When a merchant contests a chargeback by submitting evidence in an attempt to reverse it this is known as representment. By “re-presenting” the transaction with a rebuttal letter explaining their position and any supporting documents, the merchant hopes to convince the issuing bank that the transaction was in fact genuine.
To help recover revenue lost to chargebacks, merchants can benefit from acquiring a detailed understanding of how chargeback representment works.
The Chargeback Process
A chargeback results when a customer disputes a charge by contacting their card-issuing bank. The bank will typically ask them why they believe the charge is invalid. As a customer service banks provide their customers, the bar for evidence is usually very low. In some cases, thebank will recommend the customer contact the merchant to try and settle the issue before proceeding with the chargeback process.
If the customer’s reason for requesting a chargeback aligns with one of the issuer’s approved categories, the bank will typically issue a provisional credit to the customer and process a chargeback transaction, debiting the funds for the transaction from the merchant.
Valid reasons for chargebacks include:
- Unauthorized charges and fraud
- Incorrect charges, wrong amounts
- Good/services not received
- Goods/services received not as described
- Receiving damaged goods
- Processing errors
- Fulfillment errors
In cases where the reason for the chargeback request does not meet the issuer’s requirements, they will suggest that the customer engage in dispute management directly with the merchant.
Initially, a chargeback results in funds being debited from the merchant’s bank on a provisional basis, which means that the funds can be returned to the merchant if the chargeback is overturned.
Additionally, the merchant is hit with a chargeback fee and an increase in its chargeback count, the number of chargebacks they have experienced,which raises their chargeback ratio.
This chargeback fee is not reversed even in cases where the merchant is successful at overturning the chargeback in the representment process.
The Representment Process
When a merchant disagrees with a chargeback, they can challenge its legitimacy through the representment process. Once they have been notified that a chargeback has occurred, they have the option of sending information supporting their claim that the transaction is legitimate to their acquiring bank, which then transmits the information to the issuing bank.
After receiving this information, the issuing bank evaluates the evidence provided by the merchant and ultimately decides whether to uphold the chargeback or to rescind it and return the funds associated with the transaction to the merchant.
Should You Respond to a Chargeback Notification?
Whether or not you intend to dispute a chargeback through representment, it is important to respond to chargeback notifications and let the bank know whether or not you intend to contest them.
If you don’t, the bank will assume the chargeback is valid. In that case, the customer keeps the refunded amount and the merchant loses both the goods or services and the amount of the transaction.
Some card networks, including Visa, will levy a fee on merchants who fail to respond to a chargeback notification. Issuing banks prefer that merchants respond in a timely manner, so that funds aren’t held in provisional status for an extended period of time.
In 2018, Visa changed its chargeback policies to include a maximum of 30 days for merchants to represent after being notified of a chargeback.
Representment Evidence Types
Merchants will generally provide different types of evidence during the representment process depending on the type of item sold, and the chargeback reason code. As a merchant, when choosing what type of evidence to use in the representment process, the key factors to consider are the reason for the chargeback and the type of transaction. Chargeback notifications include a reason code specifying why the customer chose to dispute the legitimacy of the transaction.
In some cases, a card network will feature a “transaction modifier” in addition to the reason code, offering further details related to the chargeback. This information can help you determine what type of evidence to prepare for representment. Invariably, representments are for ‘friendly fraud,’ which occurs when a customer purchases a product or service and then tries to get out of paying for it by requesting a chargeback. Thus, representment is used when a merchant suspects the cardholder actually madethe purchase in question.
All representments should feature a rebuttal letter specifying why you as the merchant believe that the chargeback was not justified. This letter should not be of excessive length. Instead, it should succinctly explain your reasoning for disputing the chargeback.
Along with the rebuttal letter you must include a record of the transaction in question containing the AVS and CVV information matching the payment credentials linked to the customer. If you don’t provide this linking information demonstrating that you performed the proper procedures when first processing the transaction, some networks will immediately reject your representment claim.
In some cases, sending customer credentials that link them to a purchase is strong enough to win a case in and of itself. Even if this doesn’t happen, the more evidence you can provide via identify verification solutions of credential usage associated with the transaction, the better your chances of winning the representment are likely to be.
Including information about your terms and conditions for sales is also helpful. If you require customers to indicate via a checkmark or other method that they have read, understood, and agree to these terms, thatacknowledgement should be sent as well.
Documentation of any communication between the merchant and customer should also be included if it relates to the transaction in question. It can also be advantageous to include receipts or invoices, which may provide details such as special requests that help link the customer to the transaction.
If the customer has made previous purchases of the same, or a similar, product it makes sense to include themto demonstrate that these transactions were processed without any issues.
To address chargebacks by type of goods sold, the following steps can be taken:
- Physical goods: When representing in regard tophysical goods, an invoice should be included describing the product that was purchased and the time and manner in which it was shipped, including tracking info and delivery confirmations.
- Digital goods: Disputes over digital goods should be represented by sending IP logs, customer service interactions, or any other data indicating that the customer used the digital good that was purchased. If the chargeback related to a recurring billing product, receipts from past billings can be included to show that the customer hadn’t previously rejected these charges.
- Services: The receipt and usage of services can be difficult to prove. Merchants should send any written agreements they have customers sign agreeing to the terms of the contract. Providing invoices, IP logs, and social media attesting to usage of your product is the best way to support your representment.
Given the differences between the types of transactions eligible for representment, merchants should take care to adjust their approach depending on what works best for a particular transaction. The rebuttal letter and evidence should be focused on the specific reason given by the customer for seeking a chargeback.
Additionally, issuing banks may have their own preferences for representment. If you work with a chargeback management company, they will likely be able to offer specifics about the type of approach that should be taken for a particular issuer.
Resolution of Representment Cases
After reviewing the evidence presented during the representment process, the issuing bank will decide whether to maintain the chargeback or reverse it. Generally, they will notify the payment processor of their decision. The merchant can then learn the outcome of the case from their payment processor.
In cases where the issuer rejects the merchant’s representment claim, the customer gets to keep the provisional credit and the merchant loses the transaction amount and goods purchased. If the merchant convinces the issuer that the chargeback was not legitimate, the provisional credit is reversed and the funds for the transaction are returned to the merchant.
Once the representment process is complete, both the customer and the merchant can continue to contest the issue by proceeding to pre-arbitration. When this happens, the merchant can consent to arbitration by the card network or can offer new evidence.
If you are unsuccessful in a representment case, you can ask for arbitration, however, Visa’s rules require the loser of the case in arbitration to cover the arbitration fees, which can be in the vicinity of $500 at the high end.
You can also hire an attorney to represent your interests in the event of a lost representment cases. In some cases, an attorney’s letter may convince a customer not to continue to contest a chargeback case, particularly if their case is not all that strong.
If a merchant loses a chargeback representment, or it is not clear that their case is strong to begin with, it may be best to simply accept the chargeback. Generally, a chargeback resulting from true fraud or an error on the part of the merchant will not be overturned by an issuer.
Merchants can best use their resources fighting “friendly fraud,” in which a cardholder attempts to abuse the chargeback system by receiving goods or services without having to pay for them.
Chargeback Representment Options
Merchants who receive a chargeback have three primary options for dealing with it. These are:
Fight it themselves: If you have a large number or dollaramount of chargebacks on a regular basis, dealing with them in-house can be a fairly low-cost way of fighting them. One downside to this approach is that your staff may not be up on all the latest policies relating to chargeback management.
Hire a chargeback management company: A firm that specializes in fighting chargebacks can save you the time and effort it would otherwise take to handle them yourself. A skilled chargeback management company will keep up with all of the latest developments in the industry so they can improve your chances of winning in representment.
Don’t fight it: If you receive chargebacks due to true fraud or merchant mistake, there’s generally little point in wasting resources fighting them.
Using Representment Effectively
To use the representment process effectively, whether you hire a chargeback management firm or go it alone, it’s important to have a good grasp of the essentials of the process. This includes deadlines for submitting evidence and the best types of evidence to include. Another crucial step to being successful in representment is to adequately document all sales, deliveries, and customer service interactions.
A proactive approach to defending yourself against chargebacks by keeping the necessary documentation to fight them and aggressively contesting those which appear to be illegitimate can pay for itself in the long run. Such an approach, combined with taking measures to avoid merchant-error chargebacks can go a long way towards reducing the amount of revenue lost to chargebacks.