A chargeback reversal happens when an issuing bank overturns its initial decision to approve a chargeback claim and returns the disputed funds to the merchant. This occurs after the merchant successfully disputes the chargeback through the representment process by providing evidence that the original claim was invalid. 

How Chargeback Reversals Work

When a cardholder files a chargeback, their issuing bank usually assumes them to be in the right, and accepts minimal explanations about the circumstances of the disputed transaction. An unfortunate result of this policy is that roughly 70% of chargebacks are now illegitimate, or due to “friendly fraud”, where cardholders intentionally or unknowingly contest valid transactions. Chargeback reversals occur when merchants successfully challenge these chargebacks through the following steps: 

1. Initial Chargeback: First, a cardholder disputes a transaction with their issuer, providing some basic details about the problem they claim to have encountered. 
2. First Issuer Decision: If the issuer decides that the dispute is valid, they forward the chargeback information to their card scheme, who forward it to the merchant’s acquirer. The acquirer then debits the merchant and sends the funds back to the issuer, who settles it in the cardholder’s account. 
3. Representment Creation: Merchants are usually only notified of a chargeback after the contested funds have been pulled from their accounts. At this stage, they can submit a body of compelling evidence called a representment to their acquirer, which aims to prove that the disputed transaction was valid. 
4. Second Issuer Decision: The acquirer then sends the representment to the issuer via the card scheme. The issuer usually has just three minutes to examine this evidence document before deciding whether to reverse the chargeback. 
5. Chargeback Reversal: If the issuer decides in favor of the merchant, they pull the disputed funds from the cardholder’s account and return them to the merchant.

Why Chargeback Reversals Matter for Merchants

Chargeback reversals provide an essential line of defence for merchants whose livelihoods are now threatened by record levels of friendly fraud. Not only are illegitimate disputes more common than ever, but they are also more sophisticated; bad actors increasingly know how to game the system with complex chargeback reasons that are difficult to disprove, or by targeting a merchant’s weak spots.

Aside from simply recovering funds that were wrongfully taken, chargeback reversals are important for a host of other reasons. These include signalling to serial friendly fraudsters that their tactics will be challenged, protecting merchant reputation by demonstrating legitimacy to banks and PSPs, and keeping chargeback ratios below penalty thresholds. 

Key Challenges of Chargeback Reversals for Merchants

Despite an estimated 70% of chargebacks being cases of friendly fraud or first-party misuse, the average merchant recovery rate through representment is only 12%. Let’s take a look at a few of the reasons for these low success rates. 

• Tight Deadlines: Merchants typically have only 20-45 days to respond to a chargeback, leaving little time to investigate, gather evidence, and prepare a compelling case, especially when facing many disputes at once. 
• The Surge Factor: Chargebacks ebb and flow; seasonal spending, product launches, and business growth can all result in extremely high chargeback volumes that overwhelm manual teams, leading to drops in representment quality, win rates, and revenue. 
• Complex Evidence Requirements: Issuers often demand specific evidence documentation that varies by reason code, and missing even one required element can result in automatic rejection. Sometimes the evidence needed to win a dispute is exclusively available through third-party providers or non-affiliated PSPs – in these cases, only well-connected chargeback management solutions will have the necessary access. 
• Issuer Bias: Issuers have a vested interest in favoring their cardholders over merchants who want to appropriate their funds, legitimately or otherwise. For this reason, it can require overwhelming proof to overturn their initial decision.
• Resource Intensive Process: Assembling and submitting representments demands significant time and staff resources that many merchants can’t spare from core business operations. 
• Inconsistent Requirements and Regulations: Submission processes, documentation standards, and acceptance criteria are constantly evolving, and vary by card scheme, issuer, and region. Keeping up to date with these variations requires a high level of domain expertise that most merchants don’t possess. 

How to Successfully Reverse Chargebacks

Consistently winning chargeback reversals is impossible without first implementing several key strategies and best practices. First, with brief deadlines of only 20-45 days, immediate action is required if sufficient evidence is to be submitted. Merchants should use numerous channels to continually collect and collate this evidence, in order to cover as many angles as possible when chargebacks arise – basic transaction data is very rarely enough to reverse even the simplest disputes. 

Once compelling evidence is selected, the next step is assembling it in as persuasive a manner as possible. Diverse data forms will need to be translated into words and placed in a logical argumentative flow that delivers the facts quickly and clearly. Beware of the template-based documents peddled by many chargeback management systems. Not only do these forms usually prohibit complex data types, but they often bury the most pertinent information deep within the document, where issuers – with only three minutes to review and make a decision – may never see it. 

How Justt Reverses Chargebacks and Revenue Loss

Of course, well-informed, persuasive, and punctual representments are difficult to achieve manually; even the most experienced in-house teams can quickly become overwhelmed during surges, while quiet periods can leave idle hands on your payroll. Manual outsourced solutions typically fare no better. They face the same surge-related quality problems, while template-based representments act like information straightjackets, often leaving the most compelling evidence on the cutting room floor. 

Fortunately, Justt’s AI-driven chargeback management solution automates the entire dispute process – from evidence collection to submission – so merchants can achieve world-leading win-rates without lifting a finger. Justt continuously pulls evidence from +500 data sources, including internal merchant systems, PSPs and verified third-party providers so the most compelling evidence is always at the ready. 

Ready to transform your approach to chargeback fraud? Schedule a demo with Justt today.