How Does a Chargeback Work?

A chargeback is a reversal of payment following the filing of a payment dispute by a credit or debit cardholder
by Ronen Shnidman
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Published: April 8, 2021
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A chargeback is a reversal of payment following the filing of a payment dispute by a credit or debit cardholder. From the date the chargeback is filed begins a process of competing claims by the merchant and issuing bank that can take as long as 120 days to resolve. Read below to learn more about the different stages in the chargeback lifecycle.

Steps in the chargeback process

Step 1: Retrieval

The initial stage of the dispute process is the so-called “retrieval request,” “request for information” or “copy request.” Retrieval requests take place when a charge on the cardholder’s statement is either not recognized or the issuer asks for additional information regarding the transaction before they request a charge reversal. Merchants can use this stage to proactively issue a refund to the customer to avoid a chargeback. Acquiring banks also charge merchants for processing retrieval requests.

For card-not-present transactions (i.e. internet, telephone, or mail order) transactions, the cardholder’s issuing bank can skip the retrieval stage and proceed directly to a chargeback.

Step 2: Fulfilment

The reply to a retrieval request is called fulfilment and the merchant can respond to it by uploading all the relevant documentation. Failure to respond to the retrieval request can result in the merchant losing further rights to dispute the chargeback.

Step 3: Issuer files a chargeback

The customer claims that the purchase order was fraudulent or the product/service was somehow not delivered as advertised and asks their issuing bank to investigate. The issuer will not start the chargeback process without a complaint from the cardholder.

The issuer sends through the credit card network a request to the acquirer where the merchant keeps their account asking for proof refuting the cardholder’s claim. A chargeback fee is levied on the merchant by the acquirer, which is paid by the merchant regardless of whether they win or lose the case. The merchant is also debited for the amount of the chargeback. The acquirer will then ask the merchant to provide evidence to make the case on their behalf. Evidence can include receipts, proof of address, proof of delivery, social media proof that the product was in use or anything else the merchant has to show that the purchase made was valid and delivered to the appropriate place. Learn more about Compelling Evidence

Step 4: Re-presentment

The acquirer will provide the issuer with evidence contradicting the cardholder’s claims. In the meantime, the acquirer provides a temporary credit to the merchant for the goods sold. Learn more about Re-presentment

Step 5: Issuer’s decision

The issuer reviews the proof received from the acquirer and decides whether or not to credit itself or to accept the charges. If the issuer accepts the acquirer’s evidence the process ends.  If the issuer rejects the merchant’s claim, it can file for pre-arbitration (the VISA name) or second chargeback (MasterCard’s version). During this second round the issuer and merchant can provide additional evidence in favor of their claims.

Step 6: Arbitration

If the issuer still rejects the merchant’s claim, as a last resort, they enter arbitration. In these cases, the final adjudicator is the credit card network. The arbitrator has the last word on who must pay for the charges. A hefty arbitration fee is also paid by the losing party.

Hands-off chargeback management

As you can see, altogether the chargeback process is long, costly and complicated. To avoid the hassle and distraction of dealing with chargebacks, learn more about Justt’s tailor-made chargeback management solution.

Contact us to learn more about Justt’s solution
Written by
Ronen Shnidman
Ex-journalist and major fan of fintech and OSINT, I write regularly for leading industry outlets in finance and fraud prevention. Outlets I contribute to include Payments Dive, Finextra, and Merchant Fraud Journal, and I have been cited by
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