Chargebacks are an essential part of protecting consumers when disputes arise around a transaction. As a merchant, understanding the chargeback process is key to managing disputes effectively and ensuring minimal impact on your business. Here, we’ll guide you through how chargebacks work, from the moment a customer disputes a transaction to the final resolution.
Chargebacks follow a structured process, and while this can vary slightly between card schemes such as Mastercard and Visa, the core stages remain similar. Below, we outline the main stages of the chargeback process to help you navigate disputes smoothly.
Chargeback Process Overview
-
Dispute Initiation:
A chargeback begins when a cardholder disputes a transaction with their issuing bank. This could be due to unauthorised use, dissatisfaction with the goods or services, or billing errors. The issuing bank reviews the claim and, if valid, raises the chargeback.
-
Issuing Bank Review:
The issuing bank reverses the transaction and notifies the acquiring bank (the merchant’s bank). The disputed funds are temporarily removed from the merchant’s account during the investigation.
-
Merchant Response:
The acquiring bank notifies the merchant, who can review the dispute and provide evidence to contest it. This could include proof of delivery, customer communication, or other documentation.
-
Acquiring Bank Review:
The acquiring bank assesses the merchant’s evidence and, if valid, escalates the case back to the issuing bank for further review.
-
Issuer Decision:
The issuing bank evaluates the evidence from both sides and either upholds the chargeback or rejects the cardholder’s claim, returning the funds to the merchant.
-
Arbitration (if needed):
If either party disagrees with the decision, the case can be escalated to arbitration through the card network. Arbitration is the final stage, and the card network’s decision is binding.
Mastercard and Visa Chargeback Flow
Both Mastercard and Visa follow a structured flow when handling chargebacks, though there are some differences between the two schemes. Below are the key stages for both:
-
Mastercard:
Mastercard uses a two-step process known as “First Chargeback” and “Second Chargeback.” After the initial chargeback, the merchant has the opportunity to respond with evidence (First Chargeback Response). If the cardholder’s bank is not satisfied with the evidence, a Second Chargeback may be initiated, which could lead to arbitration.
-
Visa:
Visa uses a system called “Allocation” and “Collaboration.” In the Allocation process, Visa determines who is liable for the disputed transaction (typically the merchant if the chargeback is not challenged). The Collaboration process allows both parties to work together to resolve the issue before escalation to arbitration.
Understanding the flow of a chargeback dispute for both Visa and Mastercard can help you manage each case with the right evidence and timely responses. Having a clear grasp of the steps can not only help minimise losses but also give you more confidence in navigating the chargeback process.
This step-by-step guide gives you the knowledge needed to manage chargebacks effectively. By responding promptly, providing the right evidence, and understanding how card schemes handle disputes, you can reduce the impact of chargebacks on your business.
Â
Need additional help?
- Introduction to Disputes & Chargebacks
- How to Respond to Chargebacks
- Common Chargeback Codes and Their Meanings
Have more questions? Please reach out at any time to support@rvvup.com