Chargeback Life Cycle

Understanding the Chargeback Life Cycle: What Happens When a Customer Disputes a Charge?

When a customer disputes a charge on their credit card, it kicks off a specific process involving several parties. Knowing these steps helps you understand the timelines and where you need to act. 

Table of Contents

1. Phase 1: The Dispute Begins
2. Phase 2: Your Notification & Opportunity to Respond
3. Phase 3: The Resolution Process

Phase 1: The Dispute Begins

1. Credit Cardholder: The customer notices a charge they don't recognize or agree with on their statement. They decide to dispute it, usually by contacting their bank (the Issuing Bank).
2. Issuing Bank (Customer's Bank): This bank reviews the customer's claim. If they deem it valid, they "initiate" the chargeback by pulling the funds directly from your Acquiring Bank. At this point, the funds are debited from your merchant account.

Phase 2: Your Notification & Opportunity to Respond

3. Acquiring Bank (Your Merchant Bank): Your bank receives the chargeback from the Issuing Bank. They'll then notify you, the Merchant, about the chargeback. This is your cue to act! They'll typically ask for documentation to dispute the chargeback.
4. Merchant (That's YOU!): You receive the chargeback notification. This is your crucial window to review the dispute, gather your "compelling evidence" (like sales receipts, proof of delivery, transaction details, communication with the customer), and prepare your defense. You then submit this evidence back to the Chargeback Department.

Phase 3: The Resolution Process

5. Acquiring Bank (Your Merchant Bank): Your bank reviews the evidence you provided and, if it's compelling, forwards it back to the Issuing Bank.
6. Issuing Bank (Customer's Bank): The customer's bank reviews your evidence.

   • You can generally expect this step to be completed within 30 to 60 days. Please note that delays are possible.

• If they accept your evidence, they'll reverse the chargeback, and the funds will be returned to your merchant account. This is called a chargeback reversal.
• If they don't accept your evidence, the chargeback stands, and the funds remain with the cardholder. This is a chargeback loss. 

• In some cases, the dispute may continue into further stages such as pre-arbitration or arbitration.

  • In the Pre-Arbitration stage, additional authorization (such as a signed form) will be required to continue the dispute. 
  • If this step is not completed, the case may be automatically accepted

5. Credit Cardholder: The cardholder's bank informs them of the final decision regarding their dispute.

Understanding these steps empowers you to react quickly and effectively when a chargeback occurs, giving you the best chance to win back your funds!

Other Helpful Reference Articles Regarding Chargebacks:

• How do I view and respond to chargebacks?
• What is a chargeback?
• Types of Chargebacks
• Preventing Chargebacks