Dispute Management

A dispute generally occurs when a customer is unsatisfied or unfamiliar with a payment charged to their card and contacts their issuing bank for more information or to force-refund the transaction. Disputes affect Merchants of all varieties and can have a major impact on their bottom-line.

When a dispute occurs, the Merchant generally has the opportunity to accept liability - i.e. voluntarily concede to the dispute - or respond to the issuing bank with compelling evidence validating the transaction (representment). The cardholder’s issuing bank will make the final determination based on the evidence provided by both sides, and Merchants should use this guide to understand the dispute process and how they can respond.

 

 

Regardless of the outcome, a Merchant may be liable for non-refundable processing fees when a dispute is initiated against them. The fee amount depends on their portfolio’s pricing agreement with Payrix, as well as the custom fee configuration implemented by the Pro Client.

 


Key Terms

  1. Cardholder: The customer that is disputing a transaction

  2. Merchant: Provided the goods or services being disputed

  3. Issuing Bank: The bank that issued the card to the customer (i.e. the cardholder’s bank)

  4. Card Brand: The card brand the customer’s card is associated with (Visa, Mastercard, Amex etc.)

  5. Representment: The response a Merchant sends to the issuing bank when a transaction is disputed

 


The Dispute Cycles

Disputes are categorized into three different and distinct cycles:

Although the official terminology varies slightly depending on the Card Brand, this is how each of these unique dispute cycles are referred to within the Payrix Platform & Portal. Depending on the dispute cycle, there are different actions available for the Merchant to take, and different potential outcomes of the dispute.

Retrieval

A retrieval is when the cardholder contacted their issuing bank requesting more information about a transaction, but did not request a forced-refund of the transaction. Meaning, the cardholder simply does not recognize the Merchant’s name or the transaction as it appears on their statement and would like clarification. Therefore, the issuing bank initiates a retrieval and requests that the Merchant provide documentation verifying the transaction details.

Because a retrieval is not an actual chargeback of the payment, no funds are deducted from the Merchant’s Payrix balance during this dispute cycle. However, Merchants still have the opportunity - and are recommended to - send a representment with relevant documentation clarifying the transaction details.

If a Merchant fails to respond to a retrieval it may escalate to a chargeback. If escalated to a chargeback, the Merchant will notice a new dispute in Payrix, with Cycle status of First Chargeback.

Although a retrieval may escalate to a chargeback, it is not a pre-requisite step for the cardholder. In simple terms, a cardholder may skip the retrieval cycle altogether and initiate a chargeback from the onset.

 

Dispute Cycle

Merchant Actions

Possible Outcomes

Card Brands

Dispute Cycle

Merchant Actions

Possible Outcomes

Card Brands

Retrieval

  • Representment - The Merchant responds with documentation validating the payment

  • Inaction - the Merchant fails to respond to the retrieval. This can result in escalation to a chargeback

  • Closed and not escalated - The cardholder is satisfied with the documentation provided by the Merchant and will not pursue a chargeback

  • Closed and escalated - The cardholder still does not recognize this payment as valid after reviewing the Merchant’s documentation or because the Merchant failed to respond. Therefore, the cardholder escalates the retrieval & pursues a First Chargeback to recover the funds from the Merchant

  • Visa

  • Mastercard

  • American Express

  • Discover

Retrieval processing flow

This diagram illustrates the processing flow for a retrieval dispute.

First Chargeback

When a First Chargeback is initiated against a Merchant the funds are immediately deducted from their Payrix balance and held until the issuing bank makes a final determination. If the Merchant does not have sufficient offsetting transactions or funds in their Available Balance, their bank account may be debited to cover the disputed amount.

If the Merchant ultimately wins the dispute, the funds will be returned to their Payrix balance (less any non-refundable fees associated with disputes).

A First Chargeback occurs when a cardholder seeks a forced-refund from their issuing bank for a transaction that they are disputing. There are numerous reasons that can cause a cardholder to initiate a chargeback, and during the First Chargeback cycle the Merchant’s response options are:

  • accept liability - i.e. voluntarily concede to the dispute & the held funds are credited to the cardholder

  • representment - i.e. send compelling evidence to the issuing bank representing their side of the dispute and validating the payment

Ultimately, the cardholder’s issuing bank will determine the outcome of a First Chargeback based on the evidence provided by both sides.

Dispute Cycle

Merchant Actions

Possible Outcomes

Card Brands

Dispute Cycle

Merchant Actions

Possible Outcomes

Card Brands

First Chargeback

  • Representment - The Merchant responds with compelling evidence validating the payment

  • Accept Liability - The Merchant chooses to voluntarily concede to the dispute in place of submitting a representment. The funds are credited back to the cardholder

  • Inaction - The Merchant fails to respond to the chargeback resulting in an automatic loss (ruling in favor of the cardholder)

  • Won - The issuing bank ruled in favor of the Merchant & the disputed funds are returned to their Payrix balance

  • Lost - The issuing bank ruled in favor of the cardholder & the funds are credited to the cardholder

  • Visa

  • Mastercard

  • American Express

  • Discover

First Dispute processing flow

This diagram illustrates the process flow for the most common dispute scenario, a First Chargeback.

Pre-Arbitration/Second Chargeback

When a payment is disputed and the issuing bank rules in favor of the Merchant during the First Chargeback cycle (won), the cardholder still has the opportunity to present new evidence to the issuing bank that could result in a second chargeback of the same transaction. This is commonly referred to as Pre-Arbitration. When this occurs, the issuing bank and the Merchant - should they choose to accept arbitration - send their respective new evidence to the Card Brand to arbitrate the dispute.

After the Merchant won the First Chargeback, the relevant funds were credited back to their Payrix balance (less any non-refundable dispute fees). If a subsequent Pre-Arbitration occurs, the funds will, once again, be immediately deducted from the Merchant’s Payrix balance and held pending the Card Brand’s Pre-Arbitration decision.

If they do not have sufficient offsetting transactions or funds in their Available Balance, their bank account may be debited to cover the disputed amount. If the Merchant ultimately wins the Pre- Arbitration dispute, the funds will be returned to their Payrix balance (less any non-refundable fees associated with pre-arbitration disputes).

Although the official terminology for a second chargeback varies depending on the Card Brand, this dispute cycle is universally referred to as Pre-Arbitration within the Payrix Platform.

Some Card Brands (e.g. Visa) follow the Pre-Arbitration cycle process for all fraud & authorization related disputes, even if it is the first time that payment was disputed.

During this cycle, if the Merchant accepts arbitration they will work directly with the relevant Card Brand to reach a resolution. Therefore, Pre-Arbitration responses cannot be submitted in the Payrix Portal. Instead, our Support team will assist you with the relevant Card Brand specific process should the need arise for you to respond to a Pre-Arbitration dispute.

If you need assistance responding to a Pre-Arbitration dispute please contact support@payrix.com.

If a Merchant chooses to accept arbitration (i.e. submit a representment) they will be subject to additional arbitration fees that vary depending on the Card Brand. Arbitration fees can be very costly, and often exceed the amount of the original transaction.

Therefore, we suggest Merchants only pursue arbitration representment if they have extremely compelling evidence in their favor and they’ve confirmed with the Card Brand they are working with what the fees associated with the arbitration process will be.

 

Dispute Cycle

Merchant Actions

Possible Outcomes

Card Brands

Dispute Cycle

Merchant Actions

Possible Outcomes

Card Brands

Pre-Arb/Second Dispute

  • Accept Arbitration (representment) -The Merchant submits new compelling evidence directly to the Card Brand, and incurs the additional fees associated with Arbitration

  • Decline Arbitration - The Merchant chooses not to contest the second chargeback, and instead, voluntarily concedes to the second chargeback. The funds are then credited back to the cardholder

  • Inaction - The Merchant fails to respond to the pre-arbitration resulting in an automatic loss (ruling in favor of the cardholder)

  • Won - The Card Brand ruled in favor of the Merchant & the disputed funds are returned to their Payrix balance (less non-refundable fees)

  • Lost - The Card Brand ruled in favor of the cardholder & the funds that were deducted from the Merchant’s Payrix balance are credited to the cardholder (plus any additional Arbitration loss related fees are paid by the Merchant to the Card Brand)

  • Visa

  • Mastercard

  • Discover

Pre-Arbitration processing flow

This diagram illustrates the process flow for pre-arbitration disputes.


Dispute Reasons

When a cardholder disputes a transaction, their issuing bank will request a detailed explanation of the problem from them. Once the issuing bank receives and validates the cardholder’s complaint, a dispute is initiated against the Merchant. There are many reasons for a cardholder to initiate a dispute which the issuing bank considers valid - and understanding each of these valid reasons will help the Merchant respond to disputes accordingly.

When a dispute is initiated it includes a reason code classifying the cardholder’s complaint. The actual reason codes vary by Card Brand, but disputes can generally be classified into four categories:

Fraud disputes

Fraud disputes occur when the cardholder claims their payment information was fraudulently used by another individual to purchase goods/services from the Merchant. Although fraud disputes are far more common in e-commerce (card not present) scenarios, they can also occur in card-present environments e.g. when EMV-chip verification is not implemented.

 

Card Brand

Fraud Reason Codes

Card Brand

Fraud Reason Codes

Visa

  • 10.1 EMV Liability Shift Counterfeit Fraud

  • 10.2 EMV Liability Shift Non-Counterfeit Fraud

  • 10.3 Other Fraud: Card-Present Environment / Condition

  • 10.4 Other Fraud: Card-absent Environment / Condition

  • 10.5 Visa Fraud Monitoring Program

Mastercard

  • 4837 No Cardholder Authorization

  • 4840 Fraudulent Processing of Transactions

  • 4849 Questionable Merchant Activity

  • 4863 Cardholder Does Not Recognize / Potential Fraud.

  • 4870 Chip Liability Shift

  • 4871 Chip / PIN Liability Shift--Lost / Stolen / Never Received Issue (NRI) Fraud

Amex

  • FR2 Fraud Full Recourse Program

  • FR4 Immediate Chargeback ProgramFR2 Fraud Full Recourse Program

  • FR4 Immediate Chargeback Program

  • FR6 Partial Immediate Chargeback Program

  • F10 Missing Imprint

  • F14 Missing Signature

  • F24 No Cardmember Authorization

  • F29 Card Not Present

  • F30 EMV Counterfeit

  • F31 EMV List / Stolen / Non-received Inquiry / Miscellaneous

  • R03 Insufficient Reply

  • R13 No reply

  • M01 Chargeback Authorization

  • FR6 Partial Immediate Chargeback Program

  • F10 Missing Imprint

  • F14 Missing Signature

  • F24 No Cardmember Authorization

  • F29 Card Not Present

  • F30 EMV Counterfeit

  • F31 EMV List / Stolen / Non-received Inquiry / Miscellaneous

  • R03 Insufficient Reply

  • R13 No reply

  • M01 Chargeback Authorization

Discover

  • UA01 Fraud / Card Present Environment

  • UA02 Fraud / Card-Not-Present Environment

  • UA05 Fraud / Counterfeit Chip Transaction

  • UA06 Fraud / Chip-and-Pin Transaction

  • UA10 Request Transaction Receipt (swiped card transactions)

  • UA11 Cardholder claims fraud (swiped transaction, no signature)

Customer complaint disputes

This category of dispute includes complaints by the cardholder about the goods/services they purchased from the Merchant. Common customer complaints include goods/services not received, merchandise was defective or not as described, refund not processed etc.

 

Card Brand

Customer Complaint Reason Code

Card Brand

Customer Complaint Reason Code

Visa

  • 13.1 Merchandise / Services Not Received

  • 13.2 Canceled Recurring Transaction

  • 13.3 Not as Described or Defective Merchandise / Services

  • 13.4 Counterfeit Merchandise

  • 13.5 Misrepresentation

  • 13.6 Credit Not Processed

  • 13.7 Cancelled Merchandise / Services

  • 13.8 Original Credit Transaction Not Accepted

  • 13.9 Non-Receipt of Cash or Load Transaction Value

Mastercard

  • 4807 Warning Bulletin File

  • 4808 Authorization-Related Chargeback

  • 4812 Account Number Not on File

  • Cardholder Dispute

  • 4841 Canceled Recurring or Digital Goods Transactions

  • 4853 Cardholder Dispute

  • 4854 Cardholder Dispute - Not Elsewhere Classified

  • 4855 Goods or Services Not Provided

  • 4859 No Show / Addendum / ATM Dispute

  • 4860 Credit Not Processed

Amex

  • C02 Credit not processed

  • C04 Goods / services returned or refused

  • C05 Goods / services canceled

  • C08 Goods / Services Not Received or Only Partially Received

  • C14 Paid by Other Means

  • C18 "No Show" or CARDeposit Canceled

  • C28 Canceled Recurring Billing

  • C31 Goods / Services Not as Described

  • C32 Goods / Services Damaged or Defective

  • M10 Vehicle Rental - Capital Damages

  • M49 Vehicle Rental - Theft or Loss of Use

Discover

  • AA Cardholder Does Not Recognize

  • AP Canceled Recurring TransactionAA Cardholder Does Not Recognize

  • AP Canceled Recurring Transaction

  • AW Altered Amount

  • CD Credit Posted as Card Sale

  • DP Duplicate Processing

  • IC Illegible Sales Data

  • NF Non-Receipt of Cash from ATM

  • PM Paid by Other Means

  • RG Non-Receipt of Goods or Services

  • RM Quality Discrepancy

  • RN2 Credit Not Received

  • AW Altered Amount

  • CD Credit Posted as Card Sale

  • DP Duplicate Processing

  • IC Illegible Sales Data

  • NF Non-Receipt of Cash from ATM

  • PM Paid by Other Means

  • RG Non-Receipt of Goods or Services

  • RM Quality Discrepancy

  • RN2 Credit Not Received

Authorization disputes

Authorization disputes occur when a Merchant submits a payment with an invalid or expired authorization code. For example, if a Merchant authorized their customer's card without fully completing the transaction, and then captured the payment - with a now-expired authorization code - at a later date, this may result in an authorization dispute.

 

Card Brand

Authorization Reason Codes

Card Brand

Authorization Reason Codes

Visa

  • 11.1 Card Recovery Bulletin

  • 11.2 Declined Authorization

  • 11.3 No Authorization

Mastercard

N/A

Amex

  • A01 Charge amount exceeds authorization amount

  • A02 No valid authorization

  • A08 Authorization approval expired

Discover

  • AT Authorization Non-compliance

  • DA Declined Authorization

  • EX Expired Card

  • NA No Authorization

Processing Error Disputes

Processing errors generally indicate a payment submission error by the Merchant resulting in the cardholder initiating a dispute. For example, this can include the Merchant submitting incorrect data or using the wrong payment method other than the one the cardholder intended for them to use etc.

Processing error dispute reason codes by Card Brand

Card Brand

Processing Error Reason Codes

Card Brand

Processing Error Reason Codes

Visa

  • 12.1 Late Presentment

  • 12.2 Incorrect Transaction Code

  • 12.3 Incorrect Currency

  • 12.4 Incorrect Account Number

  • 12.5 Incorrect Amount

  • 12.6 Duplicate Processing / Paid by Other Means

  • 12.7 Invalid Data

Mastercard

  • 4831 Transaction Amount Differs

  • 4834 Point of Interaction Error

  • 4842 Late Presentment

  • 4846 Incorrect Currency Code

Amex

  • P01 Unassigned Card Number

  • P03 Credit Processed as Charge

  • P04 Charge Processed as Credit

  • P05 Incorrect Charge Amount

  • P07 Late Submission

  • P08 Duplicate Charge

  • P22 Non-Matching Card Number

  • P23 Currency Discrepancy

Discover

  • IN Invalid Card Number

  • LP Late Presentment

 


Responding to Disputes

When a dispute is initiated against a Merchant, they have the opportunity to respond to the issuing bank by providing compelling evidence in their favor (representment). For Retrievals and (most) First Chargebacks, dispute responses can be submitted by the Merchant directly in the Payrix Portal. The Pre-Arbitration response process varies by Card Brand, and thus, they cannot be submitted in the Portal.

Visit the dispute response user guide for instruction on submitting a representment in the Portal.

How long does a Merchant have to respond to a dispute?

The timeframe allotted for a Merchant to submit a dispute response varies by a) the reason for the dispute, and b) the Card Brand. In the Payrix Portal, you will notice a Response Due Date indicating when the Merchant has to respond.

It’s important for Merchants to check the due date for each chargeback initiated against them because the timeframe can vary significantly depending on the circumstances. For some chargebacks, Merchants will have as little as seven days to respond, while for other chargebacks, they may have up to 30 days.

If the Merchant fails to respond by the due date, the dispute will automatically be considered lost and the held funds will be credited to the cardholder.

What information should a Merchant include in their Representment?

Check out our Dispute Best Practices & Tips for Merchants for detailed suggestions & examples for responding to disputes.

Although there are no definitive guidelines for what is considered “compelling evidence,” and much of this depends on the reason for the dispute, valid representment evidence falls into two categories:

Formal Evidence

This includes official documentation directly related to the transaction. Formal evidence includes, but is not limited to:

  • Signed credit card receipt

  • Completed credit card authorization form

  • Corresponding Invoice with cardholder contact information

  • Signed proof of delivery or Satisfactory Services

Informal Evidence

Informal evidence is relevant documentation that is not directly related to the transaction. This includes, but is not limited to:

  • Logs of correspondence between the Merchant & cardholder

  • Screenshots of the Merchant’s website and/or published Terms of Service

  • Pictures of the merchandise

  • A summary of the incident written by the Merchant

A Merchant’s representment should include all formal & informal evidence supporting their side of the dispute, presented clearly and concisely for the issuing bank. Providing too little evidence will likely render the representment uncompelling, but providing too much documentation may render the representment irrelevant.

For a more comprehensive guide to dispute responses please visit the Dispute Response Best Practices & Tips for Merchants.

Once a Merchant submits a dispute response they will not be able to add or modify their representment in any way. Thus, be sure your representment includes all of the compelling evidence you want the issuing bank to review.