The Chargeback Life Cycle: Start to Finish in 14 Steps
Ever wonder why chargebacks are always such a pain?
Why do they cost so much? Why are there so many moving goalposts. And, why do they take so long to resolve?!
The average chargeback life cycle is dependent on—and exacerbated by—several factors that aren’t always in concert. In this article, we’ll explain the full chargeback life cycle, breaking it down into 15 key steps. We’ll discuss some of the complicating factors that arise along the way, and provide you with a couple of tips to help simplify the process.
Recommended reading
- Debit Card Chargebacks: Everything You Need to Know in 2024
- Provisional Credits: Here’s Everything You Need to Know.
- Here are the 5 Valid Reasons to Dispute a Charge
- What is a Credit Card Chargeback? How Do They Work?
- The History of Chargebacks: From Protection to Threat
- Chargeback Costs: The Shocking Truth in 2024
What is the Chargeback Life Cycle?
- Chargeback Life Cycle
The chargeback life cycle describes the chargeback process from start to finish. This includes the parties involved and the wait times and responses imposed by each for the duration of that chargeback ‘life span.’
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When the chargeback life cycle works as intended, it generally involves three key parties: the issuer, the acquirer, and the merchant. The cardholder can also be involved if that person initiated the dispute.
In the case of a bank chargeback, the issuer can file a dispute on the cardholder’s behalf without even notifying the person first. But, these are less common. So, instead we’ll focus on a standard cardholder dispute.
Your Step-by-Step Guide to the Chargeback Life Cycle
The chargeback life cycle seems like a pretty simple, straightforward process. If the customer makes a purchase and disputes it, it’s your turn to fight the dispute. In the end, one side wins while the other loses…right?
Unfortunately, it’s not that easy.
Depending on the situation, the chargeback cycle can take a lot of unexpected twists and turns before a dispute is finally settled. In the most basic form, a chargeback involves the following steps:
Step 01|Customer inquiry
First, the cardholder identifies a transaction that is either suspicious, or forwhich the merchant didn’t deliver what they promised. The cardholder then contactshis or her issuing bank to reverse the transaction.
Step 02|Issuer investigates claim
The issuer reviews the customer’s claim. They examine additional details to try andidentify the transaction. Using platforms likeVisa Resolve Onlineand Mastercom, the issuer can recall pertinent information about the sale. If whatthe customer says appears accurate and the transaction is not valid, the issuer willproceed to the next step.
Learn how banks investigate disputes
Step 03|Issuer files a chargeback
The issuer overturns the transaction. The money is forcibly withdrawn from themerchant’s acquirer and transferred back to the customer, giving the customer aconditional refund. Finally, the issuer notifies the acquirer of the chargeback byproducing a chargeback reason codeand submitting the relevant data.
Learn more about chargebacks
Step 04|Acquirer reviews the case
The issuer overturns the transaction. The money is forcibly withdrawn from themerchant’s acquirer and transferred back to the customer, giving the customer aconditional refund. Finally, the issuer notifies the acquirer of the chargeback byproducing a chargeback reason code and submitting the relevant data.
The acquirer receives the information submitted by the issuer and reviews it, afterwhich the acquirer forwards the claim to the merchant, along with any informationthat can help the merchant decide whether to fight back.
Step 05|Merchant decides to fight
The merchant can review the information and decide whether to accept the chargeback.Merchants who believe the cardholder’s claim is false can fight back to try anduphold the original sale.
Step 06|Compile & submit representment case
The merchant compilesany available compelling evidenceto try and refute the cardholder’s claim. This can include shipping receipts,delivery confirmation, or records of communication with the merchant. The evidence will vary dependingon the case, and the acquirer can offer advice on what information is required. Themerchant then delivers the compiled information to the acquirer.
Learn more about chargeback representment
Step 07|Acquirer submits representment
The acquirer transmits all compelling evidence, as well asthe merchant’s chargeback rebuttal letterand additional documentation, to the issuer.
Step 08|Issuer reviews the case
The issuer looks at all the evidence presented by the merchant and compares itagainst the cardholder’s claim. If the merchant’s side of the story is convincingenough, the bank issues a verdict in the merchant’s favor.
Chargeback management is hard. The solution is simple.
Step 09a|Issuer returns funds to merchant
The issuer reverses the conditional refund provided to the cardholder. They returnthe money to the merchant’s account.
The process can end there…but that’s a best-case scenario. If the issuer rulesagainst the merchant, there can be more steps involved in the chargeback life cycle.
Step 09b|Second chargeback
The issuer upholds its original decision, refusing to return the funds to themerchant’s account. This “second chargeback” is referred to as apre-arbitrationby Visa; Mastercard calls it an arbitration chargeback.
Learn more about pre-arbitration
Step 10|Acquirer reviews the case
The acquirer receives the information submitted by the issuer, reviews it, andfinally forwards the claim to the merchant (along with any information to helpdecide whether to fight the new dispute).
Step 11|Merchant decides to fight
The merchant can accept this second chargeback or decide to fight it again.Merchants who choose to fight will need to provide more evidence to address theissuer’s new claims and reason for refusing the dispute.
Step 12|Second presentment
The merchant sends the new case material and evidence to the acquirer forsubmission. In this case, all the information goes to the card scheme (either Visaor Mastercard) rather than the issuer. The card scheme can then begin thearbitration process.
Step 13|Arbitration
The card scheme reviews all the materials submitted by both the issuer and theacquirer to determine which party is in the right.
Learn more chargeback arbitration
Step 14|Card network issues ruling
The card network either sides with the cardholder or the merchant. The case isclosed at this point, and neither side can appeal the card scheme’s decision, unlessadditional substantial evidence comes to light. Then, the arbitration process maystart again. If either side believes there are other extenuating circ*mstances, thatparty would need to bring the matter to a legal court.
Navigating the Chargeback Cycle is an Uphill Battle
TL;DR
The chargeback process tends to favor cardholders over merchants. This is due to a number of factors, including cardholder expectations, the desire to protect consumers, and a lack of insight about dispute data.
Resolving chargebacks is a painful, costly and time consuming process. But… why?
Arguably the primary issue is that the chargeback life cycle is deeply flawed. Although the chargeback process appears to be comprehensive, objective, and systematic, it actually relies on biased human arbiters and subjective reasoning.
Compounding this issue is the fact that cardholders themselves often try to undermine the process itself. Specifically:
Cardholders Can Skip Directly to a Chargeback
Customers often request chargebacks from their card issuers instead of first trying to resolve their issues with merchants. This is because cardholders (mistakenly) view chargebacks as an easier and more certain alternative to merchant refunds in resolving purchases gone wrong.
Cardholder Bias
Issuing banks may struggle to differentiate between legitimate and fraudulent chargebacks, at least from the outset. They may assign equal merit to all cardholder disputes and, in an effort to please their customers, operate under the assumption that merchants are “guilty until proven innocent.”
Limited Data Insight Among Merchants
Merchants may have difficulty identifying winnable chargeback cases. Sometimes, merchants weigh the availability of supporting evidence with the disputed charge’s transaction value to determine whether or not a chargeback is worth fighting. Compiling documentation like purchase orders, invoices, and sales receipts, communication records with customers, shipping and delivery records, and terms of service, among other items, is an uphill and time-consuming task.
There are countless variables in the chargeback process, too. Before you respond to a chargeback, you need to consider:
- Do you have grounds to fight back?
- What evidence and/or documentation is available?
- How much time has passed since the original transaction?
- Does it relate to a single purchase or multiple transactions?
- Which card brand is involved?
- How will this dispute affect your chargeback rate?
Worse, chargeback fees alone account for roughly 27% of costs incurred by merchants while fighting disputes. Issuers, acquirers, and payment networks may also tack on “high-risk” merchant fees and levy additional penalties. This means that merchants have to be selective about fighting only chargebacks they know they can win.
Recent & Upcoming Changes to the Chargeback Life Cycle
TL;DR
Changes have been — and are continuing to be — made to the chargeback process. For example, Mastercom Collaboration, Compelling Evidence 3.0, and an overhaul of Visa dispute and fraud monitoring programs.
Luckily, payment card networks are developing new ways to address challenges in the existing chargeback cycle.
Mastercom Collaboration
Launched in September 2022, Mastercard’s new dispute management system allows merchants and cardholders to resolve disputes before they escalate into full-fledged chargebacks.
Once a cardholder initiates a refund request, a merchant has a chance to either reverse the transaction and avoid a chargeback, or reject the customer’s request. Chargebacks become unnecessary if refunds are processed.
Mastercom Collaboration supports all activities in the dispute life cycle. This means users can track issues associated with a claim under a single ID, create and manage disputes, and report confirmed fraud to the Fraud and Loss Database.
Learn more about Mastercom Collaboration
Visa Compelling Evidence 3.0
Visa rolled out these guidelines for card-not-present (CNP) transactions in April 2023 to establish a fairer and more transparent process to resolve disputes and protect merchants from first-party misuse, friendly fraud, and other types of illegitimate chargebacks.
Specifically, Visa Compelling Evidence 3.0 (CE3.0) updates Visa Reason Code 10.4 requirements. It relieves merchants of chargeback liability if the transaction being disputed meets certain criteria. Specifically, merchants must have an established history of at least two successfully processed transactions from the same payment method with the cardholder (currently filing the dispute) that:
- Occurred between 120 and 365 days prior to the current transaction under dispute
- Are not a result of fraudulent transactions or activities
- Are from the same business entity
- Contain at least two core data elements
Learn more about Compelling Evidence 3.0
The Visa VAMP Program
Effective April 1, 2025, the Visa Acquirer Monitoring Program (or “VAMP”) will consolidate the existing Visa Dispute Monitoring Program and Visa Fraud Monitoring Program under one umbrella. This change overhauls existing metrics and security measures.
The program will use a transaction count-based metric that incorporates both fraud and non-fraud disputes to assess merchant fraud risks and identify performance issues. As part of this initiative, Visa will use the Visa Account Attack Intelligence (VAAI) Score, an enhancement that will help issuing banks monitor and combat brute force card-not-present (CNP) attacks.
Learn more about VAMP
Work Smarter, Not Harder
The complete chargeback life cycle, from filing to resolution, can take weeks or even months.
If you’re a merchant, your revenue will be tied up during that entire period in a costly, complicated, and time-consuming process. You can’t focus on growing your business while you’re occupied with winning back the revenue you’ve already got. And, approaching a dispute without an absolute understanding of chargebacks—or the proper tools and strategies—can actually increase your risk.
We’re talking about complex rules, confusing timetables, and a limited chance of success. It’s no wonder so many merchants think that fighting chargebacks isn’t even worth the time and resources it requires.
That being said, there’s too much at stake to give up. Instead, why not let the experts handle it?
The Chargebacks911® team is here to help. No other providers offer the kind of fully-managed, end-to-end coverage we deliver. It’s no wonder that Chargebacks911 has been chosen as the “Best Chargeback Management Solution” for three years in a row.
Have additional questions about the chargeback life cycle? Want to know more about how easy the process could be with Chargebacks911 in your corner? Click below and talk to one of our dispute experts today.
FAQs
What is the chargeback life cycle?
The chargeback life cycle describes the steps involved in the chargeback process. The cycle begins when a cardholder initiates a chargeback with their issuing bank. When this happens, the disputed transaction will be reversed, and the merchant can either accept the chargeback or fight it through the representation chargeback.
If a merchant is successful in their rebuttal, the chargeback may be reversed in their favor. In some cases, issuing banks may file a “second chargeback,” which will push a chargeback into the pre-arbitration stage. Issuers and merchants who reach a deadlock at this stage may head to arbitration, where a payment network will make a final, binding decision.
What is the validity period of a chargeback?
The validity period of a chargeback refers to the timeframe during which a cardholder can initiate a chargeback. Validity periods depend on the payment processor and the transaction type, but are typically 120 days in length. Some issuing banks may require that cardholders file chargebacks within shorter timelines (e.g. 30, 45, or 60 days of the transaction date).
What is the flow of chargeback process?
The flow of a chargeback process begins when a cardholder files a dispute with their issuing bank. The merchant is then notified and can either accept or reject the chargeback. If the merchant rejects the chargeback, they must present counterevidence to the issuing bank, who may reverse the chargeback or rule against the merchant. In the latter case, a chargeback may enter pre-arbitration or arbitration.
How long do chargebacks last?
The duration of a chargeback case depends on the reason code, as well as the issuing bank and payment card network involved. Typically, chargeback cases are resolved within 30 to 60 days, though cases appealed through arbitration take longer.
Can you do a chargeback after 2 years?
In some cases, but not typically. Although you typically have up to 120 days following the transaction date to file a chargeback, your issuing bank may impose shorter (e.g. 30, 45, or 60 day) timelines.
