Dispute Alert

A dispute alert is a message sent to a merchant shortly after a cardholder contacts their card issuer to question a transaction, giving the merchant a chance to resolve the matter, usually by refunding, before the issuer raises a formal chargeback. Alerts are delivered through networks that connect issuers with merchants, the best known being Ethoca alerts, operated by Mastercard, and Verifi alerts, operated by Visa. Some alerts also cover confirmed fraud reported by the issuer.

Merchants use dispute alerts to avoid the fees, administrative work and damage to their chargeback ratio that chargebacks bring. A refund made in response to an alert generally stops the dispute, so the case never counts as a chargeback. Alerts are part of the wider field of dispute management and are closely related to early fraud warnings and pre-dispute services.

1. A cardholder calls their bank or uses its app to say they do not recognise a payment, did not receive goods or want to dispute a charge.
2. If the issuer participates in an alert network, it sends details of the transaction to the network, either before or instead of opening a chargeback.
3. The network matches the transaction to an enrolled merchant, using information such as the card number, amount, date and merchant descriptor, and forwards the alert, often within hours.
4. The merchant reviews the alert and decides whether to refund, stop shipping an order or cancel a subscription.
5. The merchant reports its action back. If it has refunded, the issuer normally closes the case without a chargeback.

Response times are short, typically 24 to 72 hours depending on the service, because the issuer may proceed with a chargeback if it does not hear back.

• Notification alerts. The merchant is told about a dispute or reported fraud and chooses whether to refund.
• Automated resolution. Visa's Rapid Dispute Resolution lets merchants set rules in advance, for example to refund automatically all disputes below a certain amount or from certain categories. Matching disputes are resolved without manual review and do not become chargebacks.
• Order information sharing. Services such as Visa's Order Insight and Mastercard's Consumer Clarity give issuers detailed purchase information, such as a product description or receipt, while the cardholder is on the phone, so the cardholder may recognise the payment and withdraw the query.

The main benefit is avoiding chargebacks. Each chargeback typically brings a chargeback fee from the acquirer, the cost of preparing a response and the risk of losing the goods and the payment. Chargebacks also count towards scheme monitoring programmes that can lead to fines or loss of card acceptance. Alerts help merchants stay below thresholds, cancel fraudulent orders before shipping and stop recurring billing to cardholders who no longer want a service.

Alerts carry their own costs. Providers usually charge a fee per alert, and the merchant loses the sale by refunding. Merchants receive alerts for disputes they might have won, such as cases of friendly fraud, so some choose to fight certain cases through representment instead. Not all issuers participate in every network, so alerts do not cover all disputes, and merchants often subscribe to more than one service to increase coverage.

To use alerts effectively, merchants need accurate descriptors so that transactions can be matched, systems that can refund and cancel orders quickly, and processes to avoid double handling, such as refunding an alert and then also receiving a chargeback for the same transaction. Duplicates can happen when the issuer raises a chargeback before the refund is recorded, and merchants then need to show that the refund was issued. Merchants should also analyse alert data to find root causes, such as unclear billing descriptors, confusing subscription terms or shipping delays, because fixing these reduces disputes at source.

Some alerts relate to confirmed fraud rather than customer disputes. When an issuer reports a fraudulent transaction to the card network, the information may be shared with the merchant through an alert or through an early fraud warning. Refunding in response does not always stop a fraud chargeback, depending on the rules, but it allows the merchant to block the card, cancel pending orders and investigate related transactions, such as other orders using the same email address or device.