Definition
A dispute arises when a shopper challenges a previously made transaction with their card issuer. This automatically triggers an internationally defined process.
In the first step, the transaction amount, along with a dispute fee, is temporarily deducted from your account and refunded to the shopper. Afterwards, as a merchant, you have the opportunity to submit evidence to demonstrate the validity of the payment.
If the dispute is resolved in your favor, both the transaction amount and the fee will be refunded to you. If the decision favors the shopper, the withdrawn money is permanently lost to you.
Disputes are also referred to as chargebacks or payment reversals.
Involved Parties
In addition to you as the merchant, the shopper, the shopper bank, the merchant bank and Payrexx are always involved in a dispute. Here you can find out who has which role.
In a dispute, in addition to you as the merchant, the shopper, the shopper's bank, the merchant's bank, and Payrexx are involved. Here you will learn about the roles each party holds.
Credit card holder/shopper
The shopper (credit card holder), who made and paid for a purchase. In certain cases, such as when a credit card has been stolen, the credit card holder and the shopper may be two different individuals.
Other terms: buyer, customer, end customer, cardholder
Merchant
The online or POS store where the shopper has paid – for example, you.
Other terms: seller, retailer
Shopper's bank
The shopper's bank is the financial institution that issued the credit card to the shopper. It's the party that makes the decision in the event of a dispute.
Other terms: issuing bank, issuer, card issuer
Acquiring partner
As a payment provider or payment facilitator, we collaborate with partner merchant banks to process transactions. Depending on the payment method, we set up a merchant account with the relevant partner in the background. Since the merchant bank forwards transactions, it must meet strict requirements set by card systems and local financial regulatory authorities.
Other terms: acquiring bank, acquirer, merchant acquiring bank
Payrexx
As a payment provider, Payrexx plays a communicative role in the handling of disputes. Payrexx informs you about the initiation of disputes, receives your evidence, and forwards it accordingly. We strive to support you as a merchant as best as possible, but we have no decision-making authority within the dispute resolution process.
Other terms: payment service provider, payment facilitator
This Is How Disputes Are Processed
Disputes follow the following standard process worldwide:
The shopper notices discrepancies and contacts their bank.
The shopper's bank, the issuer of the credit card, notifies Payrexx about the complaint.
The disputed amount and a dispute handling fee are automatically deducted from the merchant's account (if your merchant account has insufficient or no funds, you will receive an invoice accordingly).
Payrexx notifies the merchant of the dispute and forwards all information received from the bank via the dashboard and by email to the merchant.
The merchant now has the opportunity to present evidence to demonstrate that the payment was legitimate.
The shopper's bank makes the decision on whose favor the dispute will be resolved. This usually occurs 60 to 75 days after the submission of the evidence.
Payrexx has no influence on the outcome of a dispute. Therefore, it is all the more important for us to support you as best as possible in this process.
Consequences Of Disputes
Disputes are a nuisance for every merchant as they generate short- and medium-term costs and staffing efforts, and can harm the company's reputation in the medium and long term.
Financial losses
If a dispute is resolved against you, you lose not only the transaction amount. Additionally, a dispute fee of EUR/CHF 35.00 is deducted. When considering the dispute holistically, it can cost you easily double the actual transaction amount.
| Description | Costs |
|---|---|
Transaction amount | EUR 100.00 |
Transaction fee (e.g. 1,7% + EUR 0.20) | EUR 1.90 |
Dispute fee | EUR 35.00 |
Acquisition costs (20%) | EUR 20.00 |
Marketing and advertising costs (35%) | EUR 35.00 |
Warehousing, logistics, processing (20%) | EUR 20.00 |
Total costs | EUR 211.90 |
Source: Chargebackgurus.com
Increased chargeback rate
An increased chargeback rate, the ratio between sales and the number of disputes, can negatively affect your business success.
If your chargeback rate exceeds the threshold defined by card networks, your merchant account may be classified as high-risk, which has unpleasant consequences:
You pay higher transaction fees.
Your processing volume is limited.
Funds are held in reserve.
In some cases, the acquiring bank and/or Payrexx may terminate your account.
Reputation deterioration
In the medium and long term, disputes negatively impact your company's reputation – even if you win a certain portion of the disputes.
The initiation of a dispute often leaves a mark in online forums and on review websites, which can negatively affect the behavior of existing customers and potential new customers.
According to the Local Consumer Review Survey 2023 by Brightlocal, 98% of respondents read online reviews at least occasionally when searching for a business. According to Qualtrics (2020), 94% of respondents stated that a negative online review convinced them to avoid a business.
Not only do lost disputes negatively impact your business. Even won disputes have consequences, as they worsen your reputation and their resolution generates staffing efforts.
Even better than winning a dispute is preventing it from arising in the first place. How this can be achieved will be covered in the next chapter.
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