Chargebacks refer to the process where issuing banks forcibly deduct transaction amounts from merchant accounts and refund them to cardholders when disputes cannot be resolved through initial communication. Chargebacks are a formal transaction reversal mechanism.

Types of Chargebacks

Chargeback Process Flow

• Dispute escalation: If the dispute remains unresolved, it escalates to a chargeback.
• Chargeback notification: The issuing bank sends a chargeback notice to the acquiring bank through Visa or other payment networks.
• Acquiring bank notifies merchant: After receiving the chargeback notice, the acquiring bank notifies the merchant and requests relevant evidence to respond to the chargeback.
• Merchant response: Merchants need to provide evidence within the specified time frame to prove the legitimacy and validity of the transaction.
• Arbitration: If the evidence provided by the merchant is strong enough, the chargeback may be rejected; otherwise, the chargeback stands and the merchant must bear the refund responsibility. If both parties cannot reach an agreement, the dispute may enter the arbitration process, where the payment network makes the final decision.

Chargeback Steps

1. 1st_chargeback：First chargeback - the cardholder's first attempt to cancel the transaction.
2. Representment：Re-presentment - the merchant's appeal against the cardholder's chargeback.
3. 1st_chargeback_reversal：Chargeback reversal - refers to the cardholder reversing the chargeback action.
4. Pre-arbitration：Pre-arbitration - the first step in final chargeback processing, referring to the action of merchants or cardholders applying for adjudication from the card organization.
5. Arbitration：Arbitration - the card organization's final ruling on a transaction dispute, which generates additional fees. Arbitration fees vary by card organization and region, generally around 500 USD.

Main Differences Between Disputes and Chargebacks

• Stage:

  • Disputes are the preliminary stage of chargebacks, where cardholders raise objections to transactions.
  • Chargebacks are further actions taken by issuing banks after disputes remain unresolved, formally reversing transactions.

• Processing flow:

  • Dispute resolution typically involves preliminary communication and negotiation, attempting to resolve issues without formal reversal.
  • Chargeback processing is more formal, involving transaction amount reversals and requiring adherence to payment network regulations and procedures.

• Impact:

  • Dispute stage handling is relatively flexible, can be resolved through communication with minimal impact.
  • Chargebacks have greater impact on merchants, not only involving fund reversals but also potentially affecting merchant reputation and future transaction processing.

Chargeback Timeline

• Cardholder initiation of chargeback inquiry deadline: 180 days
• Merchant response deadline upon receiving chargeback inquiry: 90 days

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