Understanding the Chargeback Process

For many merchants, the chargeback process is overwhelming, exhausting, and simply impossible to understand.
However, this doesn’t need to be your reality. In this article, we dig into the chargeback process, looking at who is involved, how the process works, and some thoughts on how to improve the chargeback process. At the end of this article, we’ve put together a list of chargeback resources that we urge you to read.
The Chargeback Process: The Players
Knowing who is involved in the chargeback process is integral in understanding why we need to work together to improve the chargeback process.

  • The Cardholder vs. The Customer. The cardholder is the person who is specifically associated with the credit card by the card-issuer and is responsible for the card use. The customer is the person who used the credit card to make a purchase – this can be the cardholder, a family member, or a thief.
  • The Merchant. The business or person who sells products or services to the cardholder. The merchant is responsible for following the guidelines provided to them by the credit cards they support. Merchants are responsible for providing a secure website or mobile sales channel that supports secure authorization and processing for the cardholder.
  • The Issuing Bank. Makes association-branded credit cards available to their customers – the cardholder. The issuing bank is distinct from the credit card company.
  • The Acquiring Bank. Enforces credit card company regulations and is the link between the merchant and the credit card company. The acquiring bank enables merchants to accept payments, issues refunds, establishes merchant credit, and holds merchants accountable to regulation compliance.
  • The Credit Card Company. The credit card company allows the issuing bank to brand and provide their credit card to cardholders. Additionally, the credit card company through the acquiring bank, allows merchants to accept their card as a payment method. The credit card company has clear best practices and chargebacks regulations that merchants must adhere to.

The list of five below are connected by a tenuous, blurry line – the chargeback process. We want to put an end to the blurriness and provide you with a clear and easy way to connect and communicate with everyone involved in chargebacks.
The Chargeback Process: How It Works
Chargebacks developed out of the need to provide cardholders with protection against credit card fraud and theft. Over the years, this has been taken advantage of by fraudsters and often inadvertently by honest cardholders.
The easy option for cardholders is to click Dispute Transaction for any charge they don’t recognize on their credit card statement. This starts the chargeback process, and once it’s started it’s very hard for the merchant to communicate directly with the cardholder.
The best option for cardholders is to contact the merchant to enquire about the charge, ask about a refund or return, or a service subscription cancellation. Doing this allows the merchant to solve the cardholder’s problems and to continue to build a strong relationship with the cardholder.
Instead the cardholder takes the obvious and easy option and starts the chargeback process.

  1. The cardholder clicks Dispute Transaction and fills out the accompanying form detailing the issue.
  2. The issuing bank receives and reviews the dispute. Typically, the issuing bank automatically refunds the cardholder and then debits the merchant.
  3. The acquiring bank is notified and begins reviewing the chargeback.
  4. The merchant is notified by the acquiring bank of the chargeback dispute. The merchant has a limited amount of time to dispute this claim.
  5. The merchant chooses to proceed with chargeback representment or accept the chargeback claim. Often, merchants decide not to pursue representment due to lack of time, understanding, or access to compelling evidence.

In the event the merchant proceeds with chargeback representment and wins, the refund given to the cardholder is reversed and the merchant is refunded. However, the merchant is still out-of-pocket for the costs of representment, the time and resources spent working with the acquiring bank to solve the problem, and recovering tangential costs lost to the chargeback.
As you can see, the easy option is definitely not the best option – not for any of the five involved. Instead, we want to see the blurry lines of the chargeback process fixed with clear and open communication. By giving cardholders a chance to click Contact Merchant instead of Dispute Transaction, the problem can be solved quickly and with minimal time and cost.
The goal is to redirect the chargeback process from the issuing bank to the merchant, allowing merchants to resolve cardholder problems before they become chargebacks.
Learning More About the Chargeback Process
Use this list of articles, whitepapers, and other resources to learn more about the chargeback process. Do browse our Resource Center and Knowledge Base to continue your learning.

You can contact us to discuss your chargeback protection options and to ask any questions you have.