When you lose a chargeback that should've been a win, it often feels personal. You had the evidence. You followed the rules. But somehow, it wasn't enough. The truth is, the chargeback system doesn't work the way most merchants think it does. It's not a courtroom. It's a layered process filled with middlemen, biased priorities, and rules that rarely favor the business.
In this blog, we break down exactly how the chargeback system works, who really calls the shots, and why even airtight cases can still fall apart.
What is the Chargeback System?
The chargeback system is the formal process that allows cardholders to dispute transactions and request a refund from their bank. It was designed to protect consumers from fraud and billing errors, but it now functions as a complicated ecosystem involving multiple players: issuing banks, acquiring banks, processors, and the card networks.
Here's how it plays out:
- The cardholder files a dispute with their issuing bank.
- The issuing bank reviews the claim and assigns a reason code.
- The merchant receives a notification from their processor or acquiring bank and has the opportunity to respond with evidence.
- The issuing bank makes a decision, often based on internal review and the evidence submitted.
- If unresolved, it can escalate to pre-arbitration or arbitration handled by the card network (Visa or Mastercard).
This might sound fair on paper, but the way it works in reality is rarely balanced.
The Role of Issuing Banks
The issuing bank is the cardholder's bank. They initiate and decide most disputes. Their customer is the cardholder, and they want to keep that customer happy. That often means siding with them, especially when the merchant's evidence isn't airtight or when the cardholder seems credible.
Issuers are under pressure to meet regulatory expectations, fraud thresholds, and service standards. Reviewing hundreds of disputes per day means shortcuts get taken. Form-letter evidence responses, vague screenshots, or unclear timelines can lead to an easy rejection, even if your case is valid.
Also, not all issuing banks follow the same rigor. Some lean heavily in favor of cardholders regardless of what the evidence shows.
What Acquirers and Processors Actually Do
Acquiring banks (or merchant banks) and payment processors (like Stripe, PayPal, or Adyen) act as middlemen. They relay chargeback notices to the merchant and handle submission of your response back to the issuer.
However, they don't make the final decision. They may have internal teams that help merchants craft responses, but they aren't neutral parties either. Their job is to limit exposure, avoid fines, and process claims efficiently. Many use automated systems or pre-set templates that don't always reflect the complexity of your case.
In some cases, the processor might even block merchants from challenging certain chargebacks, especially high-risk disputes or fraud-related claims flagged by issuer tools like Visa's TC40 or Mastercard's SAFE report.
Visa and Mastercard: Rulemakers, Not Referees
Card networks create the chargeback rules and codes, but they don't oversee most of the disputes that happen. They only get involved when a case escalates to arbitration or pre-arbitration, and by that point, it's already costly, time-consuming, and often not worth the effort for small disputes.
Visa and Mastercard do not act like judges. They offer a framework, but enforcement depends on how well banks and processors follow those rules. Their role is more like writing the playbook, not calling the plays.
Visa's compelling evidence guidelines or Mastercard's chargeback reason code library can be helpful, but they aren't always interpreted the same way by issuers.
Why Evidence Doesn't Guarantee a Win
You can do everything right: provide screenshots, customer service logs, signed delivery slips, refund policies, and transaction IDs. But that still doesn't guarantee you'll win.
Why? Because the decision is ultimately made by the issuer, who is incentivized to believe their cardholder unless there's overwhelming, clear, and simple evidence.
Other reasons your case might lose:
- The evidence wasn't submitted in the right format or order.
- The processor used an outdated template.
- The cardholder changed their story in a follow-up call.
- The chargeback reason was miscoded (e.g. "fraud" instead of "product not received").
This is why many merchants feel like the system is rigged. It's not transparent, and there's little accountability for bad decisions.
What About Representments and Arbitration?
The representment stage is your chance to fight back by submitting evidence. But it's not a second chance to explain the situation, it's your only chance. Once the issuer rules, you usually won't see a detailed reason for the loss.
If you disagree with the decision, you can request pre-arbitration, which goes back to the issuer for one more review. If it still doesn't resolve, arbitration takes it to the card network, where fees can exceed $500 per case. That's often more than the transaction amount itself.
Most merchants don't pursue arbitration unless the amount is high or the principle matters. But even there, outcomes are far from guaranteed.
Conclusion
The chargeback system was built to protect cardholders, not merchants. While that may have made sense in the early days of credit cards, today it's led to a lopsided process where good merchants are losing legitimate sales with little recourse.
Understanding the roles of each party, the issuer, the acquirer, the processor, and the card networks, makes it easier to see why good evidence isn't always enough. Prevention, not reaction, is still the most reliable way to reduce chargeback losses.
FAQ: The Chargeback System
What is the difference between a chargeback and a refund?
A chargeback is initiated by the cardholder through their bank, while a refund is initiated by the merchant directly. Chargebacks are often treated as claims of fraud or dissatisfaction and can affect your dispute ratio and standing with processors.
Who decides the outcome of a chargeback?
Most chargebacks are decided by the cardholder's issuing bank. Processors and acquiring banks relay information, but they don't control the final decision. Card networks only step in during arbitration, which is rare.
Can merchants contact the cardholder directly to resolve a dispute?
Sometimes, yes, especially for non-fraud disputes. However, for chargebacks marked as fraud, contacting the customer can violate rules and may worsen your case.
How long does the chargeback process take?
From initial dispute to final resolution, a chargeback can take anywhere from 30 to 90 days or more, depending on the reason code, card network, and whether it escalates to arbitration.
Is it worth fighting every chargeback?
No. If the transaction amount is low or the customer is unresponsive, it may not be worth the time and effort. Focus on disputing winnable cases with strong documentation and clear timelines.
Don't Just React, Get Ahead of the Chargeback Game with Chargeblast
Chargeblast helps merchants protect their revenue by preventing disputes before they happen. Our tools go beyond evidence submission. We work at the alert level to stop disputes early, flag fraud patterns, and automate the chargeback process with smarter strategies tailored to the way the system actually works. If you're ready to fight smarter, not harder, we've got your back.
