FAQ

What is a fraud alert?
A fraud alert is a notification sent to a merchant or payment processor when suspicious or potentially fraudulent activity is detected on a transaction. It serves as an early warning, allowing the merchant to investigate and, if necessary, take action to prevent the completion of a fraudulent transaction. Fraud alerts do not immediately result in chargebacks but may evolve into disputes or chargebacks if the fraudulent nature of the transaction is confirmed.

What is a dispute?
A dispute occurs when a customer questions the validity of a transaction, often because they don’t recognize the charge or believe there is an issue with the goods or services provided. The process allows for evidence submission by both the customer and the merchant to determine whether the transaction was valid.

What is a chargeback?
A chargeback is the actual reversal of a transaction, usually initiated after a dispute is reviewed and the bank decides to refund the customer. This removes the funds from the merchant’s account and returns them to the customer.

What is a chargeback reversal?
A chargeback reversal occurs when a previously issued chargeback is overturned. This happens when the merchant successfully disputes the chargeback by providing evidence that the original transaction was valid. If the issuing bank or payment network accepts the merchant’s evidence, the chargeback decision is reversed, and the funds that were refunded to the customer are returned to the merchant’s account​.

What is the main difference between a dispute and a chargeback?
A dispute is the process initiated when a customer challenges a transaction, typically through their bank or payment provider, asking for a review of the transaction. A chargeback is the action taken after a dispute if the bank decides the customer is entitled to a refund. Essentially, a dispute is the initial claim, while a chargeback is the financial action (refund) resulting from that claim if it is resolved in the customer’s favor.

Do all payment methods support disputes and chargebacks?
No, not all payment methods support disputes or chargebacks. It depends on the policies and infrastructure of each payment method. Some payment methods may allow disputes but not chargebacks, while others may have no mechanisms for either.

What is the relationship between disputes, chargebacks, chargeback reversals, and fraud alerts?
Disputes can lead to chargebacks if the customer’s bank sides with the customer, initiating the refund process.
A chargeback reversal can happen if the merchant successfully challenges the chargeback with sufficient evidence, reversing the decision and returning the funds to the merchant.
A fraud alert is a warning signal for potentially suspicious transactions. Fraud alerts may evolve into disputes or chargebacks if the transaction is determined to be fraudulent.

What are Visa and Mastercard's Excessive Chargeback Programs?
Visa and Mastercard have established programs to monitor and mitigate excessive chargebacks from merchants. These programs aim to protect the payment networks and stakeholders from fraud or poor merchant practices leading to high chargeback volumes. Merchants with high chargeback rates may face fines or even termination of their merchant accounts if they don’t reduce their chargebacks within the allowed thresholds.

Visa's Dispute Monitoring Program (VDMP): Visa monitors merchants with excessive chargebacks and places them in this program if they exceed specified thresholds.
Mastercard's Excessive Chargeback Merchant (ECM) Program: Mastercard monitors merchants and takes action if they have consistently high chargeback rates.

What is the chargeback rate, and how is it calculated?
The chargeback rate is the percentage of disputes or claims a merchant receives relative to the total number of transactions in a given month. During the first screening for excessive chargeback programs, Visa and Mastercard use the number of disputes or claims (not actual chargebacks with funds retained or refunded) to calculate the rate. This distinction is important because the chargeback rate calculation focuses on the initial claims, even if those claims don’t necessarily lead to full chargebacks. This means merchants could be flagged for excessive chargebacks based on disputes alone, even if many do not progress to actual chargebacks with financial reversals.

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