Chargebacks in Depth

A chargeback starts when a cardholder disputes a transaction with the issuing bank, instead of asking the merchant for a refund. Common reasons include fraud, where the cardholder says they did not make the payment, goods not received, goods not as described, a duplicate charge, or a cancelled subscription that kept charging. The issuer raises a chargeback through the card network, using a reason code that explains the dispute, for example Visa reason code 10.4 for other fraud, card absent environment, or Mastercard reason code 4853 for cardholder dispute of a card absent transaction. The acquirer debits the merchant account for the transaction amount plus a chargeback fee, often 500 rupees, and asks the merchant for evidence that the transaction was valid. Representment is the merchant chance to fight the chargeback by sending evidence to the acquirer, which forwards it to the issuer through the network. Good evidence depends on the reason code. For a fraud dispute, the merchant sends the authorization code, the 3D Secure authentication result, the delivery address, the internet address and device details, and the customer communication history. For a goods not received dispute, the merchant sends the delivery tracking number, the signed delivery proof, and the courier delivery confirmation. For a duplicate charge, the merchant shows that only one charge was valid and refunds the second one. The merchant usually has 7 to 30 days to submit representment, depending on the network and the reason code, and a late submission is automatically lost. Pre arbitration is the next stage, when the issuer rejects the representment and the dispute continues. The issuer may argue that the evidence is insufficient, for example a delivery proof without a signature, or that the goods were not as described despite the delivery. At this stage, the acquirer and issuer try to resolve the dispute directly, and the merchant may be asked for more evidence or may choose to accept the chargeback to avoid further fees. Pre arbitration usually has a 30 to 45 day window, and the merchant should respond quickly, because a missed deadline ends the case. Many disputes are settled at this stage, because both banks prefer a negotiated outcome to a formal arbitration. Arbitration is the final stage, when the card network itself decides the dispute. Either the issuer or the acquirer can file for arbitration, and the network reviews the evidence from both sides, applies its rules, and issues a binding decision. The losing party pays an arbitration fee, which can be 500 US dollars or more, plus the transaction amount and any earlier fees. Arbitration is rare, because the fee is high and the outcome is uncertain, so banks use it only for large amounts or for cases where the rule is clear. A merchant that loses at arbitration cannot appeal through the network, although it can still pursue the customer through a court, which is usually not worth the cost for a single transaction. A worked example shows the full timeline. On 1 November, a customer buys a smartwatch for 12,999 rupees online with a Mastercard credit card, and the merchant ships it with tracking. On 20 November, the customer tells the bank the watch never arrived, and the issuer raises a chargeback with reason code 4855, goods or services not provided. The merchant account is debited 12,999 rupees plus a 500 rupee fee on 22 November. The merchant submits representment on 28 November, with the courier tracking showing delivery on 5 November and a signed proof of delivery. The issuer accepts the representment on 10 December, the network reverses the chargeback, and the merchant is credited 12,999 rupees, although the 500 rupee fee is usually not refunded. If the merchant had no delivery proof, it would have lost the full amount plus the fee.