Chargebacks

A Guide to Pre-Arbitration & Arbitration for Chargeback Disputes

A Guide to Pre-Arbitration & Arbitration for Chargeback Disputes


In some chargeback scenarios, merchants may have to deal with yet another step in the process: arbitration.

This occurs when one or more of the parties—usually the issuing bank—is unhappy with the outcome of the dispute and wants further action taken.  It can also occur when new information is introduced, the reason code changes, or something was inaccurate or incomplete in a merchant’s initial response to the chargeback.

On the merchant end, arbitration is a chance to produce evidence and prove the charge was a valid, legitimate one.  On the issuing bank’s end, it’s an opportunity to review the dispute further and dig more into the transaction itself.

Here’s what the process looks like:


pre-arbitration-arbitration process

 

Pre-arbitration

The first step toward arbitration is called pre-arbitration.  

Pre-arbitration is usually requested by the customer’s issuing bank, though the acquiring bank can also request it should the merchant be unhappy the results of the initial dispute.

When pre-arbitration is initiated, merchants have two options.  First, they can accept liability for the chargeback, and the customer gets refunded their money in full.  If they are not willing to accept liability, they can request full on arbitration.  This means they will need to provide more evidence, and ultimately, the card network will make the final decision regarding the transaction.

Arbitration

If the merchant doesn’t accept liability, the chargeback moves into arbitration.  

At this stage, the goal is to put the dispute decision in the hands of a third party—in this case, the card network.  

Since the issuing and acquiring banks have been unable to settle on an outcome on their own, arbitration gives the card network the power to weigh in and have the final say.

Though arbitration can be beneficial to merchants if they come out triumphant, it’s important to note that it comes with significant fees as well.  Fees vary by network, but for arbitration on a MasterCard chargeback, for example, merchants would need to pay a $150 filing fee, $250 admin fee, $150 withdrawal fee and $100 in technical fees.  Because of these high costs, merchants often only benefit on very high-cost chargebacks.  In most cases, arbitration means a net loss for the merchant, even in cases they win.
 

Prevention is Always Best

Arbitration comes with high costs, so for merchants, fighting and preventing chargebacks is always the best measure.  Understanding your reason codes, delivering stellar customer service and responding to retrieval requests promptly and thoroughly can all help you prevent a transaction from becoming a chargeback—and subsequently leading to arbitration.

Download your free copy of the Chargebacks 101 Guide
 to better understand the causes of chargebacks, and how the overall chargeback process works, so you can fight customer chargebacks and prevent them in the first place.

Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes