If you run a business that accepts credit and debit card payments from customers, it's important to be familiar with the concept of chargeback representment. It is safe to say that dealing with chargebacks isn't a part of commerce that any business enjoys. Chargebacks cost businesses time and money, both in revenue lost from reversed charges and the expenses associated with dedicating resources to fighting chargebacks and preventing them from occurring in the first place. Chargebacks cost businesses around US$40 billion every year, and those costs aren't solely due to lost revenue. Chargebacks.com estimates that for every US$100 in chargebacks, a business can spend up to US$240 in time, fees, penalties or additional losses of goods and services.

While there's no way to eliminate chargebacks entirely – they are an unfortunate yet necessary part of doing business – understanding what representment means in banking and how to strategically fight back against chargebacks can significantly reduce your losses when they do occur.

What's in this article?

• What are chargebacks?
  
• What is chargeback or friendly fraud?
  
• What is representment?
  
• What evidence do I need for a chargeback representment?
  
• What are the potential chargeback representment outcomes?
  
• What happens if I don't respond to a chargeback?
  
• What are the best practices for handling the chargeback representment process?
  

What are chargebacks?

A chargeback is a reversal of funds following a debit or credit card purchase, which is prompted by the customer filing a dispute over the charge with their bank or credit card provider. Chargebacks are considered to be a scourge for consumer businesses across industries, leading to significant financial headaches for businesses.

Chargebacks can happen for a variety of reasons. Here are a few common ones:

• The customer doesn't recognise a legitimate charge on their credit or debit card statement and believes that it is fraudulent.
  
• The charge is the result of legitimate fraud.
  
• The goods or services associated with the charge were never delivered.
  
• The customer has an issue with the goods or services purchased and requests a chargeback as a way to avoid the returns process.
  

What is chargeback or friendly fraud?

The term chargeback fraud, also known as "friendly fraud", might look like an oxymoron, but it's a prominent concept in the world of chargebacks. Friendly fraud describes chargebacks that are filed against legitimate transactions, either erroneously or intentionally, as a way for the customer to avoid pursuing a refund from the business.

What is representment?

The meaning of representment in banking is the process by which businesses can respond to chargebacks. The goal of chargeback representment is to prove that the charge in question is legitimate and therefore should not be reversed.

Now we know the meaning of representment in banking, the chargeback process that leads to it looks like this:

• The cardholder files a dispute.
  
• The cardholder's issuer notifies the business's acquirer about the chargeback request.
  
• The business's acquirer notifies the business.
  
• The business is given a window of time within which they can respond to the dispute. The exact time frame for responding to a chargeback varies by card network. For example, Visa now gives businesses a maximum of 30 days to respond to a dispute.
  
• If the business wishes to respond to the chargeback, they gather all available evidence that might prove the legitimacy of the charge and submit it to the card network.
  

Usually, there isn't a lot of back and forth during chargeback representment. If the business presents convincing evidence to validate the charge, the cardholder can either accept that and the issuer will decline to issue the chargeback, or the cardholder can further contest the matter. At that point, the dispute goes into arbitration. This means that the issue is escalated to the card network, which takes the card issuer's place as judge. At the end of the arbitration process, the card network's decision is final.

What evidence do I need for a chargeback representment?

Along with the evidence that you'll submit during the representment process, you'll need to file a chargeback rebuttal letter. Think of this as a cover letter for your package of evidence. A chargeback rebuttal letter should summarise what evidence you're sharing and the conclusion reached regarding the legitimacy of the disputed charge, as demonstrated by the evidence. Items to be submitted as evidence may include:

• Documents showing that the transaction was approved by the cardholder, such as a signed receipt
  
• All transaction history with the customer
  
• All communication with the customer
  
• A copy of your company's return and refund policies
  
• Proof from the transaction that you took responsible steps towards fraud prevention, such as requiring address verification and CVV codes for card payments
  
• A description of the products or services associated with the transaction
  
• Evidence that the items charged for were delivered or fulfilled in full, along with proof of where and when they were delivered
  
• Any relevant tracking numbers or other delivery documentation
  
• A delivery slip signed by the customer
  
• Proof of download for digital products
  

This list isn't exhaustive. When gathering evidence, it's a good idea to err on the side of thoroughness. Your aim is to paint a documented picture that demonstrates that you did your due diligence when you authorised the charge, and that it was a legitimate transaction from payment to fulfilment.

What are the potential chargeback representment outcomes?

The representment process can result in one of three possible outcomes:

• The issuer rules in favour of the business.
  If the card issuer reviews the evidence submitted by the business and finds that it proves the legitimacy of the charge, they will rule in favour of the business and reverse the chargeback. At this point, the funds will be returned to the business.

• The issuer rules in favour of the cardholder.
  If the issuer doesn't think that the business has proven their case successfully, they will rule in favour of the cardholder and uphold the chargeback.

• The issuer rules in favour of the business – but the cardholder doesn't accept it.
  If the issuer examines the evidence presented during the representment process and deems the charge to be valid, the cardholder has one more avenue of recourse to contest the charge: arbitration.

What happens if I don't respond to a chargeback?

Failure to respond to a chargeback – or failure to respond within the card network's time constraints – will be interpreted as acceptance of the chargeback. In this case, the chargeback will be upheld and the cardholder will retain the funds that have been returned to them.

If you don't challenge the chargeback and choose to accept it instead, you will not only lose the revenue from that sale, but you'll also be responsible for paying any other fees and expenses associated with the charge, such as delivery costs, taxes and possibly fees from the credit card company.

What are the best practices for handling the chargeback representment process?

Simply put, the most important thing businesses can prioritise during representment is to participate, engage and present detailed evidence. However, there's more that you can do, not only to make sure that you win each dispute, but also to develop a successful approach to handling unwarranted chargebacks – one that minimises strain on your business and maximises revenue recovery and knowledge.

• Move quickly.
  Again, if you don't respond to a chargeback, the issuer will default to ruling in favour of the cardholder and that revenue will be lost. It is imperative that you respond to every chargeback, and that you do so as quickly as possible. As soon as you can, begin gathering your evidence and presenting your case.

• Educate yourself.
  Understanding the ins and outs of the chargeback representment process is the best way to set yourself up for success.

• Keep records of everything and be aware of where to find key evidence.
  This is the secret to winning representment. Keep organised records of customer transactions, receipts and communication, and make sure that you know how to sort and filter through your archives to quickly find the evidence that you need.

• Have clear billing descriptors.
  It's worth reading our entire article about chargeback mitigation practices, but if we had to narrow it down to the single most important thing that you can do to avoid chargebacks, it would be making sure that your billing descriptors are clear. (We have an entire article about that too.) As one of the main reasons for chargebacks is a customer's failure to recognise a charge on their account, you want to ensure that your customers recognise the name when they review their card statements and see a charge from your business, and don't have to wonder where the charge came from.

• Create a scalable representment strategy.
  Disputing illegitimate chargebacks is far from a "choose your battles" situation. Instead, you need to fight all of them. It's the best way to gain back as much lost revenue as possible and keep your chargeback ratio in a comfortable (low) place. To take on every chargeback without letting it completely drain your internal resources, come up with an efficient playbook for the representment process. If you know exactly what steps to take and where to find that all-important evidence, you will become well practised in this process, and will gain the ability to weather chargeback disputes without excessive disruption to your business.

• Analyse your chargeback data.
  There are some universal strategies for minimising the occurrence of chargebacks, but the most precise insights will come from your own data. Tracking as much information as possible about your chargebacks and regularly reviewing this data to extrapolate trends and takeaways, will give you the actionable knowledge that you need to target your chargeback mitigation efforts. For example, why are most of your chargebacks happening? If you're mostly dealing with instances of legitimate chargeback fraud, you will take different steps than if, say, most of your chargebacks are happening because customers find your returns process unwieldy. Knowing the origins, causes and frequency of the chargebacks that your business is incurring is key to taking the correct measures to limiting their occurrence in the future.