When businesses don’t agree with a customer dispute, they can engage in the representment to avoid a chargeback. Customers can dispute transactions for any number of reasons. But most commonly, disputes are the result of criminal fraud, friendly fraud, or merchant errors.
Once a customer disputes a transaction, their issuing bank forwards that dispute, with a reason code, to the business’s acquiring bank. And the acquiring bank communicates the dispute to the business.
In the representment process, businesses claim a customer completed a legitimate transaction. So businesses submit evidence of the transaction to their acquiring bank to support their claim. The acquiring bank passes the information to the customer’s issuing bank. Then the issuing bank reviews the evidence, decides the transaction’s validity, and notifies all parties.
Unfortunately, the chargeback process is long, and the representment process isn’t much faster. For example, customers may dispute the initial transaction months later. And if they still disagree with the decision, it may go to arbitration.
And, in many cases, businesses don’t know about a dispute until it’s too late to stop the chargeback. Even resolving a customer inquiry takes time. A business can stop chargebacks pre-dispute, but they have to be prepared to meet an ever-changing list of compelling evidence requirements. And if a business does know about a dispute, it may choose not to take action at all. But why not?
Over the years, Kount has checked in with businesses on the subject. We want to learn more about why businesses don’t engage in disputes and representment, their win rates, and what it might take for them to engage.
Insufficient resources prevent businesses from disputing chargebacks
Chargeback risk statistics from Kount’s “Digital Payments in 2021” survey revealed 70% of respondents have been in a fraud or dispute monitoring program in the last 12 months. On top of that, 82% of respondents said at least three people at their company review orders for fraud as their primary job function.
The data shows that disputes and chargebacks are still a significant problem for businesses. Yet so many let chargebacks go undisputed. The survey found that 60% of respondents dispute only some chargebacks. 33% of respondents dispute all chargebacks. And 5% don’t dispute any.
Among the reasons they don’t dispute chargebacks, the highest percentage cited not winning enough representments to justify it. After that, respondents said they don’t have enough resources (i.e., time, information, personnel) — or claim not to have enough chargebacks — to justify representment.
And, on average, the most significant chargeback challenge for all respondents was lack of experience in chargeback prevention and lack of chargeback prevention strategies. So not only do respondents not have enough people to manage fraud and chargebacks, but they don’t have enough experience to execute effective strategies.
Bigger businesses are more likely to dispute chargebacks
In 2018, Kount’s “State of Chargebacks” report found that 11% of merchants were not disputing chargebacks. Similarly, the highest percentage of respondents who didn’t dispute cited not having enough chargebacks to justify the process.
The report also dove into why 82% of respondents dispute chargebacks. Order value, reason code, and the quality of the dispute information all influence these businesses’ decisions to engage in representment. According to the data, 39% of this group disputes more than 60% percent of chargebacks.
Finally, the data revealed that larger merchants — or those with annual revenues of $250 million or higher — have higher win rates than merchants with annual revenues of $10 million or less. For example, only 9% of larger merchants report win rates of 15% or less. But nearly three times as many smaller merchants (25%) report the same win rate.
How to improve the chargeback representment process
The best way to improve representment for your business is to protect the entire customer journey. That means managing disputes and chargebacks on both sides of a transaction.
Reduce chargebacks from criminal fraud pre-authorization
A digital fraud solution that comes with chargeback protection can help you prevent disputes that result from criminal fraud. Let’s say a potential customer interacts with a business’s e-commerce platform.
Digital fraud prevention can analyze interaction data to establish the trustworthiness of that potential customer’s digital identity. Businesses can customize the tool to challenge low-trust interactions. Challenging these interactions can help businesses stop fraudulent transactions before they become chargebacks.
Communicate transaction details with post-authorization dispute management tools
When a customer disputes a transaction, businesses need to know as soon as it happens. And they need to have transaction data and compelling evidence to engage effectively. That’s where post-authorization tools come in. These tools tell businesses as soon as a customer initiates a dispute, giving the business time to respond.
Businesses can use that time to relay transaction data to their acquiring bank automatically — no need to look it up. Businesses can also customize their policies to refund purchases automatically. These avenues can dramatically reduce the time a business might spend on representment.