What Every Merchant Must Know About Visa Arbitration for Disputes

Chargebacks can often feel adversarial, like a courtroom drama. But they don't have to be. Think of the chargeback process as a negotiation. You (the merchant) and the cardholder are the primary parties, with your acquirer and the card issuer acting as intermediaries. Ideally, you work together to find a resolution that satisfies everyone — similar to an out-of-court settlement. However, if you and the cardholder can't reach an agreement, the card network (like Visa) steps in as an impartial arbitrator. They review the evidence and make a decision based on the facts presented.

Definition of Visa Arbitration

Visa arbitration is the final step in resolving a dispute when the involved parties (banks, cardholders, and merchants) cannot reach an agreement. As the card network, Visa acts as a neutral arbitrator. They license card issuing rights and provide the underlying payment infrastructure, enabling them to play an impartial role. A Visa representative thoroughly reviews all evidence during arbitration and delivers a final, unbiased decision. While appealing a Visa arbitration decision is possible, it's costly. The current fee for such a service is $1000. It’s vital to mention that while such operations are mostly known as “chargebacks,” Visa has officially replaced the term "chargeback" with "dispute" in its official communications.

Pre-Arbitration with Visa

Before a Visa arbitration, two crucial steps occur: representment and pre-arbitration. Let’s find out what exactly each one involves.

• Representment:
  In this stage, you present evidence supporting the legitimacy of the original transaction.
• Pre-arbitration:
  This is the bank's response to your representment. If the bank rejects your response, a pre-arbitration case may be initiated.

The specific process can vary depending on the nature of the dispute.

During pre-arbitration, the card issuer may review new evidence the cardholder provides. This review could change the original dispute reason code. For example, an initially unauthorized charge might be reclassified as "Goods/Services Not Received." When a pre-arbitration is submitted, you and your bank face a critical decision: either accept the dispute or escalate the matter to a formal Visa arbitration.

The Allocation Visa Arbitration Process

For fraud-related or authorization-related claims, Visa employs a set of established rules to assign responsibility automatically. Visa analyzes the complaint data and determines its validity. This workflow combines traditional representment and pre-arbitration into a single "pre-arbitration phase," during which Visa directly adjudicates the dispute.

To simplify, the process usually includes the following steps:

Step 1: The initial transaction occurs.

Step 2: The cardholder files a complaint, which Visa evaluates based on its rules. Invalid claims are immediately dismissed.

Step 3: Valid complaints are forwarded to the merchant.

Step 4: The merchant's bank submits evidence to challenge the cardholder's claim.

Step 5: If the issuer rejects the bank's evidence, a pre-arbitration response is issued, and the dispute escalates to Visa for a decision.

Step 6: Visa reviews the evidence and delivers a final, binding judgment.

If the bank rules in favor of the cardholder, merchants have limited options to challenge the decision. These options are subject to strict deadlines, typically 30 days or less, set by individual acquirers.

The Collaboration Visa Arbitration Process

Visa chargebacks arising from consumer disputes or processing errors are typically addressed through the Collaboration track. As the name suggests, this workflow prioritizes a collaborative approach, encouraging all parties involved – the merchant, the cardholder, the acquiring bank, and the issuing bank – to actively work together to find a mutually agreeable resolution.

The emphasis on collaboration ensures that all parties have the opportunity to present their perspectives, understand the concerns of others, and explore potential solutions that address the underlying issues. This collaborative approach can lead to quicker resolutions, reduce costs associated with disputes, and ultimately enhance the overall customer experience.

The process of this route usually involves the following steps:

Step 1: The initial transaction occurs.

Step 2: The cardholder or the issuing bank initiates a dispute regarding the transaction.

Step 3: The merchant responds to the dispute by submitting a "representment" to the issuing bank. This representment includes evidence supporting the transaction's legitimacy, such as order confirmations, shipping receipts, or customer service records.

Step 4: The issuing bank reviews the merchant's representment. If the issuing bank rejects the merchant's evidence and maintains the dispute, this action constitutes a “pre-arbitration attempt.”

Step 5: The acquirer can accept the issuer's decision and concede the dispute. However, it can also challenge the decision and decline the pre-arbitration attempt.

Step 6: If the acquirer declines the pre-arbitration attempt, the issuing bank escalates the dispute to the card network for arbitration.

The Collaboration track is designed to minimize the need for direct intervention from Visa. This approach aims to expedite the resolution process while preserving valuable customer relationships by fostering open communication and encouraging proactive problem-solving among the stakeholders.

Can Sellers Win an Arbitration Dispute?

While merchants can win Visa arbitrations, the process is often costly and challenging. The odds of success are not always favorable, as disputes can be complex, and navigating the process requires careful attention to detail. Winning a dispute is never guaranteed, and even with meticulous preparation, mistakes or missed deadlines can jeopardize a merchant's chances. Card networks often prioritize the most expedient resolution, which may sometimes favor the cardholder, especially in cases where consumer protection is a key consideration. Furthermore, merchants may have already exhausted their evidence during the initial dispute-resolution stages. Without substantial new evidence, the likelihood of success in arbitration diminishes significantly.

When Visa Arbitration Is Necessary?

Arbitration should be carefully considered, as it carries significant financial risks. Visa arbitration fees can be substantial, including a $500 filing fee when the cardholder prevails, a $1,000 fee for appealing a decision, and a potential $250 penalty for violating Visa's Merchant Agreement. These fees, in addition to the original chargeback amount, can significantly impact a merchant's bottom line. Therefore, arbitration should only be pursued when the potential financial liability of losing the case significantly outweighs the associated costs.

However, financial considerations are not the only factor. Arbitration can also negatively impact customer relationships, particularly with loyal or repeat customers. Escalating a dispute to arbitration can damage customer trust and goodwill, potentially leading to lost business in the long term. In such cases, exploring alternative solutions, such as offering a refund or a partial credit, may be more beneficial for the merchant. Therefore, each case must be thoroughly considered to avoid the risk of unnecessary expenses and damaged relationships with clients. Overall, it is better to avoid Visa arbitration if possible.

How to Avoid Visa Arbitration

To avoid the complexities and potential financial losses associated with the arbitration process, focusing on preventing chargebacks from occurring in the first place is crucial. This requires a well-defined and proactive chargeback prevention strategy. Germius has a set of efficient tools to help merchants navigate the entire chargeback process effectively. In addition to assisting with winning chargeback representment, Germius instruments guide merchants through all phases of the chargeback lifecycle, enabling them to focus on business growth and sustainability.