The chargeback process can be confusing, time consuming, and costly for everyone involved. That said, it has the greatest financial impact on merchants by a considerable margin.
If the odds are already stacked against you, then is it even worth it to try and fight chargebacks? If so, what’s the best strategy to win a dispute?
In this post, we'll examine the credit card chargeback process from beginning to end. We’ll look at some of the roadblocks and challenges you might encounter along the way, and how you can overcome them.
Recommended reading
- Debit Card Chargebacks: Everything You Need to Know in 2024
- Provisional Credits: Here’s Everything You Need to Know.
- Here are the 5 Valid Reasons to Dispute a Charge
- Chargeback Life Cycle: How Do Card Disputes Work in 2024?
- What is a Credit Card Chargeback? How Do They Work?
- The History of Chargebacks: From Protection to Threat
What is the Chargeback Process?
- Chargeback Process
The chargeback process encompasses all the steps that take place between a cardholder's initial inquiry or dispute, all the way through the resolution of that dispute. Multiple parties may be involved, such as issuers, acquirers, merchants, vendors, and card networks.
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The idea behind the chargeback process is simple. A cardholder has a problem with a transaction, and they can’t resolve that problem by dealing directly with the merchant. As a last resort, the cardholder can appeal directly to the bank for help. Logical and easy… right?
In reality, the chargeback process is much more involved than it seems at first glance. Even a straight-forward case involves multiple parties and interactions. Check out the chargeback process flow diagram below for a basic rundown on the process:
That's an illustration of the chargeback process in its most clear, simple form. There are a lot of details that we skimmed over, though.
In the next section, we'll take a closer look at each step. We’ll also point out some of the roadblocks that may complicate the chargeback flow.
Who Are the Players in the Chargeback Process?
Chargebacks are essentially disagreements between a cardholder and a merchant, with the cardholder’s issuing bank being involved. That’s just the start, though. There are multiple other key players here, including:
- The Cardholder:The owner of the card involved in a transaction.
- The Merchant:The party who sold the goods or services being disputed.
- The Issuer:The bank which issued the card to the cardholder.
- The Acquirer:The bank which acquires payment on the merchant’s behalf.
- The Processor:The mediator transferring data between buyers, sellers, and banks.
- Card Network:The card brands (Visa, Mastercard, etc.) that oversee the process.
While all are affected, the amount of direct involvement each party has can vary from case to case. Requirements will change depending on which bank or card network is involved. Each time a player is introduced into the process, there will be additional layers of cost, bureaucracy, and paperwork. There will be more input at each stage, as well.
This matters because it will all take time, potentially extending the process across weeks (or even months) of time. Your money will be inaccessible until the claim is resolved. In some cases, other parties may be taking up time you need to meet strict chargeback deadlines.
The Chargeback Process: A Step-by-Step Guide
Every stage of the chargeback dispute process offers specific challenges that can make the process more dense and complex. Let’s dive into each step and try to clear things up.
STEP #1 | Initial Customer Dispute
The chargeback flow begins when the cardholder challenges a transaction by contacting the issuing bank. Each individual transaction presents a separate potential chargeback. In other words, if more than one transaction is in question, multiple chargebacks may be filed.
Unfortunately, you probably won’t know a chargeback is coming until it happens. Plus, some chargebacks can be initiated by the issuer. Since the cardholder isn’t involved in those situations, bank chargebacks are very rarely reversed.Merchant Challenge
Pay close attention to chargeback reason codes and ask the bank to clarify any details you discover that might not match your transaction records. Remember: if you choose to respond, you must respond to the claim as it was made.Chargeback Process Pro Tip
STEP #2 | The Provisional Refund
A conditional refund is issued to the cardholder. The transaction amount is moved back from your acquirer to the issuer. Your bank, in turn, will then debit the amount of the original transaction, along with any applicable fees, from your merchant account.
Again, you may have no knowledge of a pending chargeback until the funds are withdrawn. Funds unexpectedly disappearing from your account can catch you off-guard, leading to cash flow issues.Merchant Challenge
Closely monitor incoming communications. You have a limited window in which to respond to chargeback claims; usually, it's only a few days in practical terms. Timing is critical, so get started as soon as you learn of a dispute.Chargeback Process Pro Tip
STEP #3 | Examining The Reason Code
At this stage of the chargeback process, the issuing bank assigns a numeric reason code for the chargeback, then electronically transmits all the chargeback information to your acquirer. The acquirer will review the information, then forward it along to you.
Chargeback reason codes are meant to show the cause for the chargeback, but they’re assigned based on cardholders’ claims. Banks can be tricked into allowing friendly fraud chargebacks. Without understanding the true chargeback trigger, you can’t determine and implement the proper dispute or prevention tactics.Merchant Challenge
While you must respond to the reason code assigned by the bank, you’ll want to identify the true source of the chargeback. Reason codes are often inaccurate or misleading; you’ll need to know the true trigger to plan future prevention strategies.Chargeback Process Pro Tip
Trying to navigate the chargeback process can be overwhelming. One click can give you all the help you.
STEP #4 | The Option To Re-Present
You have the option to simply accept the chargeback. But, you can also fight back if you think the claim is invalid. Take a look at the Chargeback Debit Advice Letter supplied by your acquirer (if applicable) and decide if it’s worthwhile to engage in representment.
Contesting a chargeback requires specific documentation in compliance with representment requirements. This may include a copy of the return policy, a signed receipt for delivery, or one of dozens of other pieces of documentation. Don’t forget, you’ll have a strict deadline for providing this evidence.Merchant Challenge
Once you’ve decided to fight the chargeback, make sure that the evidence you supply corresponds with the applicable reason code. You’ll need a rebuttal letter, enough collected evidence to clearly make your case, and a specific strategy for ensuring everything is presented before the applicable deadline.Chargeback Process Pro Tip
STEP #5 | Compile Your Documents
You need to move fast as you pull together all the documentation necessary for your chargeback response. This includes a rebuttal letter, a reversal request, and other documentation. Compelling evidence to support your claim is also a critical component. What’s required can vary by network, issuer, reason code, or other factors.
Deadlines. In most cases, you’ll only have a few days between learning about a chargeback and your deadline to submit a representment. That allows little time for collecting documentation. Many merchants lack the bandwidth and expertise to build compelling rebuttals in a timely manner.Merchant Challenge
Given the time constraints, it’s extremely important to prepare everything you can before a chargeback hits. Transaction records, customer information… all this data needs to be kept and meticulously organized in a way that lets you recall it quickly, and at will.Chargeback Process Pro Tip
STEP #6 | Submit The Representment Package
Once it’s created, you’ll need to submit your entire rebuttal package — including supporting evidence — to your acquiring bank. The acquirer reviews the case for completion, then transmits it to the issuer. This is called “representment,” because you’re literally re-presenting the transaction to the issuer.
In addition to the quick turnaround time, the requirements for how to submit your case can be complicated. The exact process and nomenclature is different for each card network. Banks have different requirements for how to submit documents as well.Merchant Challenge
Do your homework about each card network’s requirements. Understand what you will need and how quickly you’ll need it. Chargeback response templates can speed up the process in situations where it makes sense to use them.Chargeback Process Pro Tip
STEP #7 | Bank Review & Decisioning
The issuing bank will review the information you’ve supplied. One of three things will happen:
- 1. The issuer rules in your favor:Your representment case validates the original transaction. The funds go back into your bank account, and the transaction amount is re-charged to the cardholder.
- 2. The issuer rules in favor of the cardholder: Your evidence didn’t convince the bank to reverse the chargeback; their original decision stands.
- 3. You win, but the issuer files a second chargeback: The issuer has the right to file a second-cycle chargeback for the same transaction. Reasons for a second filing might include the discovery of new information or a change of the reason code.
If there is one thing worse than a chargeback, it's a second-cycle chargeback. No matter the card network, subsequent responses increase your costs and eat into your resources, driving down your ROI.Merchant Challenge
Maintain an open dialogue with the bank throughout the chargeback process. Always be willing to reach a settlement with the cardholder if possible. The chargeback arbitration process is a last resort for a reason.Chargeback Process Pro Tip
STEP #8 | Arbitration
This is where the stakes get very high. With arbitration, you’re appealing to the card network for an impartial decision. The card brand’s decision will be final, and the party responsible for the dispute could be hit with hefty, punitive fees.
Only 2% of disputes make it to arbitration. Even if you think you have an airtight case, there’s still no guarantee of success. And, if the card network rules in the cardholder’s favor, they (and the banks) might assess fees totaling hundreds, or even thousands of dollars.Merchant Challenge
Only proceed to this stage if the dollar value of the goods or services justify the risk. Even then, talk to your acquirer as to the best way to proceed.Chargeback Process Pro Tip
What Happens After a Chargeback?
As we noted earlier, you may be able to take certain claims to arbitration, and have the card network issue a ruling. But what if you lose? As far as banks, processors, and card networks are concerned, that’s the end of the story. But you may have one option left.
Admittedly, networks don’t offer appeals after losing arbitration. However, the law may not view the claim through the same lens as the other players. If the loss is significant enough, you may want to consider bringing your customer to small claims court.
Before you go that full route, though, send your client a demand letter. Demand letters are less costly and time-consuming than a lawsuit, which is why businesses often try that first.
In your letter, you’ll need to tell the cardholder that you still consider them liable and expect them to reimburse you for the chargeback. Furthermore, if that doesn’t happen, you intend to escalate the problem to a lawsuit.
If the customer agrees to work with you to resolve the issue, great. If not, small claims court might be your last chance to recoup your losses. Be sure to consult with your attorney first, of course.
Tips to Avoid Chargebacks
We’ve said it before, but it’s worth repeating: the dispute resolution process is complex and convoluted. There are a lot of stakeholders, and each can have their own impression of the truth.
The entire system is a half-century old, and was never designed for the eCommerce era. Fighting chargebacks involves a lot of time and money. And, there’s a statistically low chance of success. That’s why preventing chargebacks is always a better option.
There are actions you can take to lower your risk of accepting an invalid payment or committing some error that will lead to a CNP chargeback. Here are a few steps we recommend for chargeback prevention:
- Up Your Customer Service Game:Prompt responses, easy-to-find contact data, and active engagement on social media can resolve many issues prior to a chargeback.
- Make Billing Descriptors Obvious:Be sure your business name and contact information are clear and recognizable on customer statements to avoid confusion.
- Implement Alerts:Chargeback alertsnotify you when a dispute is initiated, providing an opportunity to address the issue before the claim escalates.
- Use Tools From Visa & Mastercard:Data-based chargeback prevention toolslike Order Insight and Consumer Clarity help resolve disputes at the inquiry stage to avoid chargebacks.
Did You Know?
Not every customer billing inquiry has to result in a chargeback. If the cardholder simply has an inquiry about a charge, providing additional information through the use of platforms like Order Insight and Consumer Clarity may resolve the issue without progressing to a chargeback.
- Offer No-Hassle Refunds:A customer-friendly return policy that includes “no-questions-asked” returns and prepaid return labels will encourage refunds over chargebacks.
- Deploy Fraud Detection Tools:Requiring CVV, using the Address Verification Service, anddeploying other fraud toolsfor all transactions helps validate buyers prior to purchase.
- Implement 3-D Secure:3-D Securecompares over 100 data points to help verify the cardholder's identity before the transaction is completed.
Get Help With the Chargeback Process
As complicated as the credit card chargeback process can be, it’s also a moving target. Chargeback regulations are constantly changing, and updates happen on an ongoing basis. Just staying current on the networks’ expectations is a full-time job.
That’s where we come in.
Hiring a chargeback expert can make a huge difference in your win-rates and keeping chargeback ratios low. End-to-end management of the chargeback process on your behalf can take chargebacks completely off your plate and up your ROI..
Chargebacks911® can help you discover the true sources of all your chargebacks, and work with you to retain revenue and prevent future disputes. Contact us today to learn more.
FAQs
What are the stages of a chargeback?
While there are multiple different routes a chargeback can take, the main steps are customer dispute, the provisional refund, and the official filing of the chargeback. Representment and arbitration are also possible.
What happens during a chargeback?
Typically, the customer disputes a charge and a provisional refund is granted. The issuing bank will assign a reason code and file the chargeback. If the merchant decides to represent, they will need to compile documents and submit a rebuttal. The issuer will make a decision, although a second chargeback is also possible. Finally, an appeal for arbitration can be made to the card network, whose decision is final.
Is a chargeback a refund?
No, absolutely not. A refund is a simple exchange of returned merchandise for the original transaction amount. A chargeback is a forced bank payment reversal that leaves the merchant covering the cost of the item, any shipping or handling, the loss of the merchandise itself, and those assorted chargeback fees.
What is the time limit on chargebacks?
Typically around 90 days or less from the initial dispute. The time limit for chargebacks, set by card networks like Visa and Mastercard, usually gives cardholders up to 120 days from the transaction date or the discovery of an issue to dispute a charge. Merchants, on the other hand, are generally expected to respond to a chargeback between 20 and 45 days after the chargeback is initially filed.
