imagine you are paying a restaurant bill through your card and the money gets debited but doesn’t reach the merchant’s account. Or you are booking a ticket online and by the time the payment process gets completed, you get a “session timed out” error, but you also get an SMS saying the money has been debited.
Typically, the amount gets credited back to your account in a few days, but what if it doesn’t? In such a situation, you can raise a “chargeback” request with your bank. A chargeback mechanism is a dispute redressal mechanism that a cardholder can use to claim a refund in case of a fraud, dispute or even denial of service like refusing to deliver a product within the promised number of days.
Parties involved in the Chargeback Process:
To understand the chargeback process let us first go through its anatomy as to who all are included in that whole process.
The person who made the card payment and due to any of the above-given reasons decide to file a chargeback. He is the one who would raise a dispute with the issuing bank.
2. Issuing Bank/Card Issuer
The financial institution who has issued the card to the customer can be known as the Issuing Bank or the Card Issuer. It is the one that deducts the amount and pays to the merchant.
The service provider or the seller to whom you have made the online payment is a Merchant. He is the one against whom the chargeback is to be raised.
4. Acquiring Bank
The bank that authenticates the card payment and facilitates the fund transfer from the customer to the service provider or the seller to whom the payment was made.
5. Card Networks
The chargeback rules are decided by these cards networks. They have taken up the responsibility of securing the cardholders from any kind of fraudulent activities. They reimburse in case the issuing bank’s investigation proves that the chargeback filed is valid. VISA, Mastercard, AMEX and Discover are major Card Networks.
6. Merchant Banks Account
These are the destination banks where the funds are being captured by the merchant. The funds from the Acquiring bank are settled to this bank account by the payment gateway.
7. Payment Gateway
In the whole process, the payment gateway plays its role as an intermediate. They are the ones involved in the payment transfer. The complex work of facilitating the connecting of the various parties involved in the online payment transfer is done by the technology provided by the payment gateways.
Starting from providing the checkout to various integrated and tied up payment options, back and forth sending requests to various parties mentioned above and getting the response, transfer of funds from issuing bank to acquiring bank and settlement to the merchant bank account; all these and many more activities and features are provided by the payment gateways.
The cardholder disputes the transaction because of any of the reasons as mentioned previously. They file the chargeback with their issuing bank through the online medium by providing the necessary details in the chargeback online form. The issuing bank will be the responsible party to move forward with the case and also to disburse back the funds.
Further, the issuing bank reviews the case and checks if the filed dispute should be moved forward or not. If it seems to be genuine then it is forwarded to the Card Network.
One of the below conclusion may be drawn:
Invalid: The process ends as the dispute filed is deemed to be invalid
Valid: Dispute converted to Chargeback and forwarded to the Card Network
Under this step, there can be side by side two processes taking place:
- Depending upon the process some of the issuing banks provide an immediate refund to the cardholder, if the Chargeback is proved to be valid then the funds are considered to be the resultant refunds due to the chargeback and if Invalid is the conclusion then the funds are withdrawn.
- Some of the issuing banks would forward the Chargeback Dispute case to the Payment Gateways for further investigation, which in turn would ask the Merchant to respond on the same. If the Merchant responds then the Chargeback case is moved forward, investigated and if the Merchant was able to provide the required proof then the Chargeback would be invalid. If the merchant does not respond then the Chargeback would be valid and the refund process would be enacted.
As soon as the Chargeback is proved to be Valid the customer is reimbursed by the issuing bank and also the process for the funds’ transfer from the merchant bank to the acquiring bank and to the issuing bank is ignited.
So the Chargeback is passed to the Acquirer by the Card Network or the Payment Gateway whoever is the investigator. The fees are incurred by the Acquiring bank which would be eventually paid by the merchant (non-refundable). And the Acquiring bank would reach the Merchant Bank to initiate the funds’ transfer towards the issuing bank.
(The Cardholder is given an option to file the dispute again. This process is known as the pre-arbitration/second chargeback. If the merchant wins but still the cardholder is not satisfied then the dispute is filed again and that is called ‘Arbitration’.
With the filing of this, the whole process goes as the normal Chargeback Process, but the merchant will be charged a heavy fee, which will be returned back if the Merchant wins again. If they lose then that heavy fee with an additional fee will need to be paid by him.)