Card Payments - Part 3 (Chargeback Life Cycle)

 

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Recap, from the previous article:

Use Case

#1. Neeraj used his AXIS Bank Credit Card at Big Bazar for INR 100. The Transaction gets authorized and Neeraj received the Product or Service.

#2. Issuer deducts the INR 100 from the credit limit, subtracts INR 2 as Interchange Fee and transfer the INR 98 to the Mastercard. From this INR 2, some part goes to the Mastercard, and some are retained by the Issuing Bank as per agreement.

#3. Mastercard transfers this INR 98 to the Big Bazar’s Bank i.e., HDFC Bank.

#4. The HDFC Bank deduct the MDR of INR 0.50 and transfers the INR 97.50 to the Merchant’s Bank Account. 

What will happen if Neeraj claims that he has not received the Product or Service for which he has paid INR 100 to the Big Bazar. We will see this in the next article of Chargeback Lifecycle.

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Now let us understand the Chargeback Lifecycle:

Continuing the above Use Case –

Step 1: I (Neeraj) will call my bank i.e., Axis Bank and ask them that I have not received the Product / Service from Big Bazar and I want my money back. I’ll provide some supporting documentation as well.

Step 2: Axis Bank will investigate my claim and if my claims appear true then Issuer will mark the transaction as invalid and proceed to the next step.

Step 3: This is Chargeback filing step. In this step, Axis Bank will reverse the transaction meaning Axis will forcefully withdraw the money from Big Bazar’s Acquirer and transfer it to my Axis bank account. Remember this is a conditional refund. At this step, Axis Bank will notify the Big Bazar’s Bank about the Chargeback Issuance with the relevant Chargeback Reason Code.

Note: Chargeback Reason Code plays an important role, and we will cover this in some other article.  

Step 4: Now Acquirer Bank reviews the information submitted by the Axis Bank and forward it further to the Big Bazar along with some more details and ask whether you want to fight back or not.

Step 5: Big Bazar knows that they have provided the goods to me, and they decide to fight the Chargeback. Big Bazar collects all the evidence and submits it to their Acquirer Bank.

Step 6: This step is known as Representment. Acquirer Bank submits all the documents received from the merchant to the Axis Bank.

Step 7: Axis Bank reviews all the evidence and matches it with the evidence provided by the Neeraj (the Cardholder). If Axis Bank finds the Big Bazar’s story more convincing, then Axis Bank reverses the Conditional refund provided to the Neeraj (The Cardholder). Axis Bank returns the money into Big Bazar’s Account.

This is a Happy Path Chargeback scenario. 😊 But generally, it doesn’t end here.

Step 8: In Step 7, it is possible that Axis Bank is not convinced with the Big Bazar’s story and keep its original decision and refuse to return the Big Bazar’s fund. At this step, Axis Bank initiates the Second Chargeback. Visa calls it Pre-arbitration and Mastercard calls it Arbitration Chargeback.   

Step 9: The Acquirer Bank again informs the Big Bazar ask that Axis Bank has rejected your request. If you have some more strong evidence to fight back, then you can fight back. Here, again Big Bazar decides to fight back.

Step 10: This step is called Second Presentment. Big Bazar again submits all the relevant details to the Acquirer Bank. This time Acquirer Bank doesn’t send the information to Axis Bank instead they send it to the Payment Scheme (Mastercard or Visa). Now Arbitration Process starts.

Step 11: During Arbitration Process, the Payment Scheme reviews the documents provided by the Acquirer and issuer Bank. The payment Scheme (Mastercard or Visa) decision is final and cannot be challenged.

Step 12: After Payment Schemes ruling if Big Bazar (Merchant) or Neeraj (Cardholder) anyone is not satisfied then they can proceed to the legal court.