If you are a credit card holder, business owner, or both, you probably know that credit card disputes are an option that cardholders have when reviewing their statement. What you may not know is how those disputes are resolved. What is the process for determining who is at fault in a questionable transaction? Here, we will break down the steps of the dispute investigation process. We will also consider the reasons for which disputes are filed, and what the merchant can do to protect themselves. Keep reading to learn more.
How Do Banks Investigate Disputes?
Unauthorized Transaction Investigations Table of Contents
Most banks have internal fraud departments that handle customer disputes and unauthorized transactions. This department may include investigators, attorneys, and customer service representatives. The purpose of this department is to investigate claims and determine whether a particular transaction was authorized by the cardholder.
Many banks lean in favor of their customers, which can make things tricky for merchants. Chargebacks are a major concern for many online businesses, and the bank dispute process doesn’t always take that into consideration. While their goal is to make the right decision, they also ultimately want to keep their cardholders happy.
What Are the Steps in the Dispute Investigation Process?
When investigating a potentially fraudulent charge, most banks follow a process like the one outlined below.
- The Cardholder Files a Claim – The first step in any dispute process is the customer filing a claim. When a customer sees an unauthorized charge on their card statement, they can dispute the charge by going to their online banking portal or calling their bank’s customer service line.
- The Claim is Assigned to an Investigator – The internal fraud department for the bank will assign the claim to an investigator who will be responsible for seeing the process through.
- An Investigator Gathers Evidence – The investigator will begin gathering evidence to understand the specifics of the claim and the transaction. There are online tools available through Visa, MasterCard, and other card issuers to assist the investigator in gathering evidence.
- The Investigator Compares the Claim to the Evidence – Once all evidence is gathered, the investigator compares it to the claim that was made by the customer. The investigator is looking for purchasing patterns on the customer’s part and a history of claims on the merchant’s part.
- The Investigator Makes a Decision – After comparing all the evidence to the claim, the investigator makes a decision and informs all parties involved.
How Does the Bank Investigate Evidence?
Now that you know the basic process, let’s examine the process of the investigation in greater detail. Understanding what the bank is looking for and how they make decisions can help you make changes in your business to protect yourself from chargebacks.
When the investigator is looking at evidence, they are looking for several things. Most of the items in question involve specific patterns on both sides of the transaction. The customer will have certain purchasing patterns that will be examined, and the merchant will have business and reputation patterns.
Customer Purchasing Patterns
When examining evidence about the customer, the bank will consider their normal purchasing habits. They will ask questions like:
- Has the customer ever purchased products from this merchant before?
- Does the customer usually purchase products or services like the one in question?
- Is the amount of the transaction unusual for the cardholder’s normal habits?
Gathering information like this will help the investigator form a clear picture of the cardholder and their spending habits. This picture can help determine whether the charge was authorized.
Merchant Claim Patterns
Investigating the merchant side of the transaction is another important piece of the dispute puzzle. During this stage of the investigation, the examiner is looking for other claims of a similar nature that have been filed against the merchant. If the merchant has a long history of chargebacks, it’s possible that the examiner will lean in favor of the cardholder. However, if the merchant has a clean chargeback history and a solid reputation, the examiner may determine that the cardholder is at fault.
How Long Does the Bank Investigation Process Take?
Once a dispute is filed, the Federal Trade Commission allows 30 days for the bank to respond to their customer and begin to investigate the claim. The internal fraud departments generally jump into action as soon as the claim is filed. Since their customer is the one who filed the claim, they want to provide efficient service. Many banks will offer a preliminary refund to their cardholder right away, to make them happy while the investigation proceeds.
If a larger pattern of fraud is discovered during the investigation, the bank will sometimes alert law enforcement to take it from there. This can happen on either side of the transaction, meaning that the merchant could be discovered for having made multiple fraudulent charges on people’s accounts, or the cardholder could be at fault for more than one false claim. When this happens, it can drag the process out longer than thirty days. On average, claims can take up to 45 days to be completely resolved.
What Are the Options for a Merchant with a Chargeback?
If your business receives a chargeback, you have a few options. Here is generally what happens:
- The bank issues a chargeback to the merchant based on their investigation
- The merchant is notified of the chargeback and provided with a reason code to explain why the decision was made
- The merchant can investigate the reason code with the card issuer. Visa, MasterCard, and other card issuers have their own system of reason codes, so the merchant will need to consult with the appropriate card issuer to get the meaning of the code
- The merchant can accept the claim and the loss of revenue as a result, or they can choose to fight it
- If the merchant chooses to fight the claim, they will participate in a process called “representing” where they can re-present the evidence of the transaction and why/how/by whom it was authorized
- Once the merchant presents all the pertinent information, the card issuer will review it. Based on the evidence from both sides, the card issuer may choose to reverse the chargeback or to let it stand.
For a merchant to be successful in the process of overturning a chargeback claim, they must be able to provide tangible proof. This can be in the form of signatures, emails with the cardholder, signatures for the purchase, etc. Without these items, the banks will almost always rule in favor of the cardholder.
How to Protect Your Business from Chargebacks
While you’ll never completely eliminate the risk of chargebacks, there are some things you can do to proactively decrease that risk. Providing extensive communication to your customers is one of the best ways to prevent chargebacks. Over-communicate the purchasing and returns process before the transaction is ever made. Have this information prominently displayed in your store and on your website.
When a customer makes a transaction, have your software setup to send a confirmation email with the same information. Supplying return and refund information to your customers is a great way to entice them to reach out to you for a refund, rather than going to their bank and filing a claim.
Offering exceptional customer service is another great way to mitigate the risk of chargebacks. Making it easy to get a hold of you and responding in a timely manner will help customers build trust in your business. It reduces their need to file a claim because they know they can pick up the phone or jump into a live chat and have their issue resolved.
Final Thoughts
The dispute investigation process can be long and grueling for all parties involved. Our best advice is to be proactive and have systems in place that give you tangible evidence of authorization with every purchase. Doing so will give you the evidence you need to fight back if and when you receive a chargeback.
