The chargeback process is generally consistent across most credit card networks and issuing banks, though specific variations exist for each bank or network. Find out more about what chargebacks are here.
A chargeback travels from the cardholder's issuing bank through the card network to the merchant's acquiring bank, where the merchant has the option to dispute or accept the chargeback. Click here to learn more about the issuing bank and the acquiring bank.
While a chargeback might start simply when a cardholder contacts their bank to dispute a charge, it can quickly become complicated. Merchants can challenge the chargeback, banks can dispute each other's decisions, and card networks may become involved in arbitrating the situation. So, what should merchants understand about navigating the chargeback process?
Who Are the Participants in the Chargeback Process?
The chargeback process involves several key participants, each playing a specific role. Understanding these participants helps clarify how disputes are managed and resolved.
Here are the main players in the chargeback process:
Participant | Role | Responsibilities |
Cardholder | Initiates the chargeback | Disputes transactions, provides evidence |
Issuing Bank | The cardholder’s bank | Reviews disputes, communicates outcomes |
Merchant | The seller of goods/services | Receives chargeback notifications, disputes them |
Acquiring Bank | The merchant’s bank | Processes chargebacks, manages funds |
Card Network | Governs card transactions | Facilitates communication and sets guidelines |
Payment Processor | Handles transaction processing | Manages transaction flow and chargeback tools |
Regulatory Bodies | Oversees financial regulations | Enforces consumer protection laws |
Arbitration Services | Resolves disputes if escalated | Provides a neutral platform for resolution |
The Role of Payment Processors in the Chargeback Process
Payment processors play critical roles in the chargeback process, serving as intermediaries between the merchant, the customer, and the card network (e.g., Visa, Mastercard). Understanding their role helps in managing and resolving chargebacks efficiently. Here’s a breakdown of their roles:
Payment Processor: The Intermediary
Your payment processor for credit cards is either CardConnect (legacy companies) or Till Payments/Nuvei (EnrollsyPay). The following are the roles of these payment processors when it comes to chargebacks.
Transaction Authorization: Payment processors handle the approval or denial of transactions in real time when a customer pays with a credit or debit card. They communicate with the card-issuing bank to validate the transaction.
Chargeback Notification: When a customer initiates a chargeback through their issuing bank, the payment processor is responsible for notifying the merchant that a chargeback has been filed. Till/Nuvei sends those notices to us and we forward them to the merchant. If your merchant account is serviced through CardConnect, you can check for chargebacks in your merchant portal.
Facilitating Dispute Resolution: The payment processor acts as a liaison between the school and the issuing bank. They relay all the necessary documentation and communication between the two parties, ensuring that the chargeback is handled according to the card network's rules.
Fee Management: Payment processors may impose chargeback fees on the merchant for each chargeback they receive, regardless of the outcome. They may also adjust the merchant’s processing rates if chargeback ratios become too high.
Transaction Reversal: If a chargeback is upheld, the payment processor handles the reversal of funds, debiting the merchant’s account and refunding the customer.
Enrollsy: The Front-End Platform
Transaction Handling: Enrollsy is responsible for securely transmitting payment information between the customer’s card and the payment processor. It captures and encrypts cardholder data, ensuring a secure transaction process.
Chargeback Notification: When a customer initiates a chargeback through their issuing bank, the payment processor (Till Payments/Nuvei) sends a notice to us that a chargeback has been filed. We then forward the notice to the merchant. If your merchant account is serviced through CardConnect, you can check for chargebacks in your merchant portal.
The chargeback process for merchants can vary slightly between debit and credit cards, but both follow a general set of steps. Here’s a detailed overview of the chargeback process from the merchant's perspective for both types of transactions.
Basic Flow of a Chargeback
Here is a chart showing the typical flow of a chargeback:
Chargeback Process Overview
1. Chargeback Initiation
Consumer Dispute: A customer (cardholder) contacts their issuing bank to dispute a transaction. This can happen for various reasons, such as unauthorized charges, dissatisfaction with goods or services, or billing errors.
Issuing Bank Review: The issuing bank reviews the customer’s claim and may ask for supporting information. If they find the dispute valid, they initiate a chargeback.
2. Notification to Merchant
Chargeback Notification: The issuing bank notifies the card network (e.g., Visa, Mastercard) about the chargeback, and the card network sends a notification to the merchant's acquiring bank (merchant bank).
Merchant Alert: The acquiring bank informs the merchant of the chargeback, typically via email or through a payment processing platform. This notification includes details about the disputed transaction, the reason for the chargeback, and any relevant evidence provided by the customer.
3. Merchant Review and Response Preparation
Investigation: The merchant reviews the chargeback notification and gathers relevant information to assess the validity of the claim. This may include:
Transaction details (date, amount, method of payment)
Customer records (purchase history, communication)
Evidence of service delivery (receipts, contracts, emails)
Decision to Dispute or Accept: The merchant decides whether to accept the chargeback or dispute it. If the merchant believes the chargeback is unwarranted, they will prepare to dispute it.
4. Dispute Submission
Documentation Compilation: The merchant collects evidence to support their case, including:
Proof of transaction (sales receipts, invoices)
Evidence of delivery or service provision (tracking information, signed agreements)
Relevant communication (emails, messages) with the customer regarding the transaction.
Filing the Dispute: The merchant submits their dispute, including all gathered evidence, through their acquiring bank's chargeback management system. This is typically done online and must be submitted within a specific timeframe (usually 30-45 days, depending on the card network).
5. Chargeback Review by Issuing Bank
Review Process: The issuing bank reviews the evidence provided by both the merchant and the customer. They may contact the customer for additional information if needed.
Final Decision: After evaluating all evidence, the issuing bank makes a decision:
Uphold the Chargeback: If the issuing bank agrees with the customer’s claim, they will uphold the chargeback, and the funds will be returned to the customer.
Reverse the Chargeback: If the merchant's evidence is compelling, the issuing bank may reverse the chargeback, restoring the funds to the merchant’s account.
6. Outcome and Communication
Notification of Outcome: The acquiring bank informs the merchant of the outcome of the chargeback dispute. If the chargeback is upheld, the merchant’s account will be debited for the disputed amount, along with any applicable chargeback fees.
Feedback and Improvement: Regardless of the outcome, merchants should analyze chargeback data to identify patterns or recurring issues that lead to disputes, allowing them to implement measures to reduce future chargebacks. See this support article for how to prevent chargebacks in the future.
7. Potential Escalation to Arbitration (if necessary)
Final Appeal: If the chargeback is upheld and the merchant believes they have a strong case, they can escalate the dispute to arbitration through the card network. This process is more formal and can involve additional fees.
Binding Decision: The card network reviews the case and makes a final, binding decision. Both the merchant and issuing bank must abide by this decision.
Differences Between Debit and Credit Card Chargebacks
While the overall process is similar, there are some distinctions specific to debit and credit card chargebacks:
Aspect | Debit Card Chargeback | Credit Card Chargeback |
Funds Impact | Immediate withdrawal from the merchant’s account. | Temporary hold; funds are restored if the dispute is successful. |
Timeframe for Disputing | Typically up to 60 days for dispute filing. | Generally up to 120 days for dispute filing. |
Consumer Protections | Fewer protections under the Electronic Fund Transfer Act (EFTA). | More robust protections under the Fair Credit Billing Act (FCBA). |