What is Pre-Arbitration in the Chargeback Process?

The chargeback process is complex and multifaceted, from the initial opening of the dispute to the submission of evidence, pre-arbitration, and eventually, arbitration. 

To help you feel more confident in fighting disputes head-on, we’re going to unpack one of the most important steps in this process: chargeback pre-arbitration. So, what is pre-arbitration?

This is the stage after the initial outcome of the dispute has been resolved - either in your favor or in the customer’s favor. Think of it like a second chance to make your case if the first attempt didn’t go as planned.

However, pre-arb can be a double-edged sword. On the one hand, it gives you the chance to provide new compelling information if the initial outcome is not in your favor. On the other hand, it means that winning the initial chargeback isn’t the end of the road, as a customer can dispute the transaction a second time.

This is the final step before arbitration, which can be costly and time-consuming. It’s an opportunity to reach an agreement or for one of the two parties to accept defeat and move on.

We’ll cover everything you need to know to use the pre-arbitration chargeback process to your advantage below, including how you can automate chargeback prevention and management with the #1 chargeback company online: Disputifier.

What is Pre-Arbitration in the Chargeback Process?

So, what is pre-arbitration in the chargeback process? We’re going to take a step back first and explain what a chargeback is in general before walking you through the main stages of the process:

  • Initial dispute opened
  • Representment
  • Pre-arbitration
  • Arbitration

Overview of Chargebacks

Chargebacks are designed to protect consumers from fraudulent transactions, substandard products, or undelivered services. 

These occur when a consumer disputes a charge directly through their credit card issuer. It not only protects the cardholder but also holds merchants accountable for the integrity of their transactions. 

It was initially developed as a means of combating credit card fraud, but the scope of chargebacks has expanded to address various consumer grievances, including dissatisfaction with the quality of goods and services or non-delivery.

There are many different steps within the process from start to finish, with pre-arbitration being one of the most important - especially from the merchant’s perspective. So, let’s define the pre-arbitration chargeback meaning. 

Explaining the Pre-Arbitration Chargeback Meaning

Pre-arbitration, or pre-arb for short, is an intermediary step in the chargeback process that occurs if a dispute is not resolved after the merchant has presented their initial evidence (representment). 

This phase gives both the merchant and the issuing bank an opportunity to resolve the dispute without moving to full arbitration, which is a more formal and often more costly procedure.

Both parties review the evidence again at pre-arb, so you can submit additional information or documentation that might help resolve the dispute in your favor. 

It can be triggered by the issuing bank if the cardholder decides to dispute the transaction again after the chargeback is reversed initially. Or, a merchant can open pre-arb if they don’t agree with the initial outcome from the other end.

This is the last opportunity to avoid arbitration, where a decision will be made by the card network (like Visa or MasterCard) that is final and binding. So, what is arbitration?

What About Arbitration?

Arbitration is like a court trial in the legal system. It involves a far deeper review of the case by the card network, which acts as an arbitrator. 

All parties involved - the merchant, the cardholder, and the issuing bank - submit their full set of evidence, which is then examined by an arbitration panel appointed by the card network.

The decision made by the arbitration panel is final and has far-reaching implications. The losing party (either the merchant or the cardholder) is responsible for the arbitration fees, which can be hundreds of dollars. 

Because of the high stakes, arbitration is something you should seek to avoid. This is why we recommend taking the time to attempt to resolve the issue with your customer first, and if that fails, then do your best to build a compelling rebuttal package during pre-arb.

Most of the time, you will find it makes more sense to avoid arbitration and take the loss if you don’t have a high chargeback ratio already. If you are worried about the consequences of your ratio rising, though, you’ll have no choice but to go through arbitration and hope for the best.  

The Challenges of Chargeback Pre-Arbitration for Merchants

In case you weren’t already aware, the odds are stacked against you as a merchant going through a dispute. Financial institutions tend to side with customers by default, which means you need to create a very compelling case during pre-arb.

Unfortunately, it can be very tough to come up with new information at this point. You’ve probably already done your due diligence in forming your initial representment, so what more could you add?

That being said, cardholders and banks only open a second dispute if they find additional information that supports their case. Evidence shows that merchants rarely win the second attempt at a dispute.

The other issue at play here is that opening a second dispute can negatively impact your chargeback ratio. Financial institutions look at this as another dispute even though it’s technically the same case. 

Of course, there’s also the frustration, costs, and stress associated with disputes in general, which include time constraints. Merchants face a strict pre-arbitration chargeback deadline to respond, meaning quick assembly of comprehensive evidence is essential.

This can divert essential resources from daily operations, potentially straining businesses, especially smaller ones.

Successfully navigating pre-arbitration depends on presenting clear, relevant evidence including transaction records, customer communications, and proof of service delivery.

From a financial point of view, failing in pre-arbitration can lead to costly full arbitration, increased transaction fees, and potentially higher chargeback ratios, impacting your financial health.

The good news? We’re here to help you learn how to win a chargeback as a merchant, whether you’re currently gearing up for chargeback pre-arbitration or just preparing your initial representment package. 

Tips to Set Yourself Up for Success Through the Pre-Arbitration Chargeback Process

While learning how to prevent chargebacks in the first place is always your best bet, you’re here now - there’s nothing you can do at this point but set yourself up for success in pre-arb. Here’s how you can win a favorable outcome even though the cards are stacked against you:

Look for New Evidence

As we said earlier, this is your chance to submit additional information that you may not have had access to during the initial representment phase. This can include an additional chargeback email to customer, proof of delivery, contracts/agreements, or anything in between.

This is a good opportunity to go back and review the reason code you were given for the initial chargeback. See if there is anything that you missed in your first attempt that should be included this go around.

Prepare a Detailed Rebuttal

Even though you’ve already done this, it’s time to go back to the drawing board.  Draft a clear and concise argument addressing the chargeback reason and presenting your evidence.

Organize your evidence in a logical order, using headings and subheadings to highlight key points and make it easy for reviewers to follow your argument. 

Perhaps most importantly, maintain a professional, factual tone in your rebuttal. It’s so easy to let your emotions get the best of you when you feel as if you’re being taken advantage of by a fraudulent customer or being ignored by the financial institution, but accusatory language will only work against you.

Submit the Evidence Promptly

Now, what happens if you don’t respond to a dispute in time? You will most likely lose. This is why understanding your deadlines and working swiftly to prepare your evidence package is so important.

So, take note of the timeline and submit your documentation through the appropriate channels specified by your acquiring bank or payment processor.

Follow Up With Your Acquirer

Being proactive with the reviewing party shows that you’re acting in good faith to reach a favorable conclusion for both parties. Stay in regular contact with your acquiring bank or payment processor to track the status of your pre-arbitration case.

You may even consider requesting feedback from your acquirer on the strength of your evidence and argument, and be prepared to provide additional documentation if needed.

Be Prepared for Arbitration

Unfortunately, most merchants will lose pre-arbitration, especially if it was the cardholder who opened a second chargeback after losing the first attempt. At this point, you have two options:

  1. Go forward with arbitration: This only makes sense if you truly believe in your case and/or find new information that tips the scale in your favor after pre-arbitration. Have a financial contingency plan to manage the costs of this stage, setting aside funds to cover fees and potential losses
  2. Take the loss and move on: It can be tough to admit defeat, but given the expensive nature of arbitration, it rarely makes sense to go forward with it. However, there are cases where you should continue the fight, like if you already have a high chargeback ratio and are worried about what another loss could mean for your company’s financial standing.

After each pre-arbitration case, analyze the outcome to understand what worked and what didn’t. As frustrating as it may be, this will likely not be your last experience with pre-arbitration chargebacks.

But, it can be the last time you have to deal with them yourself. You can enlist the help of the best chargeback companies to not only remove yourself from the process of managing chargebacks, but prevent up to 95% of them while boosting your win rates as high as 70%!

Disputifier Manages Every Step of the Process for You and Wins Up to 70% of Chargebacks!

You never have to worry about what happens if you lose a chargeback again or pay for expensive chargeback insurance. You can put these problems out of sight and out of mind with Disputifer, an AI-powered fraud and dispute prevention solution.

It’s all based on chargeback alerts from Verifi™ and Ethoca™, which allow you to take swift action and refund up to 95% of chargebacks before they can impact your chargeback ratio. 

You can even automate the refund process so that you don’t have to lift a finger. We have fail-safes in place to prevent false positives from refunding legitimate orders, so you don't have to stress about lost revenue. 

The system even features order not received prevention that can help you find lost orders and maintain communication with your customers to keep them in the loop, reducing chargebacks and strengthening relationships. Meanwhile, advanced AI fraud scanning flags up to 99% of fraudulent transactions from getting through.

Even still, you may find yourself fighting the odd chargeback here and there. When this happens, Disputifer manages the representment on your behalf so you can focus your energy and attention on core business activities. 

The system builds a compelling evidence package, submits it, and even handles pre-arbitration. We fight thousands of chargebacks monthly so our responses are carefully formulated based on what we know works. How often do merchants win chargeback disputes with our service? You can increase your win rate by up to 70%!

Better yet, you’ll only pay if we win a chargeback for you. We guarantee a 5x ROI from our service and are eager for you to try it yourself so you can see what’s possible. Start your free trial today! 

Wrapping Up Our Guide to Chargeback Pre-Arbitration

There you have it, everything you need to know about chargeback pre-arbitration. So, what is pre-arbitration? 

This is the second crack at a dispute for customers and merchants alike if the initial representment isn’t enough to reach a satisfactory resolution. It can be particularly frustrating if you already won the initial dispute and now have to make your case for a second time. 

But by understanding the reason for the chargeback, gathering comprehensive evidence, and presenting a well-organized rebuttal, you can effectively manage and resolve disputes before they escalate to arbitration. 

Fortunately, it can be as simple as setting your business up with Disputifier. Not only does it prevent the vast majority of disputes from forming in the first place, but you won’t have to lift a finger when a chargeback does come your way. We’ll handle everything for you so you can kick back, relax, and focus on what matters most to your business.

So, what are you waiting for? Turn the stress of disputes into the triumph of victory today with Disputifier! 

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