or service by a single merchant, a payment processor, or the entire financial industry.

True fraud is the deliberate and intentional use of false information or illegal means to obtain a financial benefit or cause harm to another individual or organization. True fraud is often associated with identity theft, credit card fraud, embezzlement, or other forms of financial crime. The term "true fraud" contrasts with "friendly fraud," which refers to instances where the fraudster is known to the victim.

An unauthorized transaction is a transaction that someone made without the knowledge or consent of the account owner. Such activities can include unauthorized charges to a credit or debit card, unauthorized withdrawals from a bank account, or unauthorized access to sensitive data.

Unauthorized transactions can occur for several reasons, such as data breaches, hacking, phishing attacks, or physical theft of a payment card. They can cause significant financial losses for the account holder and damage their credit score and financial reputation.

VDMP is a shorthand for Visa Dispute Monitoring Program, which Visa establishes to curtail merchant chargeback cases.

If a seller surpasses the monthly chargeback limit that Visa established, the merchant will enter into the VDMP program. The result? Disciplinary fees, payment restrictions, and expensive routine reviews. Moving into VDMP means that Visa recognizes your current business activity as unsustainable, the following metrics:

The total number of payments that have been disputed (dispute count)

The ratio of disputed payments to all payments (dispute rate)

VDMP has three tiers, and the program level you find yourself in depends on whether your monthly chargebacks surpass a predetermined threshold:

Early Warning: 0.65% chargeback ratio & 75 chargebacks (no fees).

Standard: 0.9% chargeback ratio & 100 chargebacks (Fines begin after four months and continue monthly until removal from the program).

Excessive: 1.8% chargeback ratio & 1,000 chargebacks (Fines intensify and continue until removal from the program).

VFMP is the acronym for Visa Fraud Monitoring Program, established by Visa. And as the name suggests, Visa Fraud Monitoring Program is a vendor monitoring instrument that seeks to help sellers address fraud risk and protect the greater payments ecosystem.

Entering into VFMP means your business has unusually high fraud levels. And Visa will compel you to craft a remediation system with your acquirer to resolve the issue. The first four months in VFMP is the grace period and does not attract penalties or extra costs. However, failure to remediate the chargeback issue within four months of being in VFMP will see Visa begin to place fines and penalties on every chargeback you get. The metrics Visa uses to measure your status include:

The total volume in US dollars of Visa payments that are fraudulent (Fraud Volume)

The ratio of the volume of fraudulent Visa payments to all payments (Fraud Rate)

And the three stages of VFMP include:

Early warning: 0.65% (no fine assessed).

Standard: 0.9% (no penalties levied).

Excessive: 1.8% (Fines begin immediately and continue every month until removal from the program).

A valid chargeback is a chargeback that follows all the precepts of the chargeback mechanisms, such as. A chargeback is considered valid when it adheres to card network rules in legality, compliance, and acceptability, such as when the buyer didn’t know what the charge was for, a criminal made an unauthorized transaction, or when the seller didn't deliver promised service.

A winnable chargeback is a dispute that a seller has a good chance of winning based on the compelling evidence and arguments they can present. For a chargeback to be winnable, the merchant must have documentation supporting the transaction's validity and refuting the cardholder’s claim. This evidence may include receipts, invoices, shipping records, customer communications, and other documentation that supports the transaction.

The key to a winnable chargeback is providing a clear and concise chargeback response that outlines a complete picture of the transaction and the evidence backing it. This response should be well-structured, easy to comprehend and address all vital points in the chargeback reason code.