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How Does a Chargeback Work?

A chargeback, also referred to as a payment dispute, occurs when a cardholder questions a transaction and asks their card-issuing bank to reverse it. The ability to dispute a payment is meant to protect consumers from unauthorised transactions, but it can mean big headaches for businesses, especially when they’re issued in error.

When a chargeback happens, the disputed funds are held from the business until the card issuer works things out and decides what to do. If the bank rules against the accommodation, those funds are returned to the cardholder. If the bank rules in the cardholder's favour, they’ll send the disputed funds back to you.
Unfortunately, this can be a complicated and time-consuming process involving a lot of paperwork and documentation. There are a few common causes for chargebacks:

Fraudulent transactions: If a cardholder sees a charge from the accommodation but never bought anything from there, it could mean fraud is at play. This usually prompts them to file a dispute.

Credit not processed: In these cases, a cardholder cancels the booking in expectation of a refund or account credit and receives neither. The reason for that return may vary — maybe it’s buyer’s remorse or the user’s error when purchasing online.

Dissatisfaction with the booking or service: Cardholders sometimes file a dispute if they are dissatisfied with your product or service.

The general chargeback process explained

Generally speaking, the chargeback process can differ between payment processors, and it traditionally takes between 60–90 days to resolve. Here is an overview of how the general chargeback process works:

The process

A purchase occurs. All chargebacks start with a customer making a purchase in person, or online.

The customer initiates the chargeback. After the customer reviews their credit card statement at the end of the month, they may notice a charge they didn’t authorise. The customer then contacts their credit card company (known as the issuing bank), asking to investigate the charge in question.

Issuing bank reaches out to the merchant’s bank. Once a customer initiates the chargeback process, the customer’s bank reaches out to the merchant’s bank, asking it to provide evidence to refute the claim. This can include things like invoices, receipts, or anything else the merchant has to prove that the purchase was valid.

Decision time. After reviewing all the proof provided by the merchant’s bank, the cardholder’s bank must decide whether or not the purchase was actually valid.
The customer is informed. At this point, the customer must accept the proof provided by the acquiring bank and either pay for the booking or continue to dispute the purchase and begin a process known as arbitration. If the acquiring bank determines the purchase was not valid, then the cardholder (customer) receives a refund for the transaction.

Arbitration. If the issuing bank and merchant bank fail to come to an agreement, as a last resort, they enter what’s called the arbitration process. The arbitration process is governed by the issuing credit card company, and its decision is absolutely final.

The credit card company (Visa, American Express, etc.) reviews the proof provided by the parties and has the last word on who must pay for the charges. If a merchant loses the arbitration process, they may choose to seek recourse and repayment in a court of law, at their own expense. Basically, that already shows it's complicated to work on this process.

How RoomRaccoon handles chargebacks for you!

RoomRaccoon notifies you of the chargeback. A response is required within 10 working days.

You decide on how you’d like to proceed. You can either accept the chargeback as valid or choose to challenge it by sending us the documentation you have related to the transaction.

If you want to challenge the chargeback, RoomRaccoon collects the information and submits it to the acquiring company.

The bank determines whether the purchase was legitimate or not. If the bank rules in your favour, the transaction stands. If the bank rules in the customer’s favour, you will need to pay the fee.

What do you need to submit?

Copy of the payment order.

Copy of the reservation invoice.

As much information as possible to provide the link to the transaction. Think about copy ID, check-in signatures.

If a reservation is cancelled and the booker agrees upon the cancellation policy, please submit proof of your cancellation policy and why the policies are not met.
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