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Pre-Arbitration Chargeback

Pre-Arbitration Chargeback

The Pre-Arbitration Chargeback Process Explained

As a merchant, few things feel better than winning a chargeback.

You kept excellent records, provided the best evidence, and made the most compelling argument… and you won. The original funds have been returned, and all is right with the world.

Not so fast, though. Just when you think you’re in the clear, the bank sends you a second notice. Not only do they reject the dispute you just won, but the funds have been removed once again from your account.

So, what happened? If it’s a Visa transaction, then you’ve just been hit with a pre-arbitration case, which could be one of the biggest pains you have to deal with as a merchant.

In this article, we’ll explain what pre-arbitration cases are and how they differ from other iterations. We’ll also see how you can win a pre-arb case, and what you can do to prevent them from happening in the first place.

What is Pre-Arbitration? What About a Pre-Arbitration Chargeback?

Pre-arbitration Chargeback

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A pre-arbitration is a case filed by an issuing or acquiring bank after a chargeback has already been reversed. The issuer usually initiates them if further evidence or argument is presented by the cardholder concerning the original dispute, depending whether the dispute is funneled through the ‘allocation’ or ‘collaboration’ workflow.

Pre-arbitrations, or “pre-arbs,” are sometimes referred to by different parties as pre-arbitration chargebacks. This is incorrect terminology, though. According to Visa, pre-arbitration is the correct term.

Many people also mistakenly use the term “arbitration chargeback” interchangeably with pre-arbitration. They’re not the same thing either, though. Instead, consider each to be a step in the final representment process (more on this later).

A pre-arbitration can result from a cardholder receiving notification that a merchant has successfully disputed a chargeback previously filed by the cardholder. The cardholder then disputes that transaction a second time. Basically, pre-arbarbitrations happen when the cardholder refuses to accept that a merchant has won a dispute over a chargeback.

Pre-Arbitration Chargeback

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Why Do Pre-Arbitrations Happen?

Issuers often do not approve pre-arbitrations unless the cardholder can provide further evidence to prove their claim.

The issuer receives and reviews evidence from the cardholder following a chargeback representment. The issuer may then review the reason code, and find that there was information which the merchant left out or falsified. Whatever the case, the merchant has either made a mistake or forgotten to include crucial evidence that the cardholder could provide. In response, the bank submits a chargeback pre-arbitration.

Pre-arbitration is never a good thing for a merchant. It increases their overall chargeback ratio. Plus, it can lead to even greater court costs if they intend to pursue the matter further.

Regardless of the reason for the initial dispute, the merchant only has two options when a chargeback reaches pre-arbitration: accept the chargeback or decline it.  It’s also important to note that all decisions regarding the original chargeback from this stage will be final, as arbitration is the very last stop in the chargeback process. The only exception might be if the merchant can provide new, additional evidence, and pays an additional fee.

Pre-Arbitration vs. Second Chargebacks

Once upon a time, Visa was the only card network using the term pre-arbitration to refer to a secondary chargeback. Now, most brands have elected to follow Visa’s lead on the topic.

It’s important to note that the term “second chargeback” is often used to describe several different things in the payments industry. It can mean pre-arbitration, but can easily be confused for something else, too.

“Second chargeback” is not a term used by most issuing banks. Having said that, when someone mentions a “second chargeback,” they're almost always talking about pre-arbitration on a chargeback.

In short: pre-arbitration is a process through which issuers or acquirers can contest an initial chargeback. In contrast, arbitration is when the parties involved—the bank, cardholder, and merchant—cannot resolve a dispute on their own, so a representative of the card network is asked to intervene and make a judgment.

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How Do Pre-Arbitration Cases Work?

Before any chargeback case can proceed to arbitration, the parties need to go through all the other phases in the dispute process:

Most of us understand that every network carries a different set of rules and processes regarding chargebacks. For our purposes, though, we’ll talk about the two largest here: Visa and Mastercard.

Each company has strict procedures concerning pre-arbitration chargebacks, as follows.

Pre-Arbitration Chargeback
Visa & Pre-Arbitration Chargebacks

Officially, Visa no longer uses the term "chargeback." Instead, they call customer cases "disputes." They label a particular phase of the process "pre-arbitration," but the phrase is used in two different ways because different methods relate to different types of Visa disputes.

Since implementing Visa Claim Resolution rules, all  Visa disputes are divided into one of two workflows. There’s an “Allocation” track for fraud and authorization issues, and a “Collaboration” track for consumer and processing errors. We'll look at the two individually.

Pre-arbitration chargebacks in the Allocation Workflow

In cases that involve either fraud or authorization issues, responsibility is assigned automatically, based on established rules. Visa assesses the complaint data, decides whether it constitutes a valid dispute, and makes the call.

Well…almost.

If Visa rules in favor of the cardholder, acquirers and merchants have a limited ability to challenge. Certain conditions apply, and Visa only allows a 30-day timeframe (individual acquirers typically set even tighter deadlines).

Visa calls this the pre-arbitration phase, but it consists of what would traditionally be considered representment and (if they rejected the representment ruling) the pre-arbitration chargeback. Broken down, it would look something like this:

Dispute Responses in the Collaboration Workflow

To muddy the waters even further, Visa chargebacks that stem from either consumer dispute or processing errors are resolved through the Collaboration track. Here, the process is more similar to that used by Mastercard:

As the name suggests, the Collaboration track is designed to encourage all the involved parties to work together to resolve the claim without Visa's direct involvement.

Pre-Arbitration Chargeback
Mastercard & Arbitration Chargebacks

Mastercard's official dispute process does not include a pre-arbitration chargeback…at least by that name. Merchants, and even banks, often use the phrase, though.

In Mastercard language, when the issuer rejects a representment (second presentment) ruling, the case goes straight into an arbitration chargeback. The arbitration chargeback phase is the final step before network arbitration. So for Mastercard, the process looks like this:

As you can see, what Mastercard calls an “arbitration chargeback” is analogous to Visa pre-arbitration. When you're talking about Mastercard, the two terms are more or less interchangeable.

Can Merchants Win Pre-Arbitrations?

Winning a chargeback case is never guaranteed to be the end of the line. A dispute case won through representment can become a pre-arbitration in almost every instance.

It might seem reasonable to have that option. In reality, though, merchants rarely win a second dispute decided through arbitration. This is because the card networks usually default to the most expedient solution (as we noted above), for starters.

Pre-Arbitration Chargeback

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Another reason is that issuers typically file a pre-arb because they have new information to support their case. Merchants, however, usually have no further evidence. They probably used everything they had to fight the original chargeback.

It's also not financially advantageous to take cases through arbitration. Additional fees apply, sometimes totaling thousands of dollars. Plus, there’s also a considerable outlay in terms of time and other resources.

Winning a pre-arbitration dispute isn't impossible. But, unless the transaction dollar value is very high, it may not be worth it.

Preventing Pre-Arbitration: A Better Alternative

Representment and pre-arbitration are expensive, time-consuming processes for merchants. The odds of winning a second or pre-arbitration chargeback are slim.

The entire process is complex. Merchants have to contend with multiple parties and constantly evolving regulations. Fighting for yourself amid all of this can be daunting, at best.

It's better to proactively stop pre-arbitration from happening. They key is to definitively win chargeback disputes during the initial representment, while aiming to prevent chargebacks in the long term.

Chargebacks911® has an experience-backed reputation for customized chargeback management solutions. We guide merchants through all phases of the chargeback process, letting them refocus their attention on business growth and sustainability.

Ready to learn more? Have other questions about avoiding pre-arbitration chargebacks? Click below to speak with one of our experts and start eliminating chargebacks today.


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