Let,s face  it — the chargeback process  is costly, convoluted, and painful. While it’s one of the least exciting topics to read about, it’s extremely important that you take time to understand it.

When a customer initiates a chargeback, it’s quite difficult to fight. If you’re going to have any chance whatsoever, you need to understand exactly how it all works and how you can set up practices that will safeguard you against losing massive amounts of revenue to unwarranted chargebacks.

Why Is Fighting Chargebacks So Difficult?

There are many facets and steps to the chargeback process. It begins with the initial customer complaint and can go all the way to arbitration.

Plus, there are several players involved along the way, including:

The Cardholder: The customer who requests a chargeback.

Merchant: The company who sold goods to the customer.

Issuer: The bank who issued the credit card.

Acquirer: The bank that takes in the payment for the merchant.

Card Association: The credit card brands like Visa, Mastercard, AMEX, and more. Plus, there are processors and gateways that can come into the mix.

Here’s How the Chargeback Process Works

Step #1 – The Cardholder Challenges a Transaction

This is done by contacting the issuing bank and requesting a chargeback. Each transaction processed requires a separate chargeback. If more than one transaction is questioned by the customer, multiple chargebacks have to be filed.

Additionally, the issuer (the bank that issued the credit card) can also initiate a chargeback. This is considered a bank chargeback, as a result of issues like duplicate processing, an expired card, merchant fraud, etc. If this happens, the issuer files the chargeback and the acquirer (the bank that took the payment) handles the representment. 

In this case, a cardholder may not even know the dispute is being made.

Step #2 – The Issuer Reviews the Request

If the bank decides that the claim is invalid, the chargeback will be declined. On the other hand, if there is some presumption that the chargeback is valid, the chargeback case will proceed. 

If for any reason the merchant feels like it has a case against the chargeback, it can go through the representment process (or fight the chargeback).

Step #3 – A Conditional Refund Is Issued to the Cardholder

When this happens, the merchant’s account is debited the amount of the original transactions, plus any fees that come along with the process.

This may completely catch a merchant off-guard. Sometimes this is the exact moment that a merchant finds out a chargeback has been processed. 

Step #4 – The issuing bank assigns a numeric reason code for the chargeback. 

When this happens, all of the chargeback data is electronically submitted to the acquirer (or the bank that takes payment for the merchant. 

Step #5 – The acquirer reviews the refund request. 

In this case, the acquirer will either resolve the issue or forward the claim to the merchant. When this happens, it’s quite easy to miss it and/or forget to jump in and solve the issue, as running a business is so time consuming in itself. .

Step #6 – The merchant can either accept or dispute the chargeback.

If for any reason you don’t agree with the chargeback, this is the moment to jump in and share evidence. You are working against strict timelines that cannot be missed if you are to successfully dispute a chargeback. Your actions came make all the difference in the world for your reputation with your issuing bank.

To successfully refute a chargeback, you must submit specific documentation. This may include your return polity, a signed receipt of delivery, emails from the customer, and other key pieces of evidence. 

The more organized you can be with organizing customer documents the better!

Step #7 – The merchant submits a response, along with supporting evidence to the bank. 

This is referred to as “representment”, because you are literally re-presenting the transaction to the issuer. While attempting to make this happen, you’ve got to act quickly, as the timeline is very short. Plus, each credit network has its own policies, so the more familiar you can be with each of them, the better.

Step #8 – The acquiring bank will electronically re-present the chargeback dispute info to the issuing bank.

Once the bank receives the information, there are a few things that happen:

  • The issuer decided you are the correct party. In this case, you were able to present enough evidence to make it happen. The customer’s account is charged and funds are sent back to your account.
  • The issuer decides the cardholder is correct. You didn’t submit evidence that was compelling enough and didn’t convince the bank to reverse the chargeback. Your only recourse is to push things to arbitration.
  • The merchant wins, but the issuer (the bank that issued the credit card) files a second chargeback. Reasons for a second filing is usually due to discovery of new information that made the bank decide to change the reason code.

You must be aware that a second chargeback usually comes with increased costs, which can definitely affect your ROI. 

This is why we can’t stress enough the importance of being meticulous with your records! 

Your only true recourse is powerful evidence that can prove you weren’t in the wrong. 

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