Chargeback Life Cycle

Chargeback Life Cycle

Your Step-by-Step Guide to the Chargeback Life Cycle

The chargeback life cycle seems like a pretty simple, straightforward process. The customer makes a purchase, disputes it, then it’s your turn to fight the dispute. At the end, one side wins while the other loses…right?

Unfortunately, it’s not that easy. Depending on the situation, the chargeback cycle can take a lot of unexpected twists and turns before a dispute is finally settled.

The Chargeback Life Cycle: As Intended

Every chargeback involves at least three key parties: the issuer, the acquirer, and the merchant. The cardholder can also be involved if that person initiated the dispute. But in the case of a bank chargeback, the issuer can file a dispute on the cardholder’s behalf without even notifying the person first. These are less-common, though, so we’ll focus on a standard cardholder dispute.

In the most basic form, a chargeback involves the following steps:

Step 1: Customer Inquiry

First, the cardholder identifies a transaction that is either suspicious, or for which the merchant didn’t deliver what they promised. The cardholder then contacts his or her issuing bank to reverse the transaction.

Step 2: Issuer Investigates Claim

The issuer reviews the customer’s claim and provides some additional details to try and identify the transaction. If what the customer says appears to be true, and the transaction is not valid, then the issuer will proceed to the next step.

Step 3: Issuer Files a Chargeback

The issuer overturns the transaction. The money is forcibly withdrawn from the merchant’s acquirer and transferred back to the customer, giving the customer a conditional refund. Finally, the issuer notifies the acquirer of the chargeback by producing a chargeback reason code and submitting the relevant data.

Step 4: Acquirer Reviews the Case

The acquirer receives the information submitted by the issuer and reviews it, after which the acquirer forwards the claim to the merchant, along with any information that can help the merchant decide whether to fight back.

Step 5: Merchant Decides to Fight

The merchant can review the information and decide whether to accept the chargeback. Merchants who believe the cardholder’s claim is false can fight back to try and uphold the original sale.

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Step 6: Compile & Submit Representment Case

The merchant compiles any available compelling evidence to try and refute the cardholder’s claim. This can include shipping receipts, delivery confirmation, or records of communication with the merchant, but will vary depending on the case--the acquirer can offer advice on what information is required. The merchant then delivers the compiled information to the acquirer.

Step 7: Acquirer Submits Representment

The acquirer transmits all the compelling evidence, along with the merchant’s chargeback rebuttal letter, to the issuer.

Step 8: Issuer Reviews Case

The issuer looks at all the evidence presented by the merchant and compares it against the cardholder’s claim. If the merchant’s side of the story is convincing enough, the bank issues a verdict in the merchant’s favor.

Step 9: Issuer Returns Funds to Merchant

The issuer reverses the conditional refund provided to the cardholder. They return the money to the merchant’s account.

The process can end there…but that’s a best-case scenario, of course. If the issuer rules against the merchant, which often happens, there can be more steps involved in the chargeback life cycle.

Step 10: Second Chargeback

The issuer upholds their original decision, refusing to return the funds back to the merchant’s account. This “second chargeback” is referred to as a pre-arbitration by Visa; Mastercard calls it an arbitration chargeback.

Step 11: Acquirer Reviews the Case

The acquirer receives the information submitted by the issuer, reviews it, and finally forwards the claim to the merchant (along with any information to help decide whether to fight the new dispute).

Step 12: Merchant Decides to Fight

The merchant can accept this second chargeback or decide to fight it again. Merchants who choose to fight will need to provide even more evidence to address the issuer’s new claims and reason for refusing the dispute.

Step 13: Second Presentment

The merchant sends the new case material and evidence to the acquirer for submission. This time, all the information goes to the card scheme (either Visa or Mastercard), rather than the issuer. The card scheme can then begin the arbitration process.

Step 14: Arbitration

The card scheme reviews all the materials submitted by both the issuer and the acquirer to determine which party is in the right.

Step 15: Card Scheme Issues Ruling

The card scheme either sides with the cardholder or the merchant. The case is closed at this point, and neither side can appeal the card scheme’s decision. If either side believes there are other extenuating circumstances, that party would need to bring the matter to a legal court.

The Chargeback Cycle is an Uphill Battle

Then there’s the process itself, which is deeply-flawed. While initiatives like Visa Claims Resolution have attempted to address the shortcomings in the chargeback process, there is a limit to how much can be changed while still working off the same foundational process. Chargebacks predate the internet and are not responsive to the demands of the eCommerce market. The process is easy to abuse, and it is very susceptible to friendly fraud. As a merchant, you face an uphill battle in the chargeback life cycle. First of all, the process is highly-subjective. Rulings may be based on evidence and rationale, but they’re determined by humans.

It’s not fair…but it’s reality. The chargeback process puts a lot of the responsibility on merchants, to the point where you’re effectively “guilty until proven innocent.”

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To make matters even worse, there are countless variables in the chargeback process. Before you respond to a chargeback, you need to consider:

  • Do you have grounds to fight back?
  • What evidence and/or documentation is available?
  • How much time has passed since the original transaction?
  • Does it relate to a single purchase, or multiple transactions?
  • Which card brand is involved?
  • How will this dispute affect your chargeback rate?

…those are just a few examples. The real takeaway, though, is this: thinking about the chargeback cycle as a simple step-by-step process is not going to cut it.

Work Smarter, Not Harder

The full chargeback life cycle, from filing to resolution, can often take weeks or even months. Throughout that period, your revenue will be tied up in a costly, complicated, and time-consuming process. You can’t focus on growing your business while you’re occupied with winning back the revenue you’ve already got. Plus, going at a dispute without an absolute understanding of chargebacks—or the proper tools and strategies—can actually increase your risk.

Complex rules, confusing timetables, and limited chance of success. It’s no wonder lots of merchants think that fighting chargebacks isn’t even worth it. That being said, there’s too much at stake to give up. Instead, why not let the experts handle it?

The Chargebacks911® team is here to help. No other providers offer the kind of fully-managed, end-to-end coverage we deliver. It’s no wonder that Chargebacks911 has been chosen as the “Best Chargeback Management Solution” for three years in a row.

Have additional questions about the chargeback life cycle? Want to know more about how easy the process could be with Chargebacks911 in your corner? Click below and talk to one of our dispute experts today!

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