A chargeback is a type of payment and is the movement of funds to or from a merchant.

A chargeback occurs when a merchant's customer contacts their issuing bank (e.g. Capital One, American Express, Chase) and disputes a payment on their credit card. The customer believes they were wrongfully charged and are requesting their money back with the help of their bank. Chargebacks can be initiated by the issuing bank within 180 days after the payment is processed. Specific timing is dependent on the issuing bank and the dispute reason.

Dispute reasons

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A payin can be disputed for a variety of reasons. A dispute reason code is provided with the chargeback to provide an explanation of why the customer has disputed the payin. A few common reasons include:

• Goods/services are not delivered
• Products received are not as advertised
• Merchant assumed to not be following its refund policy
• Charged by mistake
• Fraudulent payments

Chargeback phases

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A chargeback can go into 2 phases - inquiry and dispute. A customer can choose to initiate an inquiry to investigate a payment prior to moving the chargeback into a formal dispute.

Inquiry

An inquiry is when the customer or the issuing bank initiates an investigation into a payment and asks the merchant to provide evidence that the payment was valid. During an inquiry, the funds are not pulled back from the merchant. This preliminary phase happens before the chargeback enters the dispute phase.

Platform actions

Rainforest will notify the platform via webhooks when a chargeback goes into the status of Inquiry Action Required. You should notify your merchant of the chargeback and they can choose to respond to the inquiry via the Rainforest Chargeback Reporting Components.

If the merchant responds to the inquiry and the customer's bank decisions the inquiry in favor of the customer, the bank will proceed with a dispute. Rainforest will notify the platform when the chargeback moves into the status of Dispute Action Required. You should notify your merchant that the inquiry has moved to a dispute and they can choose to respond to the dispute.

Inquiry decision

The chargeback inquiry will result in one of the following:

1. Merchant wins the chargeback. The funds remain with the merchant. An inquiry can be won by:
   1. Providing sufficient evidence and the bank decisions the chargeback as a win.
   2. The merchant does not respond to the inquiry and the customer does not initiate a dispute within 50 days. This is highly unlikely and in most cases the customer or the issuing bank will initiate the dispute.
2. Chargeback moves to the dispute phase. The funds are pulled from the merchant. A chargeback can move to a dispute by:
   1. Not providing sufficient evidence and the bank proceeds with a dispute.
   2. The merchant does not respond to the inquiry and the customer initiates the dispute.

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Always respond to inquiries

The merchant is highly encouraged to respond to all inquiries in the effort to resolve the chargeback before it moves to the dispute phase. If an inquiry moves to a dispute because the merchant chose not to respond, then the probability of the merchant winning the dispute is much lower.

Dispute

A chargeback can enter the dispute phase by:

1. Customer or issuing bank initiating the chargeback in the dispute phase and the chargeback never went into the inquiry phase.
2. Chargeback proceeded from the inquiry phase to the dispute phase.

During a dispute, the funds are pulled back from the merchant until a decision is made by the customer's issuing bank. The merchant can respond to the dispute by providing evidence that the payment was valid or accept the dispute as a loss.

Platform actions

Rainforest will notify the platform via webhooks when a chargeback goes into the status of Dispute Action Required. You should notify your merchant of the chargeback and they can choose to respond to the dispute via the Rainforest Chargeback Reporting Components.

Dispute decision

The chargeback dispute will result in one of the following:

1. Merchant provisionally wins the chargeback. The funds are returned to the merchant, however during this status the issuing bank can overturn their decision and the merchant can lose the chargeback.
2. Merchant wins the chargeback. The funds are returned to the merchant.
3. Merchant partially wins the chargeback. A partial amount of the chargeback is returned to the merchant.
4. Merchant loses the chargeback. The funds remain with the customer.

Respond to a dispute

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Merchants can respond to chargeback inquiries and disputes through the Rainforest Reporting Components. See the dispute chargebacks guide on how to embed the Chargeback Report Component.

Chargeback statuses

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The chargeback status is the descriptor of the current status in the life cycle of the chargeback.

Status diagram