While there are reason codes related to processing error disputes, the majority of reason codes result from a cardholder disputing a charge. The cardholder may be the customer or the someone who lended their card to a friend or relative. And there’s always that possibility the card was used in a fraudulent transaction, which means the cardholder is a victim of true fraud.
No matter who was involved in the transaction, the scenario usually involves the cardholder either seeing an “unrecognizable charge” on their statement or disputing the quality of the goods/services rendered. This is when they submit a claim to their issuing bank and (unfortunately) it is fairly easy for cardholders to submit it.
Depending on the card network’s dispute workflow, the dispute will enter the inquiry stage. This is a pivotal moment in determining whether or not it should proceed to the chargeback stage. If so, it will be filed as an official case and the disputed revenue will be withdrawn from the merchant’s bank account.
Under Visa, disputes that enter the inquiry stage are assigned to the collaboration workflow. This consist of disputes with reason codes in the Process Error or the Consumer Dispute category. Fraud and Authorization disputes (if verified by VROL) are sent to the allocation workflow, and the first stage in that workflow is the chargeback stage. You can learn more about both workflows in our Visa Claims Resolution post.
Under Mastercard, their reason codes do not require an inquiry. That is assessed on a case-by-case basis from their affiliated banks. However, news about the Mastercard Dispute Resolution (MDR) Initiative suggests they plan to launch a collaboration workflow that is similar to Visa’s. This will be launched on April 12, 2019. There is no current announcement on any workflow changes for their fraud and authorization disputes. We will update this post when it is made available.
At this phase of the dispute lifecycle, the merchant still possesses the disputed revenue. But that won’t last long if they are not able to fulfill the issuer’s inquiry—and quickly. The card networks’ initiatives show they intend to continue streamlining the dispute process. All of their efforts involve using automation in order to prevent invalid disputes in real-time. However, that has shrunk the merchant’s response window to two seconds or less. Basically, the only solution to fulfill inquiries nowadays is dispute management software that responds in real-time.
While this facilitation (and response) occurs through APIs, here is a breakdown of what happens during this phase.
The dispute lifecycle ends here when the inquiry is fulfilled and it is in favor of the merchant. Otherwise, the lifecycle proceeds to the chargeback stage.
Now that the dispute has been officially filed, it has entered the chargeback stage. This means the disputed revenue will be transferred from the merchant’s bank account to the cardholder’s account. The time limit to respond starts once the merchant has received notice of the dispute. Each card network set their own time limit, and the issuer, acquirer and merchant act accordingly. Here are the time limits merchants should be aware of.
|Card Network||Time Limit|
|American Express||20 Days|
|Mastercard||45 Days**Subject to change, according to the Mastercard Dispute Resolution (MDR) Initiative.|
However, it is worth noting the time limits above apply to acquirers and processors, not merchants and dispute analysts. It is recommended that the response document is sent to them by the midway of the time limit. The recommended time limits below are what we recommend for analysts to send their document. This not only secures their submission being accepted, but it also gives acquirers and processors time to review the document.
|Card Network||Time Limit (for Analysts)|
|American Express||10 Days|
|Mastercard||22 Days**Subject to change, according to the Mastercard Dispute Resolution (MDR) Initiative.|
All response documents need to include evidence from the merchant’s payment processor, authorization gateway, ecommerce platform, and (if applicable) the carrier for disputed shipped goods. Analysts will be able to provide additional evidence such as support tickets, screenshots and social media posts. But that again will depend on the reason code being addressed.
The dispute will be rejected if the response document achieves two things:
Please note, depending on the card network, the analyst will not be able to challenge the outcome if issuing analyst favors the cardholder’s case.
Pre-arbitration (i.e., pre-arb) is where the outcome in the chargeback stage is being reviewed on the “merit of reasonableness.” In other words, the cardholder and/or issuing bank believe the dispute being rejected at Stage 2 was not reasonable. Pre-Arb gives them another chance to have the outcome reversed in their favor.
The exact conditions (and terminology) for a dispute to enter pre-arb will vary. But it usually shares the following requirements:
The reason code is different now than it was compared to when it was tied to the dispute. The cardholder and/or issuer believe this new change legitimizes their case for a chargeback.
The dispute enters pre-arb in order for it to be reviewed again.
The cardholder has new information that was not provided during the chargeback stage. This new information is believed to legitimize their case for a chargeback to be issued.
The issuer believes the analyst’s evidence did not disprove the dispute. This kind of cause is highly technical and will only occur if there is evidence that is considered “too broad” or “insignificant.”
This cause is easily preventable when either:
There are miscellaneous causes that may send a dispute to pre-arb. One example is the merchant’s return policy or Terms and Conditions not being properly disclosed.
This technically can be considered new information the cardholder can present (see Cause 2). It is recommended to have this documentation not only transparent, but also clear and concise.
Under Mastercard, pre-arb is referred to as second presentment. Under their MDR initiative, the following reason codes will send the dispute from the chargeback stage to the pre-arb stage instead of going through second chargeback.
|Mastercard Dispute Reason Code||Description||How to Respond|
|4837||No Cardholder Authorization|
This dispute lifecycle continues if no consensus was reached by the issuing party (i.e., the cardholder and the issuer) and the acquiring party (i.e., the acquirer and merchant). Now the card network is involved to make a final ruling on the dispute. Please note this stage in the dispute lifecycle is expense and the is rarely an opportunity to challenge the decision.
The response method in this stage relatively the same when compared to the others above. However, under Visa, merchants and analysts have less than 10 days to submit their response to their acquirer. Mastercard allows the acquiring party to submit their response in 45 days. But keep in mind the acquirer will need time to thoroughly review the response document. That is why we recommend analysts should submit their days within 22 days.
There are several scenarios where the dispute can be rejected before entering another stage of its lifecycle. The first scenario is the inquiry stage since this is where the dispute can be prevented from being filed. If analysts can achieve this, they can lower their dispute rate and prevent revenue loss.
Analysts are able to earn back their revenue in the chargeback and pre-arb stage. But the time and resources used to respond can be costly. This usually happens when analysts are using an ad hoc approach to manage disputes. Whenever a dispute passes the retrieval request stage, the goal is to have a well-documented workflow. This allows the response document to be well-formatted and the analysts will know exactly how to enhance it.
Or better yet, the workflow will be more effective through automation. This not only strengthens the response document. It also saves time from pulling and formatting the data manually. Automation can empower analysts within the retrieval request stage. As it provides the transaction, order and customer details programmatically, this allows Real-time Resolution to have the biggest impact in dispute management.