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Are you a merchant that's trying to better understand the chargeback life cycle? With the right information, you'll be able to more effectively protect against fraudulent activity and reduce your risk of costly penalties. 

In this post, we'll explore each step in the chargeback life cycle so that merchants can gain insight into how best to address dispute-related matters as they arise. From investigating consumer complaints, triggering representment, receiving decisions from issuing banks or credit card networks, and understanding exceptions - this guide will cover it all. 

Read on for an in-depth analysis of how merchants can navigate the nuances of a complete chargeback lifecycle.

1. Pre-Chargeback Phase

The Pre-Chargeback Phase is a critical stage in the lifecycle of a transaction, as it represents the preliminary stage where businesses can identify the reasons for chargebacks and implement strategies to prevent them. 

Chargebacks are an unfortunate reality for many businesses, occurring when customers dispute a transaction and demand a refund through their credit card company or bank. These disputes can arise for various reasons, such as fraudulent activity, customer dissatisfaction, and simple misunderstandings. 

Therefore, businesses need to employ chargeback prevention strategies during the Pre-Chargeback Phase to minimize the occurrence of chargebacks and protect their bottom line. 

These strategies may include adopting robust verification processes, transparent refund policies, and exemplary customer service. Equally important at this stage is the practice of monitoring chargeback ratios, which entails analyzing the proportion of transactions that result in chargebacks. 

This data-driven approach allows businesses to assess the effectiveness of their prevention strategies and make adjustments as needed, ultimately paving the way for a thriving and resilient enterprise.

2. Chargeback Phase

The Chargeback Phase is a critical process in the payment ecosystem, where a transaction dispute arises between a merchant and a customer. The initial step in this process entails the Notification of Chargeback, which occurs when a customer raises a complaint for a disputed transaction, and the merchant receives a notification from the payment processor or the issuing bank. 

Responding to a Chargeback is the subsequent step, where a merchant must gather all supporting transaction documents and evidence, prepared with a coherent and persuasive case to refute the concerns raised by the customer. 

Collaboration with Payment Processors and the Issuing Bank then becomes pivotal, as merchants communicate their arguments to the appropriate parties, ensuring that all relevant information is presented efficiently and effectively. 

The Possible Outcomes of Chargeback can vary, ranging from a merchant losing the funds and incurring additional fees, to a resolution in favor of the merchant when sufficient evidence establishes that the transaction was legitimate. 

This makes the Chargeback Phase a critical component in maintaining a professional and transparent payment system, overall benefiting both parties involved.

3. Representment Phase

The primary purpose of the representment phase is to dispute the chargeback and recover the lost revenue. The representment process gives merchants a second chance to defend themselves against the chargeback, and it is an essential part of the chargeback life cycle.

To prepare a successful representment, merchants need to collect and present compelling evidence to support their case. Some of the information that can be included in a representment includes:

  • Transaction receipt or invoice
  • Shipping and delivery confirmation
  • Customer communication and support records
  • Refund and return policies
  • Terms and conditions of sale
  • Proof of identity and authorization

It is important to note that each card network has specific guidelines and requirements for representment evidence. Merchants must ensure they follow these guidelines to avoid having their representment rejected.

Once the merchant has prepared the representment and collected all the necessary evidence, it is time to submit it to the payment processor. The payment processor will then forward the representment to the issuing bank for review.

Merchants must submit the representment within the specified timeframe to avoid losing the right to dispute the chargeback. The timeframe varies by card network and can range from 10 to 45 days from the date of the chargeback notification.

There are three possible outcomes of a representment:

  1. Representment Accepted: If the issuing bank accepts the representment, the chargeback will be reversed, and the merchant will receive a credit for the disputed transaction amount.
  2. Representment Rejected: If the issuing bank rejects the representment, the merchant will lose the disputed amount and will not be able to appeal the chargeback decision further.
  3. Representment Chargeback: In some cases, the issuing bank may issue another chargeback in response to the representment. This can happen if the issuing bank finds new evidence to support the cardholder's claim or if the representment does not meet the card network guidelines.

4. Arbitration Phase

Arbitration is the final phase in the chargeback life cycle and is a process where a neutral third party, known as an arbitrator, reviews the evidence presented by the merchant and issuing bank and makes a final decision on the chargeback dispute. The arbitrator's decision is binding and final, and there is no further recourse for either party.

The purpose of arbitration is to provide a fair and impartial review of the chargeback dispute and resolve the matter quickly and efficiently. The arbitration process is only available for certain types of chargebacks, such as fraud or processing errors, and is not available for disputes related to customer disputes or non-receipt of goods or services.

Merchants should only consider arbitration when all other options for resolving the chargeback dispute have been exhausted. Arbitration can be a costly and time-consuming process, and the outcome is uncertain. Before considering arbitration, merchants should evaluate the strength of their case and weigh the potential costs and benefits of pursuing arbitration.

The arbitration process typically involves the following steps:

  1. Selection of the Arbitrator: The merchant and issuing bank select an arbitrator or a panel of arbitrators to review the chargeback dispute.
  2. Submission of Evidence: The merchant and issuing bank submit their evidence and arguments to the arbitrator, who will review the information and make a decision based on the facts presented.
  3. Review of Evidence: The arbitrator reviews the evidence submitted by both parties and may request additional information or clarification as needed.
  4. Decision: The arbitrator makes a final decision on the chargeback dispute, which is binding and final.

There are two possible outcomes of arbitration:

  1. Arbitration Award in Favor of Merchant: If the arbitrator finds favor of the merchant, the chargeback will be reversed, and the merchant will receive a credit for the disputed transaction amount.
  2. Arbitration Award in Favor of Issuing Bank: If the arbitrator finds in favor of the issuing bank, the merchant will lose the disputed amount and will not be able to appeal the decision further.

Final Thoughts Chargeback Life Cycle

Every merchant should learn the chargeback life cycle and take preventive measures to protect their business. By understanding the stages in the chargeback process, merchants will have better control over chargebacks and disputes. 

During the pre-chargeback phase, merchants can identify and resolve disputes before they become full-fledged chargebacks. In addition, merchants can modify processes to decrease fraud risk and respond quickly to customer service inquiries. 

Otherwise, merchants must represent themselves during a dispute or enter into an arbitration process with their acquiring bank. Knowing these steps leads merchants to strategic decision-making when it comes to managing and combating chargebacks. 

At Chargeflow we are always striving to make merchants' lives easier through autopilot solutions that help prevent chargebacks and fight disputes quickly and effectively - try out our fully integrated fraud prevention system today!


How long does the chargeback life cycle take?

The chargeback life cycle can take several weeks to several months to complete, depending on various factors. The length of time can vary based on the complexity of the dispute, the responsiveness of the parties involved, and the policies of the issuing bank.

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