The Chargeback Lifecycle

A chargeback is the process by which a cardholder disputes a transaction and the funds are returned to them through the card system, rather than directly by the merchant. It begins when the cardholder contacts their issuer and says that a transaction was fraudulent, that the goods were not received, that the amount was wrong, or that they cancelled a subscription but were still charged. The issuer reviews the claim, and if it appears valid, it raises a chargeback with the scheme, which debits the acquirer, which in turn debits the merchant. The cardholder is credited while the dispute is investigated. The merchant then has the opportunity to defend the transaction by providing evidence, such as a delivery confirmation, a signed receipt, or a record of the customer's agreement to the terms. If the evidence is convincing, the chargeback is reversed and the merchant keeps the funds. If it is not, the chargeback stands and the merchant loses both the funds and the goods or services provided. There may be further stages, including a second chargeback if the cardholder disagrees with the reversal, and arbitration by the scheme if the issuer and acquirer cannot agree. Each stage has strict time limits, typically measured in days. Chargebacks are costly for merchants beyond the transaction value. The acquirer usually charges a chargeback fee, and a merchant with a high chargeback rate may face higher fees, a reserve requirement where the acquirer holds back a portion of takings, or in extreme cases loss of the ability to accept cards. For this reason, merchants invest in fraud prevention, clear product descriptions, good customer service and easy refunds, because a refund is almost always cheaper than a chargeback. A business analyst working on dispute processes needs to understand the full lifecycle and the deadlines, because missing a deadline can mean losing a dispute that could have been won. Follow one dispute end to end. A customer buys a phone online for Rs 8,000 and it never arrives. The customer contacts the issuer, which raises a chargeback for non receipt. The scheme debits the acquirer, the acquirer debits the merchant Rs 8,000, and the acquirer also charges the merchant a chargeback fee of Rs 1,500, so the merchant is out Rs 9,500 plus the cost of the phone it shipped. The merchant produces the delivery tracking record, which shows the phone was delivered and signed for, and the chargeback is reversed. Now change one fact. The merchant misses the response deadline. The chargeback stands automatically, the merchant loses the Rs 8,000 and the fee, and the evidence it held no longer matters, because the deadline has passed. That is why dispute handling is a race against the calendar as much as a question of evidence. An analyst designs the dispute process around three controls. First, evidence capture at the time of the transaction. Delivery records, customer communications, and terms accepted, stored so they can be found months later when the chargeback arrives. Second, triage. Chargebacks are sorted by value and by winnability, so the team spends its time on the disputes it can win and the amounts that matter. Third, deadline tracking. Every chargeback carries its response deadline on the work queue, with an alert before it expires, because a missed deadline loses a winnable dispute. The reporting should show the chargeback rate by merchant, by product, and by channel, because a product that generates repeated not as described claims has a product problem, not a dispute problem, and fixing the product is cheaper than fighting the chargebacks.