Credit Card Chargeback: The Complete Process Explained
“In cross-border transactions, credit card chargebacks are one of the most frequent and costly risks faced by merchants. Beyond direct revenue loss, chargebacks also generate additional operational and compliance costs.”
Below is a comprehensive breakdown of the credit card chargeback lifecycle—from initiation and fund reversal to merchant representment and final liability decisions—highlighting key rules, risk points, and effective response strategies at each stage.
1. Chargeback Initiation
Chargebacks are governed by strict timelines, defined initiating parties, and standardized reason codes under international card network regulations.
1.1 Timeframe
Most chargebacks can be initiated within 60 days of the transaction date.
Many issuing banks extend this window to 120 days, while certain scenarios allow chargebacks to be filed up to 540 days after the original transaction.
1.2 Initiating Parties and Legal Basis
Chargebacks may be initiated by either the cardholder or the issuing bank:
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Cardholder-initiated chargebacks
Cardholders only need to contact their issuing bank to dispute a transaction. This process is governed by international consumer protection frameworks such as the Truth in Lending Act (TILA) and the Electronic Fund Transfer Act (EFTA), which grant cardholders broad rights to challenge transactions suspected of fraud or misconduct. -
Issuing bank–initiated chargebacks
These typically arise when the bank detects transaction anomalies, including: -
Transactions completed without proper authorization;
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Use of expired cards or processing timeouts without adequate validation;
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Mismatches between submitted card data and issuing bank records.
1.3 Primary Chargeback Reasons
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Stolen card fraud
Unauthorized transactions conducted using compromised card information. -
Friendly fraud (first-party misuse)
Deliberate or opportunistic abuse of the chargeback mechanism, such as:-
Forgetting or denying a legitimate purchase;
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Family members using the card without acknowledgment;
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Claiming non-receipt or “not as described” despite receiving compliant goods.
In essence, this represents an attempt at “free goods” at the merchant’s expense.
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Commercial disputes
Genuine transaction issues, including non-delivery, delayed shipment, or material discrepancies between the product and its description (e.g., size, color, or model).
1.4 Issuer Review Bias
Issuing banks generally prioritize cardholder experience. If a claim lacks basic plausibility, it may be rejected outright; however, in most cases, issuers initially accept the cardholder’s narrative with limited investigation.
This structural bias has contributed to a steady rise in friendly fraud cases worldwide. Leveraging proprietary detection technologies, Paysure accurately identifies malicious chargeback intent, enabling merchants to counter fraudulent claims effectively.
2. Fund Reversal
Once an issuing bank accepts a chargeback request, funds are rapidly withdrawn, resulting in dual losses for the merchant:
Immediate fund deduction
The transaction amount is clawed back from the acquiring bank and debited directly from the merchant’s account.Additional chargeback fees
Merchants are required to pay processing fees to the acquiring bank, typically ranging from USD 15 to USD 100 per case, further increasing the financial burden.
3. Merchant Representment (Dispute Defense)
To protect merchant rights, international card networks such as Visa and Mastercard explicitly allow merchants to contest chargebacks through representment. This stage is critical—but demands a high level of expertise.
3.1 Core Requirements
Merchants are notified of the chargeback reason via their acquiring bank and must submit supporting evidence within strict card-network deadlines.
A strong representment case requires:
Accurate identification of the true dispute cause;
Alignment with card network rules and issuer preferences;
Clear structure, concise logic, and compelling evidence.
3.2 Common Challenges in Self-Managed Disputes
Even when merchants are not at fault, many lose disputes due to:
Lack of familiarity with card-brand–specific procedures, leading to missed deadlines or non-compliant submissions;
Treating the stated reason code as the real cause, failing to uncover underlying fraud or abuse;
Weak or unfocused evidence, such as missing delivery confirmation, signature proof, or product comparison materials;
Limited English proficiency and cross-border communication skills, resulting in lengthy but ineffective explanations;
Absence of coordinated communication with buyers or issuing banks, eliminating opportunities for early resolution.
3.3 Paysure Chargeback Recovery Advantage
To address these challenges, Paysure offers a professional Chargeback Recovery service. With extensive hands-on experience across all major card networks, a dedicated policy research team, and case-by-case expert handling, Paysure designs tailored defense strategies that consistently achieve win rates significantly above industry averages, helping merchants recover lost revenue efficiently.
4. Issuer and Card Network Decision
After representment submission, cases enter the final liability determination stage.
4.1 Decision Timeline
Standard cases: 30–90 days
Complex cases: up to 120 days or longer
4.2 Outcomes and Impact
Merchant win
The chargeback is reversed and funds are returned. However, merchants typically still incur a USD 15–150 processing fee, depending on the acquiring bank.Merchant loss
The transaction amount is permanently forfeited, chargeback fees apply, and the dispute negatively affects the merchant’s risk profile.
4.3 Second Chargeback Risk
Even after a successful defense, cases may not be fully closed. Cardholders can reinitiate disputes by changing the reason code or submitting additional (often fabricated) evidence. If the issuer accepts the new claim, merchants must restart the defense process with fresh documentation.