When a chargeback hits, most merchants either accept the loss or fight it through the card network’s rules. But there’s a quieter, less messy option that often gets ignored: alternate dispute resolution. Whether you’re dealing with a chargeback, a customer complaint, or a contract gone wrong, ADR might give you a faster, cheaper way out without dragging things into court.
What Is Alternate Dispute Resolution?
Alternate Dispute Resolution (ADR) is a set of methods for resolving disagreements without going to court. It includes things like mediation, arbitration, and informal negotiation. Businesses use ADR to solve disputes with customers, suppliers, employees, and even banks, often saving time and money in the process.
In the context of chargebacks, ADR isn’t part of the typical card network process. But some high-risk industries, third-party platforms, and even regulators have started exploring it as a more balanced way to resolve conflicts between buyers and sellers.
Why Merchants Should Care About Alternate Dispute Resolution
The traditional chargeback system heavily favors the cardholder. Merchants often feel boxed in, with limited evidence windows, confusing codes, and slow results. ADR gives you another path.
Advantages of ADR over chargebacks:
- Neutral third-party review instead of relying on banks
- Faster resolution timelines
- More flexible outcomes (like partial refunds, apologies, or service credits)
- No impact on chargeback ratios or merchant risk scores
- Lower legal exposure
It’s not always an option, but when it is, it can help you maintain better relationships and avoid being labeled a “high risk” merchant.
Types of Alternate Dispute Resolution
1. Mediation
A neutral third party (the mediator) facilitates a conversation between you and the customer. They don’t decide the outcome. Instead, they help both sides reach a voluntary agreement. This works well for emotional disputes or when a small misunderstanding causes a big reaction.
2. Arbitration
A more formal process where an arbitrator hears both sides and makes a decision. That decision can be binding (like a judge’s ruling) or non-binding (advisory only). Some industries use mandatory arbitration clauses in their terms of service to avoid court and chargebacks altogether.
3. Negotiation
Simple back-and-forth. You work things out directly with the customer before it turns into a formal dispute. Some merchants use platforms like Chargeblast to flag high-risk transactions early and start the conversation before a chargeback is filed.
4. Pre-Chargeback Resolution Tools
Visa Rapid Dispute Resolution (RDR), Ethoca, and Verifi offer ways to resolve disputes before they become chargebacks. These aren’t strictly ADR, but they serve the same purpose: de-escalate early and settle outside the banking system.
ADR vs Chargebacks: How They Compare
When Can You Use ADR Instead of a Chargeback?
You can’t always avoid the card network dispute system, but here’s when ADR might be possible:
- You operate in an industry with high fraud or chargebacks (e.g., online education, crypto, adult content) and use platforms offering ADR options.
- You include a mandatory arbitration clause in your terms and conditions.
- You’re dealing with a repeat customer who’s open to talking.
- You’ve received a customer complaint, but no formal chargeback yet.
- You’re using pre-dispute tools like Verifi or Ethoca to intercept disputes.
Some payment providers and processors are beginning to experiment with ADR integrations, too. Ask your processor what options exist.
How to Start an Alternate Dispute Resolution Process
If you want to try ADR before a dispute escalates:
- Set clear policies. Include mediation or arbitration clauses in your terms and make them visible at checkout.
- Train your support team. Give them tools to de-escalate and offer resolutions early.
- Use chargeback prevention tools. Platforms like Chargeblast can notify you of complaints before they become chargebacks.
- Hire a third-party mediator or arbitration service. For bigger disputes, use a neutral body with online options.
- Document everything. Even in ADR, receipts, shipping records, and communication matter.
Conclusion
Alternate dispute resolution isn’t a magic fix. But in the right situations, it gives you a smarter way to settle conflicts, especially when the chargeback process feels stacked against you. Whether you’re a small business or a high-risk merchant, learning how and when to use ADR can save you money, protect your reputation, and help you stay out of dispute trouble.
FAQ: Alternate Dispute Resolution
What is alternate dispute resolution?
Alternate dispute resolution (ADR) is a method of resolving conflicts without going through formal court proceedings. It includes options like mediation, arbitration, and negotiation, often saving time and reducing legal risk.
Is ADR legally binding?
Arbitration can be legally binding if both parties agree to it in advance. Mediation usually leads to voluntary agreements but is not automatically enforceable unless formalized in writing.
Can ADR replace a chargeback?
Not directly. Most banks and card networks still process chargebacks as per their rules. But ADR can sometimes stop a dispute before it reaches that point, or give both parties a chance to settle things outside the card network.
How do I include ADR in my business?
You can add an arbitration or mediation clause in your terms and conditions. Be clear about what customers are agreeing to when they make a purchase. Make sure your team knows how to offer dispute resolution before things escalate.
Does ADR work for digital goods and subscriptions?
Yes, especially in cases where delivery or service quality is in question. ADR can help clarify misunderstandings and avoid automatic chargebacks for intangible goods that are harder to prove with evidence.
Try a Smarter Way to Prevent Chargebacks (Before They Spiral)
With Chargeblast, you don’t just fight chargebacks, you stop them before they start. Our system flags risky transactions, tracks dispute trends, and helps you act before a complaint turns into lost revenue. Want to intercept fraud, spot patterns, and give yourself more options like ADR? Book a demo below and see how we make it easier to get ahead of disputes without relying on slow or unfair systems.
