This article will explain lifecycle of a chargeback.
1. A payment is initiated
The lifecycle of a chargeback all begins with a Payment, either an ACH or credit card transaction. In short, the shopper transfers funds to the sub-merchant via ACH or card network during the completion of a payment.
2. Chargeback Initiation
Most commonly within the context of AndDone, a chargeback event is initiated due to insufficient funds in the payer's account or errors in the provided bank account information. Insufficient funds occur when a shopper attempts to make a payment without the necessary balance to cover the transaction. Mistakes in bank account information can include typographical errors in account numbers, incorrect routing numbers, or outdated information that does not match current banking details. These mistakes can prevent the transaction from being processed correctly, prompting a chargeback to recover the funds.
3. Chargeback Notification
The shopper's bank, referred to as the Originating Depository Financial Institution (ODFI), transmits a chargeback notification to the merchant’s bank, known as the Receiving Depository Financial Institution (RDFI), via the ACH network. Upon receiving this notification, the sub-merchant's bank will update the sub-merchant about the chargeback event.
4. Merchant Response
Once the merchant receives the chargeback notification, they will have a limited amount of time, typically ranging from 60 to 90 days, to address and respond to the dispute.
5. Chargeback Review
The merchant's bank (RDFI) evaluates the response to the chargeback and determines whether to uphold the chargeback or challenge it by appealing to the shopper's bank (ODFI). Typically, chargebacks will be upheld in this stage.
6. Chargeback Resolution
In this stage, typically the payment with be reversed and the chargeback amount will be credited to the Sub-Merchant's virtual bank account.
7. Impact
When chargebacks are reversed, the Merchant will have to pay AndDone back for the chargeback. In the past, funds would be returned to AndDone via Payment Link. Going forward, however, Sub-Merchant will have the option to process chargebacks via Invoicing or Net Settlement of Chargebacks.
Click here to learn the differences between chargeback invoicing and chargeback net settlement.
If you need assistance or have further questions, please refer to our self-service Knowledge Base!