How to Fight a ‘Fraud’ Reason Code Chargeback?

One of the most common chargebacks that are being filled by cardholders across the globe, is the “fraud related chargeback.”

This type of chargeback reason could be named differently across the different card schemes (some examples: Visa 10.4, MasterCard 4837, AMEX F29, Discover UA02, and so on).

The fact is, that this type of reason code is typically harder to fight than other types of chargebacks.
The burden of proof sits with the merchant, while card schemes usually side with the cardholder, as it is believed that cardholders are more “vulnerable” than merchants.

So, what is a fraud-related chargeback, and why might a merchant receive such a chargeback?

According to the Dispute Management Guidelines for Visa Merchants, a fraud chargeback is when “the cardholder’s bank has filed a dispute stating that their cardholder did not authorize or participate in a transaction conducted in a card-absent environment (i.e., internet, mail-order, phone-order, etc.).”

In simple terms, the cardholder either does not recognize or denies participating in a transaction.

The above scenarios could happen due to several reasons, such as stolen or counterfeit cards, a confusing descriptor (a descriptor is the name that appears on a cardholder’s bank statement and explains what a charge is for), a family member using a card that is not registered to them, or, in some cases, cardholders that (for any reason) intentionally claiming to having not performed a payment, even though they actually did.

So, what should a merchant do in order to respond to a fraud related chargeback? Below is a simple set of instructions, based on different situations:

1. If the transaction was verified using SCA (3D Secure): provide this proof.
2. The transaction was refunded prior to the initiation of the chargeback: provide proof of refund.
3. The cardholder withdrew their chargeback: Provide a letter or email from the cardholder that states they no longer dispute the transaction.

Sounds easy enough, only that the above three courses of action are normally uncommon; let’s elaborate:

If a transaction was verified using 3DS, and the issuer is registered/is 3D Secure enabled, the issuer should not raise a fraud-related chargeback. Instead, the issuer should accept the liability that shifts to them (from the merchant) due to usage of Strong Customer Authentication (SCA).

Same goes for refunded transactions, in case a transaction was already refunded back to the cardholder, the cardholder suffered no financial loss, and therefore there is no reason for the issuer to file a chargeback.

In regards to “cardholder no longer disputes” (which is a super rare occurrence), the cardholder contacts their issuer and requests to reverse the chargeback that they initiated. A proof of such reversal should be shared with the merchant, and used by the merchant in their representment letter.

So what else can a merchant do in order to try and fight a fraud related chargeback?

The idea is to build a strong enough case to convince the reader that the merchant has a true claim and that the cardholder’s claim is invalid.

You can think of it as a legal case; the merchant needs to create a strong “defense case” to contradict the prosecutor’s (i.e. the issuer’s) claim. The merchant aims to tell a story that convinces the jury. Here are some suggestions:

• In cases where the merchant performed an AVS check on the address provided by the cardholder (and the check resulted in a full match i.e. both ZIP and address) provide such proof.
• In cases where the merchant performed a CVV/CVC check that passed, this should be added to the representment letter.
• In case the merchant has proof that the cardholder participated in the charge (e.g., billing authorization, usage details, proof of delivery to the cardholder’s billing address, contract), this should be added to the representment letter.
• If the merchant collects IP that could be connected to the billing address provided, this should be incorporated in the representment letter.
• Use fraud prevention tools and provide the scoring/recommendations of such providers.
• Use any type of verifications to your advantage (e.g email, mobile, ID, SSN, and so on)
• and the list goes on.

The above recommendations are just a small part of the arsenal a merchant can use in order to fight fraud related chargebacks. There are many other options and ways to increase your chances in fighting such chargebacks, not only as a specific type of proof, but also the way the merchant presents their “counterclaims”. At the end of the day, the name of the game is to convince your opponent, and whoever does a better job gets to keep the funds.

Justt’s advanced chargeback mitigation solution harnesses the power of AI and human expertise to help merchants dispute chargebacks and recover lost revenue. By integrating with merchants’ payment providers, the necessary documentation for representment is automatically generated and speedily sent to issuers. Justt’s team of experienced chargeback experts understand the nuances of chargeback representment and can help merchants put together a chargeback solution that has higher chances of success in representment. Merchants can focus on running their businesses while Justt’s powerful AI gathers evidence and builds cases. Contact Justt today to learn more about how our chargeback mitigation solution can prevent friendly fraud and help recover lost revenue.