Chargeback Prevention

The 2021 Complete Guide to the Chargeback Process

Chargeback Process

Table of Contents

  1. Who Are the Participants in the Chargeback Process?
  2. What Happens During the Chargeback Process?
  3. What is Final Stage of the Chargeback Process?
  4. How Can Merchants Fight Chargebacks?
  5. What are the Best Ways to Prevent Chargebacks?
  6. What Happens After the Chargeback Process?
  7. Conclusion
  8. Frequently Asked Questions

The chargeback process is similar across most credit card networks and issuing banks, with specific differences for each bank or network. A chargeback works its way from the issuing bank through the card network and to the merchant's acquiring bank. The merchant can decide to dispute the chargeback, but if they do not then they automatically lose. 

A chargeback may begin simply enough when a cardholder contacts their bank to dispute a charge, but the merchant can fight the chargeback, banks can challenge each other’s decisions, the card networks can get dragged in to adjudicate—things can get real messy. What do merchants need to know about navigating the chargeback process?

As you can see, the chargeback process favors the cardholder. However, merchants that understand the process can protect themselves and prevent chargebacks. 

New call-to-actionA chargeback isn’t just a single event. It’s a process, one that can be lengthy and convoluted for all parties involved. For merchants, chargebacks are especially troublesome, because the lion’s share of the liability for chargebacks falls on them.

It doesn’t help that the chargeback process is largely defined by regulations that were written out long before the age of ecommerce, and that each card network creates its own house rules based on their interpretation of those regulations.

Understanding how the chargeback process works isn’t just for personal edification. Knowing the ins and outs of the process can help you avoid costly mistakes, fight fraudulent chargebacks more effectively, and get a better ROI on the time and labor you spend on dealing with disputes.

Here’s what you need to know about the chargeback process.

Who Are the Participants in the Chargeback Process?

With any given chargeback, there are five (or sometimes six) players:

  1. The Cardholder/The Customer
    These may be the same individual, but not always. The cardholder is the actual owner of the payment card used to make the purchase under dispute. The customer is the individual who placed the transaction.

    In a typical transaction, or in a friendly fraud chargeback, the cardholder and the customer are the same person. In a true fraud scenario, the customer who made a transaction with a stolen card is not the same person as the cardholder who disputes it later.

  2. The Merchant
    The merchant is the individual or company who sold a product or service to the customer. When the chargeback is filed, the merchant must decide whether to accept it or dispute it.

  3. The Issuing Bank (Issuer)
    A bank or other financial institution that issues a branded payment card to the cardholder. Examples: Bank of America, Wells Fargo, Capital One.

  4. The Acquiring Bank (Acquirer)
    The merchant’s bank, which holds their merchant account and enables them to accept credit card payments.

  5. The Credit Card Network
    The association that owns the credit card brand used in the transaction. In the United States, the four major credit card networks are Visa, Mastercard, American Express, and Discover. These networks set the terms for credit card transactions, which are followed by the issuing banks.

Other companies that service merchant accounts, such as payment processors and payment gateways, may also become involved in the chargeback process.

What Happens During the Chargeback Process?

One thing that makes the chargeback process challenging for merchants is the amount of input required. Every stage of the process requires some action or response from the merchant in order to move forward, or else the response defaults to acceptance and the chargeback becomes permanent and uncontestable.

Merchants must be aware of the timeframes, deadlines, and response types required of them, which will differ from network to network, and can be complicated further by factors such as chargeback alert or deflection services.

However, a basic chargeback process can easily be outlined. Just be aware that many chargebacks will deviate from this formula:

  1. The cardholder comes to believe that a transaction made to their account is invalid and they should not have to pay it. They contact their issuing bank to dispute the transaction.

  2. The issuing bank listens to the cardholder’s claim and determines whether it constitutes a valid reason to grant a chargeback. If the claim is invalid, the dispute will go no further and no chargeback will occur. Most banks, however, extend the benefit of the doubt to their customers and will allow the chargeback in most cases.

  3. The issuing bank gives the cardholder a provisional credit equal to the disputed transaction amount.

  4. The issuing bank will inform the card network of the chargeback.

  5. The card network will inform the merchant’s acquiring bank of the chargeback.

  6. Once the acquiring bank is notified, they will debit the merchant’s account and charge them any applicable chargeback fees.

  7. The acquiring bank will notify the merchant about the chargeback. This can be some time out from the initial dispute, and is usually the first the merchant hears about it. The merchant must then decide whether to accept or fight the chargeback before their time to respond expires, but the back and forth between the issuer, network, and acquirer can eat into some of this time.

What is Final Stage of the Chargeback Process?

The end of the chargeback process is the final decision by the issuing bank. If they recognize the merchant's dispute as legitimate, then they return the provisional refund and that revenue goes back into their bank account. If they recognize the cardholder's claim as legitimate, then the chargeback stands. 

A common way for the chargeback process to end is when the merchant stops submitting responses intended to dispute it. As soon as the merchant accepts the chargeback, the provisional credits and debits become permanent and the chargeback case is closed for good.

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyMerchants may decide to accept chargebacks for several reasons. Sometimes the chargeback is premised on true fraud or some other valid and inarguable reason, and there is no point in trying to fight it.

Many merchants, however, accept chargebacks because they’re too busy to deal with them, or they’ve become convinced that chargebacks are just an unavoidable cost of doing business.

Some merchants may be able to get away with this attitude, but it can be highly damaging for others to adopt this outlook.

With fees and overhead added, chargebacks can cost well more than double the original transaction amount, making them a grave danger to a merchant’s revenue.

Note that when a merchant loses a chargeback, they can lose up to 250% of the total cost when factoring in fees, marketing, and lost overhead. Additionally, the chargeback will count against that merchant's chargeback ratio regardless of whether they win or lose. 

Fighting chargebacks—especially fraudulent ones—helps merchants recover revenue, discourages repeat offenders, and can help preserve your reputation with issuing banks, making them less likely to reflexively side against you in future disputes.

How Can Merchants Fight Chargebacks?

When a merchant responds to a chargeback with intent to fight it, that’s called chargeback representment, because the merchant is presenting the charge a second time. With representment, the merchant must include evidence that refutes the cardholder’s claim.

The right evidence will depend entirely on the substance of the claim, but for typical chargebacks relevant evidence may include:

  • Transaction data including a date and timestamp
  • AVS, CVV, and delivery verification
  • The cardholder’s transaction history
  • Communications between the merchant and the cardholder
  • Signed delivery receipts
  • Other pertinent data or documentation related to the transaction being disputed

The merchant’s evidence will be passed along from the acquirer to the network to the issuer, who will review it and make a decision. If the issuer finds the merchant’s evidence valid and compelling, they reverse the chargeback by taking away the cardholder’s provisional credit. The acquirer will then return the merchant’s funds to their account.

If the issuer does not believe that the merchant’s evidence disproves the cardholder’s claim, the chargeback will stand.

What are the Best Ways to Prevent Chargebacks?

The best defense is a good offense, and in the case of chargebacks a good offense is actually a proactive approach to preventing chargebacks before they happen. 

Even Capital One, an issuing bank, has a guide for cardholders for Capital One chargebacks that emphasizes working with merchants before completing a chargeback. 

What does this mean for merchants?

Stay transparent with your customers. if they have problems with their purchase, your service, or a transaction, make sure that you always stay in touch with them. Keep them on top of the refund process if they are going through it, and make sure that customer service makes it easy for them to resolve problems with you. 

Also, field fraud prevention tools. Don't wait for fraud to become a problem. Put fraud prevention tools in place to help automate responses to red flags in the purchase process. By preventing true fraud, you can prevent future chargebacks. 

What Happens After the Chargeback Process?

Win or lose, representment is not necessarily the end of the chargeback process. The cardholder can still dispute their bank’s decision, but the card networks handle this escalation of the dispute differently. Visa calls it pre-arbitration and Mastercard has what it calls arbitration chargebacks. Either way, more fees will be incurred by whichever party ends up losing the case.

Our detailed breakdown of the process will stop here, but it should be clear now that the chargeback process can be a long and winding road indeed, and the best way to deal with chargebacks is to avoid them in the first place.

Aside from the constant threat of lost revenue, chargebacks can endanger merchants by putting their merchant accounts at risk. If you carry an excessive chargeback rate for too long, you might not be able to find any reputable payment processors willing to work with you.

Brick-and-mortar merchants can avoid many chargebacks simply by using payment terminals with EMV chip readers.

For ecommerce merchants, prevention can be more of a challenge, but standardizing the procedures and protocols for credit card payments can be an important first step in avoiding authorization and fraud chargebacks. Anti-fraud software tools can be a big help too.


To protect themselves, merchants must always be vigilant about reviewing their operations, policies, and even their marketing materials for chargeback vulnerabilities. Investing in the services of chargeback management specialists can assure merchants of greater success in these tricky endeavors.


Can a merchant refuse a chargeback?

A merchant cannot outright refuse a chargeback, but they can dispute it in process called representment where they present their case for the legitimacy of the chargeback to the issuing bank.


How long does the chargeback process take?

Depending on the reason code, issuing bank, and credit card network, the entire process can take around 30-90 days.


What is the difference between a dispute and a chargeback?

Very little. A chargeback is a dispute of a charge by the cardholder that goes directly through the issuing bank. There are other forms of disputes, however.



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