Understanding Chargebacks & Disputes

Disputes

Let’s start with the basics. What is a dispute?

A dispute occurs after a customer’s credit card has been charged, and the customer reaches out to their bank to contest the charge. This typically happens for two reasons:

1. The customer is unsatisfied, and does not want to pay the charge;
2. The customer does not recognize the charge and believes it was processed in error.

When a dispute occurs, you will receive an email notifying you of the dispute.

At that point, you have two options. You can:

1. Agree to the refund and voluntarily concede to the dispute
2. Refuse to issue a refund and send evidence to the customer’s bank validating the transaction.

Should you pursue option #2, the customer’s bank will review the evidence and decide if a refund is due.

NOTE: As Inspect Point merchants are typically charging customers after approved work has been completed, disputes are relatively uncommon. However, we wanted to share the following information to educate you just in case a dispute does occur.

Stages of Disputes

Disputes are categorized into three different and distinct cycles:

• Retrieval
• First Chargeback
• Pre-Arbitration/second chargeback

Although the official terminology varies slightly depending on the Card Brand, this is how each of these unique dispute cycles is referred to within the portal.

Retrieval

A retrieval is when the cardholder contacted their issuing bank requesting more information about a transaction but did not request a forced refund of the transaction. Meaning, the cardholder simply does not recognize the charge as it appears on their statement and would like clarification. Therefore, the issuing bank initiates a “retrieval” and will request that you provide documentation verifying the transaction details. There is a $15 fee for a retrieval.

If you receive a retrieval, it is recommended that you submit documentation verifying the transaction. (More information about how to do that is available in the “How to Use Inspect Point Payments” section below.)

This includes official documentation directly related to the transaction. Formal evidence includes, but is not limited to:

• Signed credit card receipt
• Completed credit card authorization form
• Corresponding Invoice with cardholder contact information
• Signed proof of delivery or satisfactory services

Informal evidence is relevant documentation that is not directly related to the transaction. This includes, but is not limited to:

• Logs of correspondence between the Merchant & cardholder
• Screenshots of the Merchant’s website and/or published Terms of Service
• Pictures of the merchandise
• A summary of the incident written by the Merchant

If the documentation is satisfactory, the transaction will be considered “closed and not escalated,” and no further action is needed.

If for whatever reason the documentation you provide is not sufficient, the transaction will be considered “closed and escalated” and will move to the second stage of the cycle – “First Chargeback.”

First Chargeback

A First Chargeback occurs when a cardholder seeks a forced refund from their issuing bank for a transaction that they are disputing. There is a $15 fee at this time. 

At this time, the funds will be deducted from your balance and held until the issuing bank makes a final determination. If you do not have sufficient offsetting transactions or funds in their Available Balance, your bank account may be debited to cover the disputed amount. (Of course, if you ultimately win the dispute, the funds will be returned to your balance, minus any non-refundable fees associated with disputes).

At this stage, your response options are:

• Accept liability: Voluntarily concede to the dispute & the held funds are credited to the cardholder
• Representment: Send compelling evidence to the issuing bank representing their side of the dispute and validating the payment

Ultimately, the cardholder’s issuing bank will determine the outcome of a First Chargeback based on the evidence provided by both sides. At that point, the status of the transaction will become either:

• Won: The issuing bank ruled in your favor & the disputed funds are returned to you
• Lost: The issuing bank ruled in favor of the cardholder & the funds are credited to the cardholder

Pre-Arbitration/Second Chargeback

When a payment is disputed and the issuing bank rules in your favor during the First Chargeback cycle (won), the cardholder still has the opportunity to present new evidence to the issuing bank that could result in a second chargeback of the same transaction. There is a $15 fee for this phase.

This is commonly referred to as Pre-Arbitration. When this occurs, you can choose to send the new evidence to the card brand to arbitrate the dispute.

(Note, if a subsequent Pre-Arbitration occurs, the funds will, once again, be immediately deducted from your balance and held pending the Card Brand’s Pre-Arbitration decision.)

During this cycle, you have the following options: 

• Accept Arbitration (representation): You will submit new evidence directly to the Card Brand, and incur the additional fees associated with Arbitration.
• Note: If you choose to accept arbitration, you will be subject to additional arbitration fees that vary depending on the Card Brand. Arbitration fees can be very costly, and often exceed the amount of the original transaction. Therefore, we suggest Merchants only pursue arbitration representment if they have extremely compelling evidence in their favor and they’ve confirmed with the Card Brand they are working with what the fees associated with the arbitration process will be.
• Decline Arbitration: If you choose not to contest the second chargeback, and instead, voluntarily concede to the second chargeback, the funds are then credited back to the cardholder
• Inaction - If you fail to respond, an automatic loss will result.

The status of the transaction will be considered “won” if the card brand finds your evidence sufficient. At this point, the disputed funds will be returned to your balance, minus any non-refundable fees.

The transaction will be considered “lost” if the card brand rules in the customer’s favor. 

Have questions, or need support? Contact us at support@inspectpoint.com.