A Step by Step Infographic

Chargeback
Process

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Chargeback Step-By-Step Guide

Breaking Down
the Chargeback Process

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 Dispute

The chargeback flow begins when the cardholder challenges a transaction by contacting the issuing bank. Each individual transaction presents a separate potential chargeback. So, if more than one transaction is in question, multiple chargebacks may be filed.

Merchant Challenge

This is some text inside of a div The main factor here is that you won’t know a chargeback is coming until you get notification of it. Plus, chargebacks can also be initiated by the issuer. This is referred to as a bank chargeback. The cardholder may never even know that a dispute occurred at all.block.

Pro Tip

Pay close attention to chargeback reason codes and ask the bank to clarify any details you discover that might not match your record of the transaction. Remember: if you choose to respond, you must respond to the claim as it was made.

Step 2

The Provisional Refund

A conditional refund is issued to the cardholder. The issuer then recoups the money from your acquirer, who will then debit the amount of the original transaction, along with any applicable fees, from your merchant account.

Merchant Challenge

Again, you may have no knowledge of a pending chargeback until the funds are withdrawn. This can catch you off-guard, leading to financial strain and cash flow issues if funds suddenly and unexpectedly disappear from your account.

Pro Tip

Closely monitor incoming communications. You have a limited timeframe in which to respond to chargeback claims. Usually, it's only a few days. Time is of the essence, so get started as soon as you’re notified of a dispute.

Step 3

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.

Merchant Challenge

Chargeback reason codes are meant to help you understand the cause for the chargeback and determine the best way to validate the original transaction. However, banks assign reason codes based on cardholders’ claims. It’s easy for the bank to be tricked into allowing a friendly fraud chargeback.

Pro Tip

Pay close attention to chargeback reason codes and ask the bank to clarify any details you discover that might not match your record of the transaction. Remember: if you choose to respond, you must respond to the claim as it was made.

Step 4

The Option to Re-Present

You have the option to accept the chargeback, or fight it if you think the claim is invalid. Take a look at the Chargeback Debit Advice Letter supplied by your acquirer, and decide if it’s worthwhile to engage in representment.

Merchant Challenge

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.

Pro Tip

Do your homework about each card network’s requirements. Use chargeback response templates to stay on track (when it makes sense to do so).

Step 5

Compile Your Documents

You need to move fast and put together all the documentation necessary to respond to the cardholder's claim. This includes the Chargeback Debit Advice Letter mentioned above, as well as a rebuttal letter and a reversal request. You must also include compelling evidence to support your claim.

Merchant Challenge

In most cases, you’ll only have a few days between learning about a chargeback and your deadline to submit a representment. You have to move fast. Many merchants lack the bandwidth and the expertise to build compelling cases in the window of time allowed.

Pro Tip

Given the time constraints, it’s extremely important that you keep all necessary documentation organized. Transaction records, customer information…all this data needs to be stored in a way that lets you recall it quickly, and at will.

Step 6

Representment Package

You will submit your response, along with supporting evidence, to your acquiring bank. The acquirer reviews the case for completion, then transmits it to the issuer. This is what’s called “representment,” because you’re literally re-presenting the transaction to the issuer.

Merchant Challenge

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.

Pro Tip

Do your homework about each card network’s requirements. Use chargeback response templates to stay on track (when it makes sense to do so).

Step 7

Bank Review & Decisioning

One of three things will happen:

The issuer rules in your favor: Your representment case validates the original transaction.
The issuer rules in favor of the cardholder: Your evidence didn’t convince the bank to reverse the chargeback.
You win, but the issuer files a second chargeback: The issuer has the right to file a second chargeback for the same transaction.

Merchant Challenge

If there is one thing worse than a chargeback, it's a second chargeback. No matter the card scheme, subsequent responses increase your costs and eat into your resources, driving down your ROI.

Pro Tip

Maintain an open dialogue with the bank throughout the chargeback process. Always be willing to reach a settlement with the cardholder wherever necessary. The chargeback arbitration process is a last resort for a reason.

Step 8

Arbitration

This is where the stakes get very high. With arbitration, you’re appealing to the card network to issue 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.

Merchant Challenge

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 might assess a fee totaling hundreds, or even thousands of dollars.

Pro Tip

Only proceed to this stage if the dollar value of the goods or services justify the risk. Then, ask for advice from your acquirer as to the best way to proceed.

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