Tom-Chris Emewulu
Chargeflow's Digital Evangelist
Table of contents

With chargebacks accounting for a significant chunk of the $130 billion projected losses for retailers due to card-not-present fraud by 2023, it’s easy to see why every e-commerce merchant must understand how chargebacks work.

It would’ve been easy to write off chargebacks as a cost of doing business if the damages were just the transaction cost. Unfortunately, the actual cost of chargebacks far goes beyond the lost revenue. For every $1 chargeback you get, you lose up to $3 in penalties, regulatory hurdles, and opportunities forgone.

Although winning a chargeback dispute is often like an uphill battle with less than a 20% success rate, for the most part, not fighting them makes things even worse.

However, as with many things, if you better understand the rules, the odds against you will be much lower. And in this article, we’ll break down the chargeback process and examine how you can navigate the hurdle effectively.

A breakdown of the chargeback process and how to navigate the hurdle

In principle, the mechanism of the chargebacks is pretty straightforward.

When a Consumer has a transaction issue they couldn’t resolve directly with a Vendor, said Consumer can seek remediation from the Card Network.

It sounds so simple and just. Doesn't it?

Unfortunately, the actual chargeback process works differently. There are several layers of activities and actors involved in each dispute, even the most basic cases.

Although the chargeback process gives merchants a window of opportunity to fighting back, the problem is that there are ungodly amounts of roadblocks you need to cross to win a chargeback.

In the following section, we share a breakdown of the chargeback process to help you become more aware of their inherent challenges and how to circumvent them.

#1 step: Cardholder challenges a transaction

The chargeback process begins with a cardholder challenging a transaction charge to their issuing bank. Every transaction has an inherent risk of turning into a chargeback in the future. That can result in multiple chargebacks when there are several transactions.

As if that’s not enough, the Issuer can also initiate a chargeback. That phenomenon is called a bank chargeback, often caused by duplicate processing, an expired card, or merchant fraud. The acquirer handles the representment, and the cardholder may never even know of the dispute at all.

#2 step: The issuer reviews the request

After evaluating the dispute, the bank will determine whether or not the case has the merit of proceeding to the chargeback lifecycle. The challenge is, the bank here bases its decision exclusively on the cardholder’s claims and any available data. The cardholder is their customer, and they’re obligated to take sides with their customer.

#3 step: The issuer gives a conditional refund to the cardholder

They will debit the merchant’s account of the original transaction with any applicable fees. Again, the merchant might have zero information on the chargeback until after the fund withdrawal, which can cause significant fiscal challenges.

#4 step: The issuer assigns a chargeback reason code

After the withdrawal, the bank will create a chargeback reason code, meaning why they made the chargeback, and electronically transfer all the chargeback details to your acquirer.

Even though chargeback reason codes are supposed to help the merchant whittle down specific action plans for a response, chargeback reason codes are often useless. They don’t always give an accurate picture of the case and the best approach for invalidating the chargeback.

The Issuer assigns a reason code depending on what the cardholder said is the transaction issue, which is not always true. If you don’t know what you are fighting, it becomes difficult to address the problem adequately.

#5 step: Your acquirer reviews the refund request

At this stage, your acquirer will review the refund notice and either resolve the issue on their own or pass the claim over to you.

As an e-commerce merchant with so many things going on, the chances of missing a chargeback notice are often high. That has caused significant challenges for merchants, mainly due to the strict deadlines for response.

#6 step: You choose to accept or dispute the chargeback

Here you have to decide on what to do with the chargeback; accept or fight it? But whatever you do, don’t ever eat the cost of meritless chargebacks. That’s a white flag to cybercriminals and online shoplifters.

The problem is that disputing the chargeback involves definite documentation that must tally with the establishment's demands. Such tools include:

  • Your return policy.
  • Signed receipt from delivery.
  • A laundry list of other information pieces that go to validate the transaction.

If you don’t have those documentation handy, which is by no means easy, evidence gathering will be a nightmare.

#7 step: You submit your compelling evidence

If you choose to fight the chargeback, you must respond within the established chargeback time limit. You must also include all relevant documentation as stated above. This step of re-establishing the transaction to the bank is known as “representment.”

The challenge is that the limited response time, confusing rules, and processes make the chances of winning slim for merchants.

#8 step: The issuer decides on your case

Your bank will forward the chargeback dispute information to the issuing bank, reviewing the data. At this stage, you could get one of three results:

  1. The bank ruled in your favor: Your documentation and response sufficiently established the validity of the transaction. The transaction fund will be remitted back to your account.
  2. The bank ruled in favor of the cardholder: Your representment case does not satisfy the demands. The cardholder retains the funds.
  3. You won the case, but the bank filed a second chargeback: The rules allow the issuer to file a second chargeback for the disputed transaction if new evidence comes to light or a change of reason code. This second chargeback is known as pre-arbitration at Visa or arbitration chargeback at MasterCard.
Chargeflow customers testimony - 4X Recovery

Why fighting chargeback is extremely tough for merchants

First of all, you must understand that the chargeback process refers to all the steps involved in the dispute - from the time the cardholder filed an initial dispute to the final chargeback resolution and after-effects.

Hence, the chargeback process involves, but are not limited to, the following actors:

  • Cardholder: The owner of the card used in a transaction.
  • Merchant: The individual that sold merchandise or services under dispute.
  • Issuer: The financial institution that supplied the card to the cardholder.
  • Acquirer: The financial institution whose job is to acquire payment on the merchant’s behalf.
  • Card Association: The network (Visa, Mastercard, etc.) overseeing the entire procedure.

And in that sense, every stage of the chargeback process demands specific, non-linear actions that must be carried out within a definite timeline. But not just that. The demands are not the same across networks or banks. These indices already present significant challenges to the merchant. But they go on to worsen the core issues of the chargeback mechanism that’s faulty in itself.

Why? Well, for one, like every human judgment, optics are not everything. The outcome of every chargeback dispute depends on the interpretations given by the decision-makers. That makes the chargeback process extremely subjective.

Also, the chargeback process hasn’t kept up with today’s e-commerce realities. The administrative procedures of fulfilling chargebacks do not always take into account evolving online threats and technological advancement, which makes the chargeback subject to abuse. Cardholders can easily file a dispute on a whim. And online fraudsters also capitalize on that fact to shoplift from e-commerce merchants.

Equally important to note is the fact that the chargeback process puts an enormous amount of a burden on merchants' shoulders. The quantum of resources merchants need to fight each dispute doesn’t always tally with their rewards. These and several other elements make it incredibly difficult for most merchants to even consider challenging chargebacks. They eat the expenses when they should've fought back.

In conclusion, getting a chargeback is already bad enough. An arbitration, which attracts additional fees, regulations, and responsibilities, is an extra layer of complications in the chargeback process. Hence, you must do your best to ensure your representment isn’t letting you down.

Yet, many vendors have found that regardless of how efficient, persuasive, air-tight you made your representment case your, chances of winning remains slim. That’s where Chargeflow comes in. By leveraging big data, Artificial Intelligence, and human insights, Chargeflow helps you win up to 80% of your chargebacks - without lifting a finger.

Stay on top of your disputes and chargebacks from every connected payment processor in a single dashboard. And get AI tips to lower your chargeback rate and increase your win rate. Migrate to Chargeflow.


What is the time frame for a chargeback process?

A chargeback process can take anywhere from a few weeks to a few months, depending on the specific circumstances and the rules of the issuing bank and payment network.

What role do payment processors play in the chargeback process?

Payment processors facilitate the transactions between merchants and consumers and act as intermediaries between merchants and the acquiring bank. In the chargeback process, they play a crucial role in communicating with both parties, tracking the process, and handling any disputes that may arise.

Can a merchant be charged additional fees for chargebacks?

Yes, merchants can be charged additional fees for chargebacks, including chargeback fees, retrieval request fees, and processing fees. These fees can add up and have a significant impact on the merchant's bottom line.

How can a merchant recover lost revenue from chargebacks?

There are a few ways a merchant can recover lost revenue from chargebacks, including implementing chargeback prevention measures, disputing chargebacks that are the result of fraud or error, providing excellent customer service to reduce the likelihood of chargebacks, and making sure to keep accurate records and documentation of transactions.

What is the final stage in chargeback process?

The final stage in the chargeback process is when the dispute has been resolved and a decision has been made. This can either result in the chargeback being denied, meaning the transaction remains valid, or the chargeback being approved, meaning the transaction is reversed, and the cardholder is refunded. Once a decision has been made, it is typically final and cannot be appealed, and the process is considered complete.

Average Dispute Amount
Average Dispute Amount
# Disputes Per Month
# Disputes Per Month
Time Spent Per Dispute
Time Spent Per Dispute
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