Seeking Arbitration in the World of Chargebacks

June 24, 2021
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by Ronen Shnidman

Chargebacks are a voluntary process employed by the credit card networks to ensure consumer trust in their product. Payment reversals are enforced based on contractual arrangements between issuing and acquiring banks and the relevant credit card network. Like with most business arrangements the relationship between acquirers and issuers every so often leads to disagreements that the initial stages of the chargeback process cannot solve. For this there is an arbitrator, the credit card network, to decide the issue.

Taking the case to pre-arbitration

Before entering arbitration, issuers who disagree with the result of an acquirer’s re-presentment of a charge can take it to pre-arbitration (Visa terminology) or second chargeback (MasterCard terminology). The pre-arbitration attempt must be made within 30 days of the acquirer’s re-presentment. During pre-arbitration, the issuer has an opportunity to present new evidence to prove the cardholder’s case. If the merchant denies or only partially accepts liability for the chargeback the case proceeds to arbitration.

Some payment service providers (PSPs), such as Stripe, don’t even allow their merchants to enter arbitration. If the issuer rejects the merchant’s re-presentment, the merchant simply loses the case and must return the money to the cardholder and pay the chargeback fee. For merchants that have high ticket value chargebacks, this is an important factor to consider when selecting PSPs with which to work.

High fees charged by the arbitrator

Most merchants will typically accept a loss on the pre-arb/second chargeback rather than go to arbitration due to the arbitration fees. Visa charges the loser of the arbitration round $500 in filing and review fees. MasterCard’s combined fees for arbitration are $400, again with the loser responsible for paying the cost. For transactions involving EU customers or merchants the fees are the same but in euros. Either way, risking a loss in arbitration is a pricey proposition that simply isn’t worth it when the sale in question is a fraction of the arbitration fee.

In contrast to Visa and MasterCard, Discover does not currently charge arbitration fees, although this is anticipated to change in the near future. American Express does not have arbitration but it will recheck evidence in a case for free. (Go here for more information on how the chargeback process at Discover and American Express differs from the process at Visa and MasterCard.)

Whatever the cost, arbitration is hard for merchants to win. Chargeback arbitration is known to have a pro-consumer bias as the credit card networks are incentivized to keep their cardholders happy. The credit card companies know that as long as they have many millions of loyal cardholders using their network, they will have merchants who want to accept their credit card payments.

Justt’s arbitration experience

This doesn’t mean you should rule out fighting cases in arbitration altogether. Justt has significant experience fighting illegitimate chargebacks throughout their entire lifecycle.

Because of our tailored solution, Justt is able to gather the evidence it needs to successfully fight high ticket chargebacks even in arbitration. In fact, our success rates for arbitration cases are incredibly high precisely because we build the strongest cases in the industry. We take advantage of all the material our merchants collect from transactions, strengthen merchants’ terms and conditions to remove ambiguity and use invaluable third-party data to enrich case files. 

Contact us if you need help knowing when and how to fight the difficult cases that are going into pre-arbitration.

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Chargeback Arbitration FAQs

What is chargeback pre-arbitration?

A chargeback pre-arbitration is when an issuer rejects the evidence submitted by the merchant in representment and files the chargeback again.

What happens during pre-arbitration?

In the Mastercard chargeback process and in Visa collaboration disputes, in pre-arbitration the issuer may present new evidence to prove the cardholder's case and the merchant can choose to accept the evidence or reject it and let the issuer move to arbitration. In Visa allocation disputes, the merchant may initiate the pre-arbitration phase with the issuer responding and if the issuer rejects the merchant's claims the latter may decide to proceed to arbitration.

What is a second chargeback?

A second chargeback is Mastercard terminology for a pre-arbitration chargeback.

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