Whether big or small, every business that accepts credit cards will face chargebacks or inquiries.
It’s not negotiable. And if you’ve been around for a while, then you already know the whole story. Federal law makes it possible for a cardholder to ask their bank to reverse a transaction when they have an issue with a charge on their credit card.
Per the standard mediation procedure of the said mechanism, the bank can choose to make a chargeback or inquiry.
Our goal for this piece is to help you understand the difference between chargeback and inquiry. And how to handle both with ease.
Let’s dig in!
Chargebacks and inquiries explained
First, what is a chargeback?
In simple terms, a chargeback is a forceful payment reversal by the cardholder’s bank.
When a cardholder's bank makes a chargeback, they take the disputed charge from your account instantly and also take a non-negotiable chargeback fee from you. The chargeback fee is their consideration for participating in the dispute mediation.
In this article, we explained the chargeback process in detail. You will also find more information on the underlying cost of each chargeback – which goes beyond the disputed amount and chargeback fee. Not to mention, we also covered the reasons for a chargeback or inquiry.
Now, an inquiry is a crucial step taken by banks to determine whether or not they should go ahead and make a chargeback.
It’s their way of giving the merchant the benefit of the doubt when a cardholder files a chargeback. But that will depend on the card network’s dispute mediation methodology.
For Visa, disputes with reason codes in the Process Error or the Consumer Dispute category enter the inquiry stage. They are assigned to the collaboration workflow. However, disputes with Fraud and Authorization reason codes (if verified by Visa Resolve Online) go straight to the allocation workflow. The allocation workflow starts with the chargeback stage and not the inquiry stage.
Over at Mastercard, they skip the inquiry stage altogether by assessing cases by affiliated banks and as they come in.
It’s essential to note that the inquiry stage is your opportunity to stop the dispute from becoming a chargeback. So you must respond at the right time. And if you’re successful in avoiding dispute filings, that lowers your dispute rate and prevents revenue loss due to chargebacks.
We shall discuss that in detail in the subsequent passage.
How to resolve a chargeback or inquiry effectively
No matter how you look at it, a chargeback is not necessarily a definite revenue loss. Yet in extreme cases, they can cause the eventual death of your business.
Learning how to plug that particular revenue leak is vital in improving your business prospects. You can resolve a chargeback or inquiry with the tips below.
Start by contacting the cardholder.
Assuming the chargeback has merit and is not an incident of online shoplifting, the first cause of action is to contact the customer to find a middle ground. Call the cardholder who placed the order by either phone or email and resolve the case. If they agree to your request and are willing to cancel the dispute, ask them to contact their bank to effect the dispute cancellation. Do not assume the conversation is the endpoint of the case. The best practice is to submit valid proof of the agreement you reached with the customer in your chargeback response.
Have compelling evidence to validate the order
When a customer’s bank charges back a transaction, you must understand the chargeback response time limit, as we intimated earlier. If you don’t know the response time limit for the particular credit card company involved, you can’t win the case.
But not just that. You also need valid proof to show the transaction happened on good terms. Yet, whatever ancillary order documentation you choose to add in your response will depend on the chargeback reason code issued during the chargeback or inquiry.
The general rule of thumb on this note are as follows:
- Make your compelling evidence relevant and go straight to the point.
- Ensure that any attached documents or images are formatted accordingly for ease of viewing or reading.
- Contact your payment provider for clarity on how to send evidence to the credit card company involved.
- Documentation considered as compelling evidence include (i) proof of customer authorization, (ii) evidence of service provided or item delivered, (iii) terms of service and refund policy, (iv) timestamps, computer log, and customer communications.
By and large, the chargeback response due date is usually 7 to 21 days following the chargeback or inquiry.
When to accept a chargeback or inquiry
Is it right to accept a chargeback? And what happens when you accept a chargeback?
The only justification for accepting a chargeback is when you find out that it’s your fault. If you think the cardholder has a case and the deduction is warranted, it makes sense to accept the chargeback. In that case, you don’t need to submit any evidence.
For example, if you found out that a scammer used a stolen credit card to make a transaction and the rightful owner requested a chargeback, such cases are not winnable. The best shot is to stop the order from happening in the first place. And to achieve that, you need to install requisite tools that can detect questionable transactions or establish payment authorization holds.
On the second question above, the cardholder retains the money when you accept a chargeback. And you don’t get a refund for the chargeback fee (only Shopify refunds chargeback fees when a merchant wins a chargeback).
You can issue a payment refund to end an inquiry.
If the case is still at the inquiry stage, an analyst can issue a full or partial refund with other considerations to end the inquiry if they ascertain that the cardholder has a valid case.
However, you should remember that the customer can still initiate a chargeback if you issue a partial refund without subsequent, commensurate consideration. Here’s your chance to upsell or make a trade with the cardholder for a win-win outcome. And excellent customer service is crucial at this point.
In summary, it’s vital to understand that, yes, you can successfully recoup revenue in the chargeback and inquiry stages depending on how effectively you apply the notes above.
It’s doable – a chargeback is not an ultimate revenue loss at face value. You ultimately need a well-documented workflow to ensure the response documentation is effectively formatted and clear.
Yet, you will spend a significant amount of time and resources in that process. And it can be a costly rabbit hole to find yourself in, especially if you’re handling everything yourself or in-house.
The brilliant thing to do, especially in these times of accelerated cases and overwhelming competition, is to automate the process. And with tools like Chargeflow, it’s simple. You quickly excavate information from 50+ data points and drastically reduce manual data entry and document review time.
Chargeflow helps you represent the transaction and allows for seamless dispute management. You don’t have to worry about any moving goalposts in chargeback mitigation for once. Our AI and Machine Learning algorithms will learn from your customers' buying patterns to build your case accordingly. That means you can recover 2x more revenue without lifting a finger. Learn more here.
Can a customer initiate a chargeback after a certain time period has passed?
Yes, a customer can initiate a chargeback within a certain time frame, usually within 120-540 days, depending on the issuing bank's policies and the type of card used for the transaction.
How do I address an inquiry from a customer regarding a transaction on their statement?
To address an inquiry from a customer regarding a transaction on their statement, you should provide clear and concise information about the transaction and offer to assist in resolving any confusion.
Can a chargeback be reversed if it was filed in error?
Yes, if a chargeback was filed in error, it may be reversed by the issuing bank. However, this depends on the specific circumstances and the policies of the bank.
What are the differences between a friendly fraud chargeback and a true fraud chargeback?
A friendly fraud chargeback is initiated by a customer who claims to have not made a purchase, but who in fact made the purchase. A true fraud chargeback is initiated by a customer who did not make the purchase, and their card was fraudulently used. Addressing both types of chargebacks may require different strategies, and it's important to have a solid chargeback management process in place.