How the Arbitration Chargeback Process Works
Arbitration is the last step of a chargeback. The network steps in when the two banks cannot agree. Here is how it works and what to send.
- Network
- Dispute stages
- Published
What is arbitration in chargebacks?
Arbitration is the last step of a chargeback. It happens when the merchant's bank and the cardholder's bank cannot agree on who owes the money. At that point the card network steps in and makes the call.
Under Visa's rules, arbitration comes after the dispute cycle ends. Visa then decides who must pay. The network does not act as a judge of your business. It reads the rules and the papers each side sent.
Arbitration costs money and it carries risk. The side that loses usually pays the fees. So you should only push a case this far when your proof is strong.
When does a dispute reach arbitration?
A dispute does not jump straight to arbitration in most cases. It first runs through the earlier rounds.
After the chargeback cycles, the issuer may continue the dispute through pre-arbitration and arbitration case filing. For all other disputes, the issuer must first file a pre-arbitration case to keep going. Only ATM and Maestro transactions can skip that step. For ATM and Maestro transactions, pre-arbitration is optional, and the issuer may go straight to an arbitration case.
If you are new to these notices, start with how to read a chargeback notice.
Mastercard arbitration process
On Mastercard, the path runs through pre-arbitration first. Mastercard lets an issuer file a pre-arbitration case when the chargeback was valid and the second presentment did not fix the dispute.
Your side then has a choice. The acquirer can accept a pre-arbitration case. Then it must pay for the disputed sale. Or the acquirer can reject the case. It sends a rebuttal and any papers that matter. The acquirer can also reject the case. Mastercard allows this when the merchant has a reply to the issuer's new documents.
Do nothing and you lose. If the acquirer takes no action on a pre-arbitration case, it accepts financial responsibility for the transaction.
The issuer can still reject your reply. If it still thinks the chargeback is valid, it can take the case to arbitration. When the issuer and acquirer cannot resolve an arbitration case, Mastercard decides who is responsible. It rules on the case as filed and assigns liability based on its merits and the rules. Mastercard holds the issuer liable if it skipped a required pre-arbitration case or filed arbitration too late.
One trap to avoid. Mastercard ignores second presentment documents received once a pre-arbitration or arbitration case has been filed. It also ignores papers sent late in a pre-arbitration reply. The acquirer should have sent those with the second presentment. Send your best papers early, at the round where they belong.
Visa arbitration process
Visa sorts disputes into two paths. For fraud and authorization disputes, the acquirer answers with a pre-arbitration attempt. The acquirer may send Compelling Evidence with that attempt. Visa calls this Compelling Evidence. It is proof the cardholder made the sale or got something from it.
For processing error and consumer disputes, the acquirer can send a Dispute Response. Pre-arbitration is the stage where the issuer must deal with the evidence in that response.
A side that does not respond in time closes the dispute cycle and is responsible for the amount. If the issuer pushes past pre-arbitration, the case goes to arbitration. Then Visa decides who must pay. For more on the full flow, see the Visa chargeback process.
Preparing for arbitration: documents and evidence
Your papers decide the case. Gather them before you reply, not the week of a deadline.
- The order record, with date, amount and items sold.
- Proof of delivery or service, such as a signed receipt or tracking.
- Any emails or messages between you and the customer.
- Terms the customer agreed to, shown at checkout.
Visa has one strict rule at arbitration. You cannot show Visa any paper you never sent to the other side. When deciding a case, Visa looks at whether time limits were met and documents were supplied, readable and translated. So send clear copies, and translate anything not in English.
What happens after an arbitration decision?
Mastercard posts its arbitration decision in the Mastercom application and moves the disputed amount between the two sides. The decision is final for the money in that case. If you lose, the funds stay with the other side and you may owe the arbitration fee.
Appealing an arbitration ruling
A ruling is not always the end. An appeal is a written request asking Mastercard to reconsider its ruling. A party must get its appeal to Mastercard within 45 calendar days of the ruling. Mastercard decides whether supporting documents give enough detail for everyone to understand the dispute or rebuttal.
Appeals are rare and the bar is high. Most merchants are better off building a stronger case at pre-arbitration. If you want to see how the earlier rounds work, read what happens after you answer a chargeback.