Disputes are essential to the payment ecosystem. They are a tool that customers can use to address fraudulent transactions and protect against undelivered or damaged items. This increases confidence in online card payments.
However, charges for handling disputes and resources that are required to manage them make them costly for businesses. As well as this, the rules are weighted in the consumer's favor which has provided fraudsters the ability to 'game' the system.
In this article, we explain more about what a dispute is, how disputes work and how to minimize their impact. Specifically, we cover:
What is a dispute?
How do disputes work?
Where do disputes come from?
When can consumers use disputes?
How long does a dispute take?
What are the different types of disputes?
What do disputes mean for merchants?
What is a dispute?
A dispute means funds are returned directly to a customer’s account after they dispute a payment they have made via a card.
Disputes can happen when:
a customer thinks a card payment was fraudulent
services were never provided
merchandise was not received
Can you prevent disputes?
It's impossible to eradicate disputes. But with an effective disputes management strategy, you can reduce the likelihood of disputes and disputes occurring and minimize their impact on your business.
Tips to prevent disputes
Here are a few ways you can take to keep disputes and disputes to a minimum:
Make your return, refund and cancellation policies clear
Clearly communicate your return, refund and canceling policies to customers at the time of the sale. This may help prevent disputes for canceled transactions’, when the customer claims to have canceled their order yet is still charged. Or for ‘transaction not recognized’ or ‘incorrect transaction amount’.
Confirm customer orders
It’s good business practice to confirm customer orders. It may also help prevent unnecessary disputed payments too. If you accept orders for goods or services to be delivered later, manage the customer’s expectations. Update them on delivery times and allow them to track their order.
Let the customer know if goods are out of stock, no longer available, or the delivery will be delayed. Offer the option of purchasing an alternative or canceling the order. This may help prevent disputes for 'services not provided' or 'merchandise not received'—two of the most common reasons for disputed payments.
Provide good customer service
Ensure that the contact details of your customer service team are easy to find on your website, printed receipts, delivery dockets and so on. Again, this is good business practice. But it may also prevent a routine inquiry from escalating into a dispute.
Train your customer service staff to resolve complaints promptly and thoroughly in the first instance to avoid potential disputes later. Keep your procedures for customer billing queries and claims under constant review.
Use a clear billing descriptor on customer statements
Check that the billing descriptor on statements can be easily understood by the customer. Best practice is they should be able to identify the purchase immediately so they don’t mistakenly initiate a dispute.
If the registered name of your business is different from your trading name, choose the one that’s likely to be most familiar to customers. Similarly, populating the ‘city’ field with the town or post/zip code of the store, or your website address for online orders, can help jog a customer's memory.
To prevent ‘non-receipt of merchandise’ disputes, don’t charge cards until goods have been shipped. If customers see transactions on their statements before goods arrive, it may cause confusion and lead to a preventable dispute.
Just as it’s best not to submit transactions too early, don’t submit them too late, either. This helps minimize ‘late presentment’ or ‘credit not processed’ disputes.
Obtain proof of customer participation
Providing compelling evidence that the customer participated in the transaction and/or received the goods helps defend certain disputes. Configure your internal processes to capture the customer’s account order history, clearly showing all transactions.
Collect and retain signed delivery receipts from the customer, courier tracking documentation, or the customer’s IP address, description, date and time of download, if you sell digital services.
Leverage Strong Customer Authentication rules
Identify and verify customer identities using 3D Secure 2.0 (3DS2). This updated protocol offers a layer of protection against the fraudulent use of accounts—one of the most common reasons for disputes in the card-not-present space.
Payment providers now guarantee payment for certain successful online transactions that have been authenticated with 3D Secure 2.0 (3DS2). More importantly, 3DS2 is an opportunity to share more data and help issuers with risk-based authentication to provide better customer experiences at the checkout.
Cancel recurring transactions promptly
As a best practice, cancel recurring transactions promptly. Confirm the cancellation to the customer in writing, stating the effective date of the cancellation.
Remind them of any cancellation restrictions in cases where the customer has paid up-front for a subscription or membership of a pre-agreed duration. Offer to take another form of payment for the remainder of their subscription or membership, as appropriate.
Update expired cards
There’s no need to incur disputes, lose sales or miss payments because your customer’s card has expired. Mastercard and Visa refresh details if cards expire, are lost, stolen or upgraded.
Developing a disputes strategy, pre-empting disputes and knowing which disputes to challenge and the costs of doing so are all ways to protect cash flow, profitability and competitive advantage.