Chargebacks 101 – Everything You Need to Know (Part 2 of 3)

ANY kind of dispute with a customer is something you want to avoid, and this is especially true when it comes to chargebacks. This blog series is designed to help you better understand chargebacks and provides some steps you can take to prevent them from happening.

Editor’s Note: In order to provide more detail on this topic, the information is being provided in a series of three posts. This is the second post in the series.

This post will focus on the process involved in the chargeback settlement as well as the associated timelines and fees.

Why Does the Chargeback Process Look Like?

The basic cycle of chargeback filing to resolution

The basic cycle of chargeback filing to resolution:

  1. The consumer requests a chargeback from their bank (issuer). In some cases, disputes are initiated by the issuers themselves.
  2. The issuer reviews the chargeback request and stages an investigation.
  3. The acquiring bank (acquirer) reviews the chargeback and relays information to the merchant, along with the required documentation to defend the dispute in adherence with card brand’s regulations. The situation details are discussed within a specified time limit based on the rules set by the card brand.
  4. The merchant may either accept or reject the chargeback. Should they reject it, based on the dispute condition where the chargeback filing was submitted, the acquirer will now present the chargeback response to the issuing bank, including all the viable information and documentation gathered from the merchant.
  5. The issuer reviews the information and makes a decision on the chargeback validity. This will be the card issuer’s discretion to pursue or escalate this to the merchant.
  6. If the issuer decides to pursue the case, Step 4 will be repeated wherein the acquiring bank (acquirer) will review their progressive chargeback’s validity and relay to the merchant should new information was provided. If the acquirer retains their decision to defend the case, this may be escalated to Card Schemes (Arbitration), where a ruling will be issued.

Is There a Time Limit on Initiating a Chargeback?

Generally, consumers have 120 days from either the purchase date, or the date they first discovered a problem, to file a chargeback. However, time limits can vary based on the nature of the dispute or the card brand where the dispute was filed.

What Fees Pertain to a Chargeback?

Unfortunately, the process costs merchants money in the form of chargeback fees and most often these fees apply regardless of whether the merchant wins the arbitration process. Retrieval request fees range from $ 2.50 to $ 5 while chargeback fees vary per payment processor but are in the range of $ 15 to $ 25 per incident. If the dispute reaches arbitration stage, there may be fees of approximately $ 250 to $ 500 from the card brand to be shouldered by the losing party.

On top of the fees, the major card brands have strict limits - generally 1% of sales volume - that can trigger additional fines or account termination.

COMING NEXT: The last part of the series focuses on what you can do as a merchant to help prevent chargebacks.