Chargebacks are challenging. For cardholders, if there’s a need to file a chargeback, there’s a high chance that they have been defrauded by a merchant, or criminals who stole their credit cards. Merchants, meanwhile, have to deal with chargeback fees, a rising chargeback ratio, lost inventory, wasted labor, and more. For financial institutions, including both acquiring and issuing banks, chargebacks are also a major burden.
Let’s take a closer look at chargebacks from the perspective of the banks. Understanding their point-of-view can be helpful for merchants looking to combat fraud and chargebacks. Merchants can also develop a better understanding of the chargeback representment process that banks will need to participate in when disputes arise.
Keep in mind that cardholders are legally entitled to file chargebacks in many jurisdictions, including the United States. This means banks are legally obligated to offer chargeback representment and ways for cardholders to file disputes.
A Look at the Chargeback Dispute and Representment Process From the Bank’s Point-of-View
If a cardholder wants to dispute a chargeback, they’ll start by contacting their card-issuing bank (issuer). This might mean sending an email, calling customer service, or using a chat program. Whatever the channel, the issuing bank must dedicate resources to communicating and starting the chargeback process.
Further, because fraud may be in play, banks will typically try to respond as quickly as they can. Otherwise, someone might use a stolen credit card to make unauthorized purchases, which will cause more headaches for the bank. Many banks set up around-the-clock teams to handle chargebacks and monitor for fraud, which can raise costs.
Chargeback Alerts From the Bank’s Perspective
Many issuers now participate in chargeback alert programs, including those offered by Ethoca and Verifi (both are available within ChargebackHelp). If an issuer is in such a program, they can contact either the merchant or the merchant’s acquirer before the chargeback is filed to request more information and/or offer the merchant a chance to resolve the dispute without going through chargeback representment.
If the merchant plays ball, it could save the issuer from a lot of headaches. Yet issuers still need to dedicate resources to handling chargeback alerts and follow-up. The merchant’s acquiring bank, meanwhile, may be asked to provide information or pass along communications. This means acquirers too must dedicate resources to handle disputes.
Chargeback Representment From the Bank’s Perspective
If the dispute isn’t resolved through chargeback alerts, the bank will start the chargeback representment process. In some cases, the merchant may opt to simply accept the chargeback from the get-go. If so, penalties will be assessed, funds will be returned to the cardholder, and the case is closed. The merchant could (and often should) instead choose to fight the chargeback.
During the representment process, the merchant in question will be able to re-present the transaction to the card-issuing bank. They can write a chargeback rebuttal letter explaining why the charge was legitimate and also why a chargeback is not warranted. The acquiring bank is often asked to facilitate communication between the merchant and the issuing bank.
Some evidence the merchant might present includes:
- IP addresses
- Social media posts
- Signed shipping receipts
The cardholder may also be asked for their side of the story and/or to provide further information. Once all of the evidence is submitted, the card issuing bank will then determine whether the chargeback is warranted. If they approve the chargeback, the cardholder will get their money back permanently. If they rule against the cardholder, any provisional credits may be reversed and the revenue will be returned to the merchant.
Both the cardholder and merchant can file a second represenment. If so, the chargeback representment process starts over, including for the banks. This typically only happens when new, compelling evidence is discovered.
After second represenment is completed, if all parties don’t accept the outcome, the card network may be brought in to arbitrate. Typically, either the cardholder or the merchant will be assessed expensive fees by the card network, based on who the network sides with. Even after arbitration, it may be possible for an aggrieved party to file a civil case.
Dispute Chargeback Fees, Chargebacks Aren’t Worth it For Banks
Banks can charge merchants chargeback fees, and you might think that incentivizes them to pursue chargebacks. The fees typically cost upwards of $100 (less through ChargebackHelp).
Yet banks have to dedicate quite a bit of labor power to resolving chargeback disputes. Setting up policies, communication channels, and everything else is resource-consuming. So even though they can charge fees, many banks would still rather avoid chargebacks altogether.
Further, card networks can and do punish banks for chargebacks, and the penalties imposed can be quite expensive. The revenue from chargeback fees charged to merchants can be used to cover these penalties, but ultimately banks would rather not have to contend with the issue in the first place.
Visa, for example, recently announced updates to their Visa Acquirer Monitoring Program (VAMP) set to roll out at the start of April 2025. If an acquiring bank suffers a chargeback ratio of just .5% across their portfolio they could end up placed in the VAMP and charged fees for excessive chargebacks. This means acquiring banks don’t even have to suffer very many chargebacks, which helps explain why many acquiring banks either drop merchants who suffer a lot of chargebacks or charge them higher fees.
Take-Away: Chargebacks are a Burden For Banks and Merchants Alike
Ultimately, chargeback representment and disputes, in general, are a major hassle for every stakeholder. Arguably, the process is easiest for the cardholder, while it’s more of a pain for merchants and they’ll suffer penalties no matter the outcome of representment (merchants must pay chargeback fees even if they win the dispute.)
Financial institutions would rather avoid the mess when possible. As such, many banks take steps to reduce fraud and also participate in chargeback alert and data sharing programs offered by Visa Verifi and Mastercard’s Ethoca subsidiary, among others.
Need help with chargebacks? Contact our team of chargeback experts today.