Payment disputes, also known as chargebacks, are a critical aspect of online transactions that every merchant should understand. This article provides a comprehensive guide to what happens when a customer disputes a payment, how to effectively respond, what evidence is needed, and the various outcomes. By being prepared, you can navigate the dispute process efficiently and protect your business.
Prerequisites for Dispute Management
While disputes can arise unexpectedly, having the following in place will significantly aid your management process:
Activated PayMongo Merchant Account: Access to your PayMongo Dashboard for dispute notifications and management.
Thorough Transaction Records: Maintain clear records of all sales, including product/service details, order confirmations, shipping/delivery information, and customer communications.
Clear Policies: Have well-defined and easily accessible refund, return, cancellation, and "no-show" policies for your customers.
Customer Service Responsiveness: Proactive and effective customer support can often resolve issues before they escalate to a formal dispute.
Understanding Payment Disputes (Chargebacks)
What is a Payment Dispute?
A payment dispute, often referred to as a chargeback, occurs when a customer contacts their issuing bank or e-wallet provider to formally challenge a transaction made on their card. Instead of working directly with the merchant for a refund, the customer seeks to reverse the charge through their provider. The issuing bank or e-wallet provider then investigates the claim, and if the dispute is upheld, the funds are forcibly withdrawn from the merchant's account and returned to the customer. Disputes are a form of consumer protection, but they come with costs and effort for businesses.
Common Reasons for Disputes
Disputes can occur for various reasons, including both legitimate customer grievances and sometimes, "friendly fraud":
Unauthorized Transaction/Fraudulent Payment: The cardholder claims they did not authorize the purchase. This could be due to stolen card information.
Services Not Provided / Merchandise Not Received: The customer claims they never received the product or service they paid for.
Not As Described / Defective Merchandise: The product or service received was significantly different from what was described or was defective.
Customer Did Not Recognize the Payment: The merchant's billing descriptor on the customer's statement is unclear or unfamiliar, leading the customer to believe the charge is fraudulent.
Duplicate Billing / Incorrect Amount: The customer was charged multiple times for a single transaction, or the billed amount was incorrect.
Refund Not Processed: A refund was promised but not received by the customer.
Cancellation Issues: Issues related to subscription cancellations or service termination policies.
The Dispute Process Overview
When a dispute arises:
Customer Initiates Dispute: The cardholder contacts their issuing bank to dispute a transaction.
Funds Debited: The issuing bank notifies PayMongo, and the disputed amount (plus a dispute fee) is typically debited from your PayMongo balance or deducted from your next payout. These funds are held during the dispute process.
PayMongo Notifies Merchant: PayMongo immediately notifies you via email with the dispute details.
Merchant Responds: You decide whether to accept the chargeback or contest it by providing compelling evidence.
Evidence Submission: If contesting, you submit your evidence to PayMongo.
Review and Decision: PayMongo forwards your evidence to its banking partners, who then present the case to the customer's issuing bank. The issuing bank (and card schemes like Visa/Mastercard) makes the final decision based on the evidence provided by both parties.
Outcome: The dispute is either ruled in your favor (won) or the customer's favor (lost), or in some cases, withdrawn.
Step-by-Step Guide: Responding to a Dispute
Your timely and thorough response is crucial in successfully contesting a dispute.
Receiving a Dispute Notification
PayMongo will notify you via email (
[email protected]) when a dispute is filed against one of your transactions.The email will contain critical details:
Transaction Details: Date, transaction ID, description, customer information, and the disputed amount.
Dispute Reason: The specific reason code and description provided by the customer's bank.
Dispute Fee: Notification of the flat dispute fee (currently ₱800.00 per transaction).
Deadline: A strict deadline for submitting your evidence if you choose to contest.
Deciding to Accept or Contest
Upon receiving a dispute notification, you have two primary options:
Accept the Chargeback:
If you agree with the customer's claim, or if you believe the dispute is legitimate (e.g., true fraud, clear service failure).
Notify PayMongo using the Dispute Response Form link provided in your email or dashboard.
The disputed funds will remain debited from your account, and the case will be closed.
When to Consider: If you know the transaction was indeed fraudulent, if the product/service was genuinely not delivered/as described, or if the cost of fighting outweighs the disputed amount.
Contest the Chargeback:
If you believe the transaction was valid and you have compelling evidence to prove it.
You must submit all necessary supporting documents via the Dispute Contest Submission Form link provided by PayMongo.
When to Consider: When you have strong evidence that the product/service was delivered, the customer authorized the transaction, or the claim is unfounded.
Preparing Compelling Evidence
To successfully contest a dispute, you must provide compelling evidence that directly refutes the cardholder's claim. The more relevant and clear your documentation, the stronger your case. Key supporting documents, which should clearly link to the product/service and customer, include:
Customer Details: Full customer name, email address, billing and delivery address, contact number.
Product/Service Details: Detailed description of the product or service, order confirmation, purchase date/time, order ID, quantity, price breakdown.
Proof of Payment: Sales receipt, invoice, POS charge slips, payment confirmation, and any agreement to terms and conditions (e.g., tick box confirmation upon payment).
Proof of Delivery/Service Fulfillment:
Physical Goods: Shipping arrangements, delivery receipts, courier tracking information showing fulfillment status, proof of signature upon receipt, photographs of delivered item.
Digital Goods/Services: Online transaction logs, IP addresses, login records, timestamps of access/usage, download confirmations, service usage logs.
Services: Contracts, service agreements, appointment confirmations, before/after photos, proof of service completion.
Proof of Communication: Any correspondence with the customer (emails, chat logs, call logs) regarding the transaction, issue resolution attempts, or agreements.
Proof of Properly Disclosed Terms and Conditions: Evidence that the customer agreed to your Refund Policy, Cancellation Policy, Return Policy, or No-show Policy (e.g., screenshot of the checkout page with terms checkbox).
Proof of Refund (if applicable): If you attempted to refund the customer directly, provide refund details such as refund date, amount, and method (e.g., deposit slip, screenshot of refund confirmation).
Cardholder Withdrawal Letter (if applicable): If you resolved the issue directly with the customer and they wish to withdraw the dispute, request a formal letter from them stating the transaction was valid and they no longer wish to dispute.
Any Additional Relevant Documentation: Any other information that supports your case.
Submitting Your Response
Use the Dispute Contest Submission Form link provided in PayMongo's dispute notification email.
Submit all necessary supporting documents through this form by the specified deadline. Failing to respond and provide sufficient evidence by the deadline will lead to an automatic chargeback acceptance.
Understanding Dispute Outcomes and Fees
Once you submit your evidence, the issuing bank will review it and make a final decision. This process can take 60-75 days, and the full dispute lifecycle can take 2-3 months.
Possible Outcomes
Dispute Won (In Your Favor):
The issuing bank rules that your evidence is compelling.
The disputed transaction amount will be credited back to your PayMongo account.
The associated dispute fee (₱800.00) will also be credited back to you.
Your dashboard status will change to "Deposited" or similar.
Dispute Lost (In Customer's Favor):
The issuing bank upholds the customer's dispute.
The disputed funds will remain with the cardholder, and your account will not be credited.
The dispute fee (₱800.00) is non-refundable if you lose the dispute.
Your dashboard status will indicate "Lost" or "Chargeback Confirmed."
Dispute Withdrawn:
The customer may withdraw the dispute directly with their bank (often after you've resolved the issue with them offline, or if they realize their error).
If successfully withdrawn, the funds and dispute fee (if already deducted) will be returned to you.
Dispute Fees
A flat dispute fee of ₱800.00 per transaction is automatically deducted from your upcoming weekly payout when a dispute is initiated.
This fee is imposed by the card association networks (Mastercard, Visa, etc.) and covers the cost of handling the dispute.
If you win the dispute, both the disputed amount and the ₱800.00 dispute fee will be credited back to your account.
If you lose the dispute, the disputed amount remains with the cardholder, and the ₱800.00 dispute fee is NOT refunded.