Discover Chargeback & Dispute Guide for Merchants for 2024

As an e-commerce seller, I’ve prepared myself to deal with Discover chargebacks. This guide will help you with everything you need to know.

I’ll explain how Discover’s chargeback process differs from other card networks (for example, the time limits). From there, I’ll talk about retrieval requests and reason codes. Then, I’ll cover chargeback mitigation tools you should know about.

Let’s dive in.

Key Takeaways

• Discover handles chargebacks directly, impacting merchant interactions.
• Retrieval requests offer merchants a chance to resolve disputes early.
• Ignoring retrieval requests results in automatic losses for certain chargebacks.
• Sellers have 5 days to respond to chargeback claims and 20 days to respond to retrieval requests.
• Discover offers free tools like ProtectBuy, Fraud Alerts Standard, and Enhanced Decisioning to mitigate fraud and chargebacks.

Are Discover Chargebacks Different From Others?

Unlike most card networks, Discover acts as the card network and issuer. Thus, they’ll provide the credit card to the consumer while handling their account, billing, payments, and disputes.

This differs from Visa and Mastercard, which are just networks that partner with various banks issuing cards.

Since they’re the issuer, the customer will deal with them directly during a chargeback claim. They have more control over the chargeback process.

What this means for you as a merchant:

• Simplified Interactions: You don't have to deal with separate entities for transaction processing and customer service.
• Quicker Dispute Resolution: If a customer disputes a charge, Discover handles the entire process.
• Retrieval Requests: This is a request for more information about the transaction.
• Issuer Bias: In some cases, merchants may feel that Discover is more likely to side with the cardholder in a dispute since they handle both sides.

Retrieval requests are a good thing.

That means Discover wants to see your evidence before initiating a chargeback. This period gives you time to contact the customer and see if there’s a way to deal with the issue before they escalate to a chargeback.

If you can resolve the issue, you save money otherwise wasted on a chargeback fee. 

You also don’t have a chargeback that contributes to your chargeback threshold. Having a higher rate isn’t good at all because it could potentially result in you losing the ability to process transactions from Discover.

Summary: Discover is the card network and issuer. They also send retrieval requests, which allows businesses to submit evidence before Discover issues a chargeback.

Discover Network Dispute System

They also have the Discover Network Dispute System (DNDS). It serves as a hub where you can manage and respond to chargebacks and retrieval requests.

Here are some of its benefits and features [1 PDF link]:

• Case Management: Search, filter, and track the status of all your dispute cases.
• Transaction Details: Access detailed information about disputed transactions.
• Document Upload: Upload and submit evidence to support your case.
• Communication Tools: Communicate directly with Discover regarding specific cases, ask questions, and provide additional information.
• Reporting: Generate reports to analyze chargeback trends, identify potential issues.

Summary: DNDS is where you’ll submit evidence and track your Discover disputes.

Transit Transaction Aggregation

Transit Transaction Aggregation (TTA) is a system that allows customers to pay for multiple public transportation trips with a single charge. This streamlines fare payments for riders and simplifies accounting for transit agencies.

This plays into the chargeback process, though:

• Transaction Identification: Passengers may not immediately recognize the charge on their statement, leading to confusion and potential disputes.
• * Evidence Requirements: Provide detailed evidence linking the aggregated charge to the individual transit trips.
• Collaboration: You may need to collaborate with the transit agency to gather necessary information and address the dispute.

*  This can include transaction logs, timestamps, and fare calculations.

You don’t need to worry about this if you don't offer transit-like services.

Summary: TTA can add more complexity to chargebacks for businesses that offer transportation.

Time Limits for Issuers, Cardholders, & Merchants

We’ll need to consider different time limits with Discover:

All of these numbers refer to calendar days, not business days. Meaning that you will need to factor in weekends into these numbers.

You should also know the time the customer has to file a chargeback with a Discover card since you’ll have an idea as to how to prepare.

Every other number above is critical to know, though. Failure to respond within these timeframes will result in automatic losses in chargeback claims (for businesses).

However…

Reason Codes That Extend Time Customer Can File a Chargeback

Discover allows for a 30-day extension to file a chargeback if the request process goes beyond their 120-day deadline.

The following reason codes will have a 120-day limit no matter what:

• AT (Authorization Noncompliance)
• LP (Late Presentation):
• IN (Invalid Card Number)

Then there are these reason codes, which have different rules:

1. RG (Non-Receipt of Goods, Services, or Cash): The cardholder claims they did not receive the purchased items or services.

The cardholder has 120 days to initiate a chargeback claiming they didn't receive the goods, services, or cash they paid for.

Regardless of whether it's goods or services, the shopper can’t file a chargeback until at least 15 days after the transaction processing date. The absolute deadline for filing a chargeback is 540 days from the original transaction date.

2. RM (Cardholder Disputes the Quality of Goods or Services): The customer claims the goods or services were not as described or were of poor quality.

For RM chargebacks based on misrepresentation, the clock starts ticking on the scheduled delivery date, not the transaction date.

Here's how it works:

• Transaction Date: The date the customer made the purchase.
• Scheduled Delivery Date: The date the merchant promised to deliver the goods or services.
• 120-Day Window: If the consumer claims the seller misrepresented the terms, they have 120 days from the scheduled delivery date to file a chargeback.
• 540-Day Limit: Regardless of when the 120-day window starts, they can’t dispute a purchase more than 540 days after the original transaction date.

Here’s an example.

A shopper orders a product on January 1st with a scheduled delivery date of February 1st. The product arrives on February 15th, but the customer feels the product is not as described.

The customer has 120 days from February 1st (the scheduled delivery date) to file a chargeback. Meaning they have until June 1st.

Even if the customer doesn't realize the issue until later, they can’t file a chargeback 540 days after the original purchase date.

This extended timeframe for misrepresentation claims aims to protect consumers who may not discover the issue until after they receive and use the product.

The 540-day maximum limit ensures that merchants are not held liable for excessively old transactions.

Summary: No matter the scenario, customers can’t file a chargeback 540 days after the transaction date.

Good Faith Investigations

• Timeframe: Up to 2 years from the original transaction date

Sometimes, cardholders may not immediately realize they are victims of fraud. Discover allows for a "Good Faith Investigation" (GFI) in these cases.

This means that even if the standard 120-day chargeback window has passed, Discover can still investigate the transaction for potential fraud.

The customer can file a chargeback beyond the usual time limit if the investigation confirms fraudulent activity.

The chargeback process for good faith investigations is the same as any other chargeback reason code. However, you (the business) must prove that the transaction wasn’t fraudulent.

The Chargeback Process: How it Differs From Other Card Networks

Here’s the chargeback process for Discover:

1. Notification: Customer initiates a dispute and then Discover sends a Ticket Retrieval Request, which requires you (the merchant) to submit evidence within 20 days.
2. Resolution: Discover reviews evidence and documentation from you and the customer. If they need additional information, they’ll request it. If not, they’ll decide in favor of you or the cardholder.
3. Arbitration: Seller can contest the resolution and provide additional evidence.

Discover’s chargeback process doesn’t differ much from every other network. However, since they’re the issuer and the card network, there are fewer players in the process.

Summary: The chargeback process is the same other than that Discover is the issuer and the card network. Thus, arbitration would also go through them.

How Does the Chargeback Threshold for Discover Differ From Other Networks?

Discover doesn’t have a specific chargeback threshold to which it would penalize businesses. They do suggest that companies keep their monthly chargeback rate under 100 chargebacks or below 1%.

Unlike Visa, which has the Visa Dispute Monitoring Program, Discover does not have an equivalent. However, they will monitor merchant activity for potential fraud and high chargeback rates.

If they label you as “high risk,” they may take actions like:

• Increased Scrutiny: Monitor your transactions and dispute activity.
• Fines and Penalties: Impose fines or penalties for excessive chargebacks.
• Account Termination: Terminate the merchant's account if they continue to violate their policies and guidelines.

Discover isn’t transparent about their chargeback threshold. Thus, I can’t provide too much information.

Summary: Sellers should keep their chargeback rate under 1%.

Retrieval Request Codes & How to Respond to Them

Discover will likely send you 1 of the following retrieval request codes after customer initiates a dispute:

All these retrieval requests require you to send documentation and evidence that shows the transaction was legitimate. It should also show that you (the merchant) made no errors and delivered the promised product.

Failing to respond to these retrieval requests will automatically advance the dispute into a chargeback.

Make sure to submit your response within 20 days.

Also, if you didn’t respond to a retrieval request, you will not be able to fight chargebacks with the following reason codes:

• AA: Does Not Recognize
• UA01: Fraud: Card Present Transaction
• UA02: Fraud: Card Not Present Transaction
• UA05: Fraud: Chip Card Counterfeit Transaction
• UA06: Fraud: Chip and PIN Transaction

Since you can’t fight these chargebacks, there’s no way to recover any lost revenue. And no matter what, you’ll have a chargeback contributing to your chargeback rate.

Summary: Ensure you respond to retrieval requests within 20 days.

Common Reason Codes

Here are all of Discover’s chargeback reason codes. I’ll explain how to interpret, prevent, and counter disputes that come from them in a separate guide.

1. Service Dispute

2. Fraud

3. Authorization & Processing Errors

Tools Designed for Preventing & Mitigating Discover Chargebacks

Discover offers the following paid and free chargeback-mitigation tools for businesses:

• Enhanced Decisioning: Helps score transactions to know whether you should approve or decline them.
• ProtectBuy: Basically 3D Secure, which requires customers to receive one-time codes during transactions.
• Fraud Alerts Standard: Know when a transaction is potentially fraudulent and take action.

I’ll explain what each of these tools does and why you might want them. Keep reading to learn more.

1. Enhanced Decisioning

Discover Enhanced Decisioning (DED) is a fraud management solution offered by Discover. It enables you to share additional customer and transaction data with card issuers in real-time during the authorization process.

This allows issuers to make more informed decisions about whether to approve a transaction.

And here’s how DED will affect chargebacks:

• Reduced False Declines: By providing issuers with more data, DED helps them better assess the risk of a transaction. This can decrease false declines by up to 25% [2].
• Reduced Fraud: Identify and decline potentially fraudulent transactions before they're authorized, reducing fraud-related chargebacks.
• Improved Authorization Rates: Improves merchant authorization rates by reducing false declines and preventing fraud, leading to increased sales.

Summary: DED is a fraud flagging tool.

2. ProtectBuy

Discover ProtectBuy is an authentication protocol designed to make transactions through e-commerce sites more secure.

When customers use their card for an online purchase, ProtectBuy verifies their identity in real-time. Typically, through a one-time passcode or biometric authentication.

It’s their implementation of 3D Secure (3DS) technology.

Here’s how it’ll affect you:

• * Liability Shift: If a transaction is authenticated through ProtectBuy and later disputed as fraudulent, the liability shifts to the issuer (Discover).
• Reduced Fraud and Chargebacks: Helps prevent unauthorized transactions and fraudulent chargebacks by verifying the cardholder's identity.
• Improved Customer Confidence: Improves security and helps build customer trust, making them feel more secure when shopping online with their Discover card.

* The merchant is less likely to be held responsible for the chargeback costs.

While 3D Secure technology like ProtectBuy enhances security, it introduces an additional checkout step. If not implemented smoothly, this can lead to increased friction, potentially resulting in cart abandonment and lost sales.

One study even showed that 22% of payments from some businesses were lost [3]. I’m not trying to deter you from using ProtectBuy. However, I want you to understand the implications of using this software.

It is a valuable tool for merchants to reduce fraud, mitigate chargebacks, and enhance customer trust.

Summary: ProtectBuy is Discover’s version of 3D Secure, which requires customers to provide additional verification for at transaction.

3. Fraud Alerts Standard

If you’re a business in the US, Discover will give you immediate notifications of fraudulent transactions.

From there, you can:

• Return the purchase
• Cancel shipments
• Access transaction details

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Dealing with all of these before a fraudulent transaction happens will eliminate the likelihood of a chargeback. And you don’t want to fight a third-party fraud chargeback. As businesses only win 9.27% of them [4].

“Standard” does mean there’s a “Premium” version. The paid version offers integration through an API connection, resulting in near real-time notifications.

Discover also used to offer Verify+. However, I can’t find any information about this service on their website. The same webpage for their Security and Authentication services had Verify+ on the page in 2021 but not in 2024 [5].

Summary: Fraud Alerts Standard gives businesses notices of potentially fraudulent transactions before they result in chargebacks.

Wrapping Up

Discover's chargeback process is unique because it acts as the card issuer and network. They also offer retrieval requests, allowing merchants to resolve disputes before they escalate into chargebacks.

However, Discover's policies regarding chargeback thresholds and time limits for specific reason codes differ. Requiring merchants to be vigilant and understand the particular regulations.

No matter what card provider you use, you’ll need chargeback mitigation. That’s where we come in. We combine all major alert providers across most card networks to help you prevent chargebacks. Learn more.