What Happens If a Merchant Disputes a Chargeback?

A chargeback occurs when a consumer disputes a transaction with their bank, leading to the reversal of funds from a merchant’s account. This process serves as a consumer protection mechanism, allowing individuals to reclaim money for various reasons, such as unauthorized purchases, non-receipt of goods, or services not rendered. While chargebacks protect consumers, merchants also have the right to dispute these claims. When a merchant believes a chargeback is invalid, they can present evidence to challenge the consumer’s claim.

Merchant’s Response to a Chargeback

When a chargeback is initiated, the merchant typically receives notification from their acquiring bank, which is the financial institution that processes credit and debit card payments for the merchant. This notification usually includes details of the disputed transaction, the reason for the chargeback, and a deadline for the merchant to respond, often ranging from 10 to 45 days depending on the card network and the specific reason code. Merchants must act promptly within this timeframe to gather and submit their compelling evidence.

To contest a chargeback, merchants compile a package of documentation, often referred to as “compelling evidence,” which aims to prove the legitimacy of the transaction. Common types of evidence include proof of purchase, such as receipts or order confirmations, and confirmation of delivery or service provision, like tracking numbers or signed delivery receipts. For digital goods or services, merchants might provide IP addresses, login records, or usage logs to demonstrate that the consumer accessed or utilized the product.

Communication records between the merchant and the consumer, such as emails or chat transcripts, can also be included to show attempts at resolution or agreement on terms. If the transaction involved a card-present purchase, a copy of the signed sales receipt or transaction authorization can be provided. This comprehensive evidence package is then submitted by the merchant to their acquiring bank.

The acquiring bank reviews the submitted evidence to ensure it meets the requirements of the relevant card network, such as Visa or Mastercard. Once validated, the acquiring bank forwards this evidence to the consumer’s card-issuing bank, which is the financial institution that issued the credit or debit card to the consumer. This transfer of information initiates the next phase of the dispute resolution process, where the issuing bank evaluates the merchant’s rebuttal.

The Second Round of Chargeback Review

Upon receiving the merchant’s compelling evidence, the consumer’s card-issuing bank undertakes a thorough review of the documentation. The issuing bank assesses the merchant’s submission against the original chargeback claim and the rules set forth by the payment card networks. This review helps determine if the merchant’s evidence sufficiently refutes the consumer’s dispute.

During this stage, the consumer may be contacted by their issuing bank if additional information or clarification is needed to support their initial chargeback claim. The bank might request further documentation from the consumer to counter the merchant’s presented evidence, such as proof of non-receipt, details of a damaged item, or records of communication attempts with the merchant. The consumer typically has a limited timeframe, often around 10-20 days, to provide this requested information back to their bank.

If the issuing bank, after reviewing both sides, cannot reach a definitive decision or if either party remains dissatisfied, the dispute may escalate to the payment card network for arbitration. Card networks like Visa and Mastercard provide a formal arbitration process to resolve disputes that cannot be settled between the issuing and acquiring banks. This process involves a neutral third-party review of all submitted evidence from both the merchant and the consumer, often with associated fees for the party that loses the arbitration.

The arbitration process can add significant time to the overall dispute resolution timeline. While initial chargeback responses and reviews might take weeks, an escalated arbitration case can extend the process for several months, sometimes ranging from 60 to 90 days or even longer, depending on the complexity and volume of disputes. Both banks present their arguments and evidence to the card network, which then renders a final decision based on the network’s operating rules and the presented facts.

Potential Resolutions for the Dispute

The resolution of a chargeback dispute can result in several outcomes, each determining the final disposition of the disputed funds. One common outcome is that the chargeback is upheld, meaning the consumer’s claim is validated, and the funds remain with the consumer. This occurs if the merchant’s evidence is deemed insufficient or if the consumer’s original claim is strongly supported by the facts.

Alternatively, the chargeback may be reversed, which means the merchant’s dispute is successful, and the funds are returned to the merchant’s account. This happens when the merchant provides compelling evidence that clearly refutes the consumer’s claim, such as definitive proof of delivery or a signed authorization for the transaction. In some less common scenarios, a partial resolution might occur if only a portion of the transaction is deemed valid for chargeback, or if a compromise is reached.

Once a final decision is rendered, typically by the issuing bank or through the card network’s arbitration process, the consumer is usually notified by their card-issuing bank. This notification will inform them whether their chargeback was successful or if the merchant’s dispute was upheld. The specific timing of this notification can vary, but it generally follows soon after the final determination.

For the disputed funds, if the chargeback is upheld, the provisional credit initially given to the consumer becomes permanent. If the chargeback is reversed, the funds are debited from the consumer’s account (if a provisional credit was issued) and credited back to the merchant. The decision reached through the card network’s arbitration process is generally considered final and binding within the chargeback system, meaning there are typically no further avenues for appeal through the card network itself.

The Second Round of Chargeback Review

This phase represents a critical re-evaluation of the dispute. The consumer’s card-issuing bank meticulously reviews the merchant’s compelling evidence, comparing it against the consumer’s initial claim and the established rules of the payment card networks. During this period, the issuing bank may contact the consumer, requesting further documentation or clarification to strengthen their original position. This interaction is vital for the bank to gain a comprehensive understanding of both sides. If a clear decision cannot be reached, or if either party remains unsatisfied with the bank’s assessment, the dispute can then be escalated to the formal arbitration process provided by the card networks. This ensures a neutral third-party review, though it often involves additional fees for the party whose arguments are ultimately rejected.

Potential Resolutions for the Dispute

The conclusion of a chargeback dispute can manifest in several distinct outcomes, each directly impacting the flow of the disputed funds. A primary resolution is the chargeback being upheld, which validates the consumer’s claim and ensures the funds remain with them, typically occurring when the merchant’s evidence is deemed insufficient. Conversely, the chargeback may be reversed, signifying the merchant’s successful rebuttal and the return of funds to their account, often due to compelling proof like delivery confirmation or transaction authorization. While less common, partial resolutions or negotiated compromises can also occur. Once a final determination is made, either by the issuing bank or through the card network’s arbitration, the consumer receives notification. This ultimate decision is generally considered final and binding within the chargeback system, limiting further avenues for appeal.