Chargeback Arbitration/Pre-Arbitration 101

Chargeback arbitration and pre-arbitration are where merchants can find themselves when they cannot agree with the customer during chargeback representment.

As frustrating as chargeback representment is, it is done as a way to collect valuable information that can help merchants determine why disputes are occurring. It also puts money back in the merchant’s pockets.

Unfortunately, chargeback representment can turn into another chargeback phase, even after you’ve won the initial chargeback.

If you’ve won the representment, it’s important to note that the bank can still get those funds back from you a second time. When this happens, you’ve now entered the pre-arbitration process.

Knowing how to proceed once you enter into the pre-arbitration phase is crucial. This article will break down everything you need to know about chargeback pre-arbitration and chargeback Arbitration and explain how CB-ALERT can help you throughout.

Key Takeaways:

    • Chargeback arbitration can be risky and expensive – be sure to consult with your chargeback management team before going down this path.

    • Pre-arbitration typically occurs when a customer doesn’t accept the outcome of representment and presents further evidence to their issuing bank.

    • It is recommended to only pusure arbitration if the item is high-ticket and you have found additional evidence to support your claim.

What Is Chargeback Pre-Arbitration?

Chargeback pre-arbitration is the merchant’s final chance to solve the issue before Arbitration. Once Arbitration happens, the card brand network takes over and makes the final decision.

Pre-arbitration can be requested by the issuing bank or the acquiring bank; however, it is usually asked by the customer’s issuing bank.

Once pre-arbitration is initiated, the merchant has two options. 

    1. Accept The Liability: If the merchant accepts liability, the customer is refunded. 

    1. Request Arbitration: If the merchant requests Arbitration, the card network will step in and decide who wins the dispute.

Why Do Merchants Not Like Arbitration?

Typically, all evidence has already been submitted before Arbitration. However, if there’s more evidence to present, it is easier to win the dispute.

What Is Chargeback Arbitration

When merchants refuse to accept liability, the dispute enters Arbitration. During this phase, merchants place their fate in the hands of the card networks, which are typically impartial.

This phase only occurs when the issuing and acquiring banks cannot settle the dispute with the customer and merchant. 

While Arbitration can benefit merchants if they win, it can be time-consuming and extremely costly.

Arbitration fees vary depending on the network. For example, for Mastercard, the losing party has to pay $500 in fees. For this reason, we only advise merchants to file for Arbitration when the chargeback cost is also high-ticket, and you are confident you can win the dispute.

When a case reaches Arbitration, the merchant and chargeback mitigation company were already unsuccessful in winning the dispute with the current evidence they provided. 

For Arbitration to occur, the cardholder also provided new information to overturn the dispute, often leaving the merchant fresh out of evidence to provide.

Apply With CB-ALERT Today

If you’re looking to stamp out fraud before it begins and have your chargebacks managed for you, you’ve come to the right place.

We understand that the arbitration process is as frustrating as possible, and we are here to help.

CB-ALERT can help with the pre-arbitration phase and the arbitration phase.

Below you will find what you need to apply with CB-ALERT today:

    • Company name

    • Registered business address

    • Merchant account descriptor

    • Merchant account number issued by your payment processor

    • Access to your sales system to provide refunds/resolve alerts for you

To ensure a fast boarding and approval process, please provide us with as much information as possible.

Chargeback Cycle

The chargeback cycle varies depending on the network, but it typically looks similar to these three stages:

    • representment

    • pre-arbitration

    • arbitration

The process looks as follows:

    • The cardholder disputes a transaction with their bank

    • The bank agrees to file the chargeback

    • When the merchant receives the notice, they either accept liability or fight the chargeback through representment

    • The merchant then compiles their evidence and submits it

    • If they win, the customer can now compile evidence to file another chargeback through their bank

    • This is the pre-arbitration phase in which the merchant can accept liability or fight it once more

    • If the merchant fights it again, it heads to Arbitration, in which the card brand networks decide the outcome.

The chargeback process varies somewhat from one card network to another, but the standard setup contains three stages: representment, pre-arbitration, and Arbitration. The process only progresses to a new stage when neither the merchant nor the bank accepts liability.

The chargeback process begins when a cardholder contacts their bank to dispute a charge, and the bank agrees to file a chargeback. Once the merchant receives notice of the chargeback, they have a decision to make. They can either accept the chargeback and take the loss or fight the chargeback through representment.

In representment, the merchant gathers evidence that demonstrates that whatever reason the cardholder gave for the chargeback is untrue.

For example, a merchant would respond to a chargeback with a “transaction not authorized” reason code with proof that the cardholder authorized the transaction.

The merchant submits this evidence to the issuing bank, which makes a decision to either uphold or reverse the chargeback.

However, if the cardholder disputes the transaction a second time based on new evidence, the issuing bank can pursue that as a second chargeback. At this point, the process enters pre-arbitration, or pre-arb, as a second round of disputes. 

How Much Does Chargeback Arbitration Cost?

Chargeback arbitration fees can be extremely expensive, on top of the labor costs for managing the disputed transaction.

Card brands assess fees at different stages of the arbitration process, and there can be various fees in this process, including filing, administrative, and withdrawal fees. You can expect the costs to range between $100 to $250 for filing, administering, and withdrawal.

The fees vary heavily between card brands and regions as well. 

Whichever party loses in this phase is responsible for all fees associated. This means that the merchant could be accountable for up to $650 plus the cost of the goods/services.

Chargeback arbitration should only be pursued when you are positive that you will win.

Choose CB-ALERT To Help With Chargeback Arbitration

With over 20 years of credit card processing and chargeback management experience, we can help you with everything related to chargebacks, including the arbitration phase.

CB-ALERT can be a significant partner when it comes to growing your business and lowering your chargeback ratio:

    • Alerts in real-time Ethoca and Verifi

    • 24/7 customer service

    • Transparent pricing

    • RDR

    • Gateway/CRM agnostic

    • Order Insight

Chargeback Arbitration Pros

If you are working with a management company, you can save time. With this being said, If you win in Arbitration, you can save money on the chargeback fees.

Chargeback Arbitration Cons

The biggest con of chargeback arbitration is time. Outside of being timely, you can lose far more money than if you were to refund the customer.

Chargeback arbitration fees can become costly quickly, and it’s only advised to enter this phase with the help of a professional chargeback management company, such as CB-ALERT.

It’s also important to note that winning a dispute in Arbitration is usually difficult.

Wrapping Up

Chargeback arbitration should be left to professional companies, and it isn’t something to be taken lightly. However, if you need help with managing your chargebacks and need help with how to handle chargeback representment, fill out the application below, and we can help.

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