Dispute Vs Chargeback- Know the difference
The terms “Chargeback” and “Dispute” are often used synonymously, although they don’t mean the same thing in real. Both terms refer to a cardholder contesting a charge levied on their card. Dispute is the first step of the process while chargeback is a fine that is imposed at the end of it.
Ok! Feeling a bit dizzy with these terms?
Don’t worry! We are here to explain the terms and process in a simplified way.
What is a Dispute?
A dispute occurs when a cardholder objects to a transaction on their card statement. A dispute is the primary stage of the chargeback process. There can be several reasons for a cardholder to dispute a charge on their card. Some instances that lead to a transaction dispute are:
- When the product is undelivered, damaged /defective.
- When the product/service doesn’t fulfill what was stated in the description
- When the merchant did not provide the refund at the correct time
- When the cardholder forgets the purchase
- When the transaction was fraudulent (criminal fraud)
In addition to the above, whatever valid reason is, the cardholder can contact their issuer to “dispute” the legitimacy of the transaction.
In scenarios where it is not possible to resolve the dispute by getting in touch with the merchant, the next recourse available to the cardholder is dispute filing. In such circumstances, the cardholder can contact their issuer to file a dispute on the charge. If the issuer decides that the dispute is valid, he will credit the cardholder temporarily until the issue is resolved.
What is a Chargeback?
A chargeback is a payment reversal by the issuer. The issuer investigates the charge, assigns the reason code for the chargeback, and passes it on to the acquirer through card networks. It is also noteworthy that not every dispute results in chargeback as they can be resolved in the pre-dispute stage. Once the chargeback cycle has been triggered merchant has two options:
- If the problem occurred at their end, the merchant must accept the chargeback.
- If the transaction was valid/the merchant feels that the cardholder is scamming the system, he can challenge it through the “Representment” process.
How does dispute change to chargeback? — The process:
Dispute Stage
Dispute rising:
The cardholder identifies an unauthorized charge and challenges the transaction by contacting their issuing bank.
Provisional Credit:
It is a form of temporary credit that is attributed by the issuer to the cardholder.
Chargeback Stage
Initiation of Chargeback:
The issuer files a chargeback in response to the cardholder’s dispute and sends a notification to the acquirer to reimburse the cardholder. The issuer will also assign a numeric reason code to indicate the reason for the chargeback.
Merchant Chargeback Notification
The acquirer will receive the chargeback request and pass it over to the merchant. The acquirer will debit the disputed amount, plus fees, from the merchant’s account. Along with this, the merchant will receive a chargeback advice letter, instructing them on how to proceed. After this, the merchant has two options to proceed as detailed above.
How dispute to chargeback can be prevented?
In a nutshell, a dispute is a claim filed by the cardholder or the issuer. There are several stages involved in a dispute until a resolution is reached. A chargeback is one phase of the dispute life cycle. If the dispute is not resolved within the inquiry stage, then a chargeback is initiated.
Though, it is not possible every time to stop the dispute from escalating into chargeback, Unified Dispute Management (UDM) can help reduce the occurrence of chargeback. Disputes can be nipped in the bud before blooming into chargeback when UDM is present in the issuer system. There are several ways through which UDM works when categorizing pre-disputes and chargebacks.
- The issuer can put forth simple questions via the internet/mobile banking portals, to ascertain the nature of the dispute, and if has happened in case of a processing error on the issuer side, UDM helps the issuer to solve this problem in the pre-dispute stage minus the chargeback escalation.
- If a chargeback must be raised, these questions will help the issuer decide the right type of chargeback and activate the next step includes keeping the cardholder informed timely of the progress.
When the issuer encounters one or two disputes a day, chargeback management might not be a difficult task, but during the heavy inflow of disputes, this is not manually possible. There exists a greater chance of error as it involves a huge effort from different teams pitching in to complete the whole chargeback cycle.
UDM can replace this and actively enhance the efficiency of the financial organization. With automated chargeback filing right from collecting disputes to filing them with the appropriate reason code, every step is effortlessly executed with UDM.
Get in touch with us today to know more about UDM and how it can help regulate, tailor, and modernize the chargeback process and responses.
