Understanding Pre-Arbitration Chargebacks

Original article found here: http://pdscouncil.com/knowledge-base/understanding-pre-arbitration-chargebacks/


The entire transaction dispute process generally plays out in the following order:

Step #1: Initial Chargeback

First, either the cardholder or their issuing bank initiates the chargeback process to dispute a transaction.

The issuer reviews the transaction to determine whether the cardholder has a case convincing enough to file a chargeback.

If the bank doesn’t suspect friendly fraud and believes the customer at least attempted to contact the merchant, funds will be transferred back to the cardholder. The funds are forcibly withdrawn from the merchant’s account, and the business is charged a nonrefundable processing fee even if the chargeback is later overturned.

Step #2: Representment

If the merchant believes that the chargeback is a case of friendly fraud, the issuer’s initial decision can be disputed through representment.

The merchant collects a body of compelling evidence to support the claim and submits this evidence to the acquirer within an allotted time frame. The acquirer forwards this evidence to the issuer for review in hopes that they will find it convincing enough to reinstate the initial transaction.

This doesn’t sound difficult at first, but it is actually a complicated and time-consuming process demanding considerable attention to detail. Merchants need to create an airtight case or else they risk the dispute progressing to a pre-arbitration chargeback.

Step #3: Pre-Arbitration

If the issuer believes that the circumstance of the case change, they can deny the representment through pre-arbitration. The issuer has the option to enter pre-arbitration at any point during the chargeback or representment process.

For example, if new information comes to light that could impact the final decision in the dispute, pre-arbitration will essentially reset the chargeback process. The merchant will then need to create a new representment case based on the new information or evidence.

The timing of the case depends on when the issuer has access to new information, presented by either the merchant or the consumer.

Step #4: Requesting Arbitration

If either party involved disagrees with the decision reached by the issuer following the second presentment, they can move on to the last phase in the process—arbitration.

Arbitration turns the dispute over to the card network, asking them to function as an independent third-party in the case. However, each network has different processes and regulations, and each handles the arbitration process differently. It’s recommended that merchants check network-specific information regarding deadlines, document submission, and fines. Otherwise, they may unknowingly prepare a weak or invalid case.


The representment and pre-arbitration chargeback processes are very complex. Both are based on extensive bodies of industry regulation and legal framework built up over the last half-century, often requiring an extensive knowledge of the payments industry to navigate.

There is a great deal of communication between different parties. Customers and merchants can find themselves going back and forth with one another and with issuers, while issuers and merchants may need to go through the card schemes before settling a dispute.

Because this process is so complex and time-consuming, it’s typically not worth it for merchants to go all the way through arbitration.

The longer a dispute case goes on, the less likely it is that the result will be positive for the business. The demands on merchants’ resources mean that they rarely achieve an ROI, even if they ultimately win the arbitration. Thus, it’s important that merchants handle initial representments with the utmost care and attention to detail so as to avoid lengthy, back-and-forth cases.

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