If you’re a business owner, you’ve likely faced a credit card dispute—or at least the looming threat of one. The reality is businesses are at a disadvantage, with any dispute, leaving them frustrated when they lose the dispute and the money paid when they know and believe in their hearts they are right, So, why does this happen, and what can merchants do to reduce their exposure to chargebacks? Let’s break it down.
Why Merchants Always Lose Disputes
- Consumer Protection Laws Favor the Cardholder
Credit card networks like Visa, Mastercard, and American Express have built-in protections to encourage consumer trust. The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) both exist to safeguard consumers against fraudulent or unauthorized transactions. The result? If a cardholder files a dispute, the system is already skewed in their favor.
- The Burden of Proof Is on the Business
When a dispute arises, it’s the merchant’s responsibility to prove the transaction was legitimate. This includes providing:
- Proof of purchase (invoice, signed receipt, or order confirmation)
- Proof of delivery (tracking numbers, delivery confirmation, or signed receipts)
- Clear refund and cancellation policies
Even with all of this, banks often side with the customer because it’s easier to issue a refund than to conduct a thorough investigation. In addition, merchants do not have the ability to speak with the card issuing bank to plead their case.
- “Friendly Fraud” Is Difficult to Fight
Many disputes happen due to “friendly fraud,” where a customer makes a purchase and later falsely claims they didn’t receive the product, didn’t authorize the charge, or didn’t recognize the transaction. Since banks typically err on the side of the cardholder, businesses find themselves refunding legitimate transactions.
- Chargeback Rules Are Rigged Against Businesses
Card networks impose strict deadlines on how merchants can respond to disputes. If a business misses a deadline or doesn’t provide sufficient evidence within the allowed timeframe, they automatically lose the case. Worse, businesses often get hit with a chargeback fee, compounding their losses.
- The Cost of Fighting May Exceed the Chargeback
Even if a business has the right evidence, the time and effort required to fight a dispute often outweigh the cost of the charge itself. Merchants frequently give up because the odds of winning are low, making chargebacks an expensive and frustrating reality of doing business.
How Businesses Can Reduce Disputes and Chargebacks
While avoiding disputes entirely is impossible, businesses can take proactive steps to minimize them:
- Use Clear Billing Descriptors – Ensure the business name appearing on cardholder statements is recognizable to avoid “I don’t recognize this charge” disputes.
- Implement Strong Fraud Prevention Measures – Use AVS (Address Verification System), CVV (Card Verification Value), and 3D Secure authentication to prevent fraudulent transactions.
- Provide Excellent Customer Support – Many chargebacks occur because a customer couldn’t resolve an issue with the business. Offering easy refunds, clear policies, and responsive support can prevent disputes.
- Keep Detailed Records – Maintain thorough transaction records, proof of delivery, and signed agreements to strengthen your defense in case of a dispute.
- Use Chargeback Prevention Tools – Some payment processors offer alerts that notify businesses of potential disputes before they escalate to chargebacks, allowing merchants to offer refunds or resolve the issue directly.
- Blacklist Problem Customers – If a customer has previously issued fraudulent disputes, consider blocking them from making future purchases.
In Conclusion
Unfortunately, the system isn’t built to favor merchants when it comes to credit card disputes. The best strategy is to focus on prevention rather than fighting chargebacks. By implementing strong fraud prevention tactics, providing excellent customer service, and using chargeback prevention tools, businesses can reduce the impact of disputes and protect their bottom line.
At the end of the day, knowledge is power—understanding why businesses lose disputes and taking proactive steps to prevent them can help you stay ahead in the game.