The Chargeback Representment Process: Explained

January 5, 2018/ Jessica Velasco /

What is Representment & How Can It Benefit Merchants?

Whenever a customer files a chargeback, the merchant in question can choose one of two options: either accept the chargeback, or dispute it. This dispute process, referred to as “representment,” allows the merchant the opportunity to challenge unjustified chargebacks and make the case that the initial transaction was valid and should not be overturned.

Representment is an important opportunity for merchants; however, many believe it’s not worth it. Little do they realize that each dispute will linger long-after the case is closed.

When is Representment an Option?

There are many reasons why merchants choose not to dispute chargebacks. Some of the most commonly-cited include:

• The dispute process is too complicated or time-consuming.
• The goods or services exchanged in the transaction can’t be recovered.
• The cost of the transaction doesn’t justify investing in the dispute process.
• A few isolated chargebacks aren’t a big deal.

There are only two justifiable reasons to accept a chargeback: criminal fraud, meaning the cardholder did not authorize the transaction, or merchant error, referring to a genuine, irreparable error on the merchant’s part.

By some counts, fewer than 20 percent of all chargeback cases fit into these categories. The remaining 80+ percent of chargebacks are friendly fraud. Failing to dispute friendly fraud is a problem for a few reasons:

• The merchant loses sales revenue and merchandise.
• The issuer recognizes it as an admission of guilt, encouraging them to perform less due diligence in future cases.
• It trains cardholder behavior to rely on chargebacks to “get something for free.”

Although merchants pay the upfront cost, friendly fraud ultimately hurts everyone involved; it strains industry relations and pushes up consumer prices. That’s why disputing friendly fraud chargebacks through representment isn’t just a merchant’s right…it’s their responsibility.

The Representment Case: Explained

As important as representment is, merchants have a very limited timeframe to take-up a case. The process begins after an issuer files a dispute and orders an acquirer to debit the account of the merchant in question. The acquirer then sends the merchant a written notification, informing the merchant of the situation and advising them how to proceed.

In most instances, the merchant must respond to an initial chargeback by providing the following information within seven days:

Chargeback Rebuttal Letter

To dispute a chargeback is to effectively argue that the initial transaction was valid, and a chargeback should never have been filed. A chargeback rebuttal letter frames the merchant’s argument and states their case as to why they believe this is so.

Compelling Evidence

Of course, concrete evidence will also be needed to reinforce the merchant’s conviction. Documents including sales receipts, records of communications with the customer, and proof of delivery are just a few examples of compelling evidence. The rebuttal letter serves to give context to all the information, but the compelling evidence is what makes—or breaks—the merchant’s case.

Once the merchant compiles the necessary evidence and drafts their rebuttal letter, the documents are forwarded to their acquirer, who will submit them to the issuer on the merchant’s behalf. If the issuer finds that the merchant created a compelling case to demonstrate that the transaction was valid, the issuer will void the chargeback and return the merchant’s funds.

Tips for Merchants

The best advice for merchants dealing with friendly fraud is to create effective cases. However, here are a few additional tips that may help give them an edge in overturning bad payment reversals:

1. Learn More About Chargebacks: To effectively dispute chargebacks, merchants need to have a firm understanding of industry rules and regulations.
2. Keep Clear Records: Merchants should set up an effective organizational system for transaction records and keep to it.
3. Understand Reason Codes: Each of the card schemes has their own system of reason codes; representment must be focused on refuting the attached reason code.
4. Create Strong Cases…the First Time: A representment case can be rejected if it isn’t strong enough. This will result in a second chargeback, meaning more time and expense.
5. Rely on Human Intelligence: The limitations of automated tools make them unreliable. Human intelligence is important to build effective, strategic representment cases.
6. Track Data: It’s important to identify and track long-term data and KPIs. This will help merchants spot trends and identify potential problem areas.

Last Update: January 5, 2018