May 17, 2025 · 11 mins read
Santosh Kumar
A chargeback isn’t just a single event. It’s a process, one that can be lengthy and convoluted for all parties involved. For merchants, chargebacks are especially troublesome because the lion’s share of the liability for chargebacks falls on them.
It doesn’t help that the chargeback process is largely defined by regulations that were written out long before the age of e-commerce, and that each credit card chargeback process network creates its own rules based on its interpretation of those regulations.
Understanding how the chargeback process works isn’t just for personal edification. Knowing the ins and outs of the process can help you avoid costly mistakes, fight fraudulent chargebacks more effectively, and get a better ROI on the time and labour you spend on dealing with disputes. Here’s what you need to know about the credit card chargeback process.
The primary participants in the credit card chargeback process are the cardholder, the merchant, the issuing bank, the acquiring bank, and sometimes the credit card network.
These may be the same individual, but not always. The cardholder is the actual owner of the payment card used to purchase the disputed. The customer is the individual who placed the transaction. In a typical transaction or in a friendly fraud chargeback, the cardholder and the customer are the same person. In a true fraud scenario, the customer who made a transaction with a stolen card is not the same person as the cardholder who disputes it later.
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The merchant is the individual or company that sells a product or service to the customer. When the chargeback is filed, the merchant must decide whether to accept it or dispute it.
A bank or other financial institution that issues a branded payment card to the cardholder. Examples: Bank of America, Wells Fargo, Capital One.
The merchant's bank, which holds their merchant account and enables them to accept credit card payments.
The association that owns the credit card brand used in the transaction. In the United States, the four major credit card networks are Visa, Mastercard, American Express, and Discover. These networks set the terms for credit card transactions, which are followed by the issuing banks.
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Every chargeback begins with a disputed payment. It’s usually the cardholder who initiates the dispute, but in some cases, the issuing bank may file a chargeback on technical grounds. Once the merchant is notified, they can either accept the chargeback or represent the transaction.
When a chargeback is accepted, the cardholder keeps the returned funds and the case is closed. If the merchant chooses to fight back with representment, the issuing bank will review any evidence that the merchant sends along and decide whether or not to reverse the chargeback. If the issuer upholds the chargeback, the case can be appealed to the card network.
One thing that makes the chargeback process challenging for merchants is the amount of input required. Every stage of the process requires some action or response from the merchant to move forward, or else the response defaults to acceptance and the chargeback becomes permanent and incontestable.
Merchants must be aware of the responses required of them and the deadlines for those responses, which will differ from network to network, and can be complicated further by factors such as chargeback alert or deflection services.
However, a basic chargeback process can easily be outlined. Just be aware that many chargebacks will deviate from this formula:
1: The cardholder comes to believe that a transaction made to their account is invalid and they should not have to pay it. They contact their issuing bank to dispute the transaction.
2: The issuing bank listens to the cardholder's claim and determines whether it constitutes a valid reason to grant a chargeback. If the claim is invalid, the dispute will go no further, and no chargeback will occur. Most banks, however, extend the benefit of the doubt to their customers and will allow the chargeback in most cases, so long as the customer's reason for the dispute falls under one of the approved categories.
3: The issuing bank gives the cardholder a provisional credit equal to the disputed transaction amount. The bank then notifies the merchant's acquirer. Once the acquiring bank is notified, they will debit the merchant’s account and charge them any applicable chargeback fees.
4: The acquiring bank will notify the merchant about the chargeback. This can be some time out from the initial dispute, and is usually the first the merchant hears about it. The merchant must then decide whether to accept or fight the chargeback.
5: If the merchant chooses to fight the chargeback, they must submit a rebuttal letter and supporting evidence to prove that the dispute is invalid. The issuing bank will evaluate this evidence and decide whether to reverse or uphold the chargeback.
6: If the bank decides against the merchant, the merchant can appeal through arbitration, at which point the card network steps in to decide the case. The losing party in arbitration will be charged hundreds of dollars in fees.
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Customer Service - Quality customer service is by far your best line of defence against chargebacks. If you have a well-trained team that handles customer complaints and can remedy their concerns at the beginning, then the complaints will never be issued as chargebacks. Importantly, you can also track written conversations in order to build a case if ever a dispute is made and you want to challenge it.
Refund Policy - This one is pretty straightforward; when you offer a refund, the byproduct is almost the same - you’re down the funds. However, it’s better for your merchant account reputation and keeps you from getting those high rates that can jeopardize the longevity of your account. Keep in mind a refund can be partial or store credit depending on what makes your customer happy and prevents them from taking further action.
Fraud Prevention - Here is where the technology comes into play. Major chargeback prevention companies analyse worldwide fraud factors and plug them into their technology to find patterns that emerge. These factors are refined every day, from IP geolocation recognition, to spamming of card numbers, and online purchase prevention techniques. These are robust tools to analyze malicious behaviour.
Friendly Fraud - This is a version of standard fraud but more likely appears as a normal customer. In this case, their goal is to purchase the product then claim that it was damaged or not delivered in order to receive a refund. People who do this often aren’t one-time criminals, and chargeback companies are able to find the most likely candidates and give you a heads-up before they can act.
Merchant Error - This is more common than you think and can result from a typo or transposing numbers at the cash register. Perhaps a customer noticed a sale or discount that was not honored at checkout, then realized it later. These issues require a clean review of your selling processes and can be prevented with a little organizational assistance.
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Sorfort by Stripe: Sorfort, a feature within the Stripe payment gateway, is gaining attention for its credit card processing with no chargeback. Stripe employs advanced machine learning algorithms to prevent fraudulent activities, providing businesses with a secure and reliable payment solution.
Nihao Pay: Nihao Pay is a global payment service provider that specializes in serving businesses dealing with Chinese customers. It offers a no-chargeback feature, giving merchants peace of mind when conducting transactions with customers in China.
Red Dot Payment: Red Dot Payment is a payment gateway that caters to businesses in Asia-Pacific. Known for its comprehensive fraud prevention measures, Red Dot Payment aims to minimize chargebacks and provide a secure payment environment for merchants.
NoFraud: While not a traditional payment gateway, NoFraud is a fraud prevention service that integrates with existing gateways. It uses a combination of artificial intelligence and human analysis to eliminate chargebacks and prevent fraud.
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Clients pay you from checking or investment accounts without uncovering any financial data on your site. It is the main secure online payment gateway for high-risk merchant accounts that gives merchants ongoing approval and ensures assets with no risk of chargebacks.
1: At checkout, purchasers decide to pay with a bank transfer. Clients pick their online bank and are naturally redirected to the bank's site to log in.
2: Purchasers quickly observe the receipt of the deal shown on the online bank webpage. The purchaser approves the buy.
3: Purchasers are consequently diverted back to your site to view and print the purchase receipt.
4: You get a continuous approval that the payment has been made. Products and ventures can quickly be satisfied.
5: You get settlement assets within 24-48 hours.
Paying for online business buys with a bank move doesn't require any client enlistment or enrollment. Clients utilise existing financial balances for totally secure online payments.
Otherwise called "push payments" bank moves are the most secure ways for clients to pay you. High-risk merchants are cheerfully astounded by the number of purchasers who like to pay with a bank transfer instead of a card because no monetary information is revealed to the vendor.
With bank moves as a payment choice at checkout, clients who prefer not to disclose card or financial account data on your site can purchase from you. You increment client trust and fulfilment. While boosting your main concern benefits.
Get an edge on your opposition by including secure online payments and bank transfers to your checkout page. The more ways clients can pay you, the more deals you make.
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While there are multiple different routes a chargeback can take, the main steps are customer dispute, the provisional refund, and the official filing of the chargeback. Representment and arbitration are also possible.
Typically, the customer disputes a charge, and a provisional refund is granted. The issuing bank will assign a reason code and file the chargeback. If the merchant decides to represent, they will need to compile documents and submit a rebuttal. The issuer will make a decision, although a second chargeback is also possible. Finally, an appeal for arbitration can be made to the card network, whose decision is final.
No, absolutely not. A refund is a simple exchange of returned merchandise for the original transaction amount. A chargeback is a forced bank payment reversal that leaves the merchant covering the cost of the item, any shipping or handling, the loss of the merchandise itself, and those assorted chargeback fees.
Typically, around 90 days or less from the initial dispute. The time limit for chargebacks, set by card networks like Visa and Mastercard, usually gives cardholders up to 120 days from the transaction date or the discovery of an issue to dispute a charge. Merchants, on the other hand, are generally expected to respond to a chargeback within 20 and 45 days after the chargeback is initially filed.
If you have already received a full refund directly from the seller, you cannot make any further chargeback or Section 75 claims. However, if you paid on a credit card and then had to spend extra money because of the disputed payment, you can make a Section 75 claim to get this extra money back.
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