The Brief Guide To The Chargeback Process


The chargeback process has been happening for years in the world of eCommerce. This is a customer right; they use chargebacks as an option among other order troubleshooting attempts like refunds. Meanwhile, merchants need to understand how it works and how they can stop them from happening. This article will cover different chargeback aspects, fraud chargebacks, as well as the best ways to prevent them from occurring.

What Is The Chargeback Process?

The chargeback process is a way for consumers to dispute transactions that were made on their credit or debit cards if something in the transaction went wrong or if there was a potential that they would not receive what they ordered. Among other reasons, it can be fraud, late deliveries, billing information errors, etc.

It’s also important for merchants to know who participates in this process, such as who initiates it and who is involved throughout it, when fraud is involved with a transaction. The seller, on its hand, can either accept or fight this issue. If there’s a fighting process, the bank collects proof and examines the evidence to make a decision.

Who Are The Participants In The Chargeback Process?

There are five main participants in the chargeback process flow: the customer, the merchant, the issuing bank, the acquiring bank, and the credit card network. Each of these entities has a different approach to chargeback procedures, and some have more control over the process than others. The main actors are:

  • Customer: This is the consumer that filed the chargeback. The consumer should understand how to file a chargeback, providing a reason for dispute as well as submitting the chargeback request form.
  • Merchant: The second participant who sold the item to the customer.
  • Issuing Bank: The issuing bank is the financial institution that issues the customer their credit or debit card.
  • Acquiring Bank: Also known as a merchant processor, is a financial institution that helps merchants accept credit and debit cards in exchange for a fee and provides them with a terminal to run the transactions through on.
  • Credit Card Network: The credit card network or better known as VISA, Master Card, American Express, or Discover, are the companies responsible for regulating payment networks.

A Step-By-Step Chargeback Process

  • Step 1: Initial Dispute: The first step is an initial dispute, where a customer will contact the card issuer to dispute and reverse a transaction by sending in their proper documentation.
  • Step 2: The Provisional Refund: This refund makes issued to the customer. Then the issuing bank requests the amount from the acquirer who debits the money of the original transaction.
  • Step 3: The Reason Code: During this step, the issuing bank assigns a reason code and sends all the required chargeback information to the acquirer.
  • Step 4: The Option To Re-Present: This step offers the merchant to accept or dispute the chargeback. A seller can decide after checking the acquirer’s letter with the information.
  • Step 5: Compile Your Documents: If the merchant decides to fight against the chargeback, it needs to gather all the documentation regarding this transaction. It should include complete evidence to support the merchant’s claim.
  • Step 6: Submit The Representment Package: After all the documents have been collected, they should be submitted to the acquiring bank.
  • Step 7: Bank Review & Decisioning: The bank reviews the provided information and decides on the cardholder’s or merchant’s side.
  • Step 8: Arbitration: In this stage, the merchant can appeal to the card network to issue a final decision. The network’s decision will be final.

What Is Fraud Chargeback?

Many merchants want to know what is friendly fraud and how it is possible to fight against them. This is a chargeback type initiated by customers who have not been subjected to fraudulent activity during the transaction. Conversely, the most common reason for friendly fraud is when the customer makes a purchase online, uses goods or services for some time, and then claims he didn’t receive them.

How Can Merchants Fight Chargebacks?

There are several ways that merchants can fight chargebacks, but the main one is to appeal the customer’s chargeback using the following evidence listed below:

  • The date of transaction.
  • Delivery verification.
  • All the transaction history.
  • All the communications between the customer and cardholder about the order.
  • The complete information about the order delivery.

The merchant can also provide any additional evidence depending on the substance of the claim.

What Happens When You Accept A Chargeback?

When accepting a chargeback, merchants need to understand that the amount for the order will be charged from their account and returned to the customer’s card. This can be a significant amount of money and can affect the merchant financially and financially as well as its reputation. It can be difficult to accept, but it is how the eCommerce business really works. So one of the main things merchants should do is try to prevent or decrease chargebacks.

What Are The Best Ways To Prevent Chargebacks?

There are many ways that merchants can prevent chargebacks, and one of them is to look for fraud prevention measures. Fraud prevention is when the merchant tries to prevent fraudulent activity in the transaction by detecting any fraudulent activity and avoiding such activities.

Among other ways to prevent chargebacks, we can name the following:

  • Creating and maintaining a strong merchant-customer relationship.
  • Providing transparent information about their products and services.
  • Accurately filling the order and shipping it in time.
  • Providing quality customer service.
  • Offering flexible return policy.
  • Throughout the transaction process, keep clear delivery information like tracking numbers, shipping status, etc.

The Bottom Line

The eCommerce merchants need to know exactly how chargebacks work, so they can better protect themselves from them because fraudsters have been using them for years, and eCommerce merchants have been getting the charges back on their bank accounts. Therefore, the merchants need to understand the chargeback process very well to avoid any situation that might affect their business.