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When you spot an unknown transaction on your credit card or a purchase that never arrived, you expect your bank to step in. This is where chargeback processing plays a crucial role. Many Indian cardholders confuse chargebacks with refunds or reversals, leading to frustration and delays in resolving disputes.
This guide explains how the chargeback process works in India, what RBI says about it, and how both customers and merchants can handle disputes smoothly.
What is Chargeback Processing?
In banking and finance, chargeback processing is the procedure where a disputed transaction made on a debit or credit card is reversed by the issuing bank. It acts as a consumer protection mechanism against fraud, merchant errors, or unsatisfactory service.
Unlike a regular refund initiated by the merchant, chargebacks are initiated by the bank after the customer raises a dispute.
‘Chargeback Processing’ in some of the Indian Languages
How to explain ‘Chargeback processing’ to kids?
Imagine you ordered a smartphone, but the seller never sent it. You tell your bank, “I didn’t get my phone.” The bank checks with the seller. If you are right, they give your money back. This whole checking and refund process is called chargeback processing.
How the Chargeback Process Works in Banking
A chargeback involves multiple parties:
- Customer (Cardholder) – who reports the dispute.
- Issuing Bank – the customer’s bank that investigates the claim.
- Acquiring Bank – the merchant’s bank.
- Merchant – the business that received payment.
- Card Network – Visa, Mastercard, RuPay, or Amex, which sets the rules.
Step-by-step chargeback cycle
- Dispute initiation – Customer raises a complaint with the bank.
- Bank review – Issuing bank checks initial validity.
- Forwarding to merchant bank – Acquirer asks merchant for evidence.
- Merchant response – Merchant provides proof (invoice, delivery slip, OTP logs).
- Resolution – If merchant proof is valid, dispute is rejected; otherwise, the amount is reversed to customer.
Roles of banks, card networks, and merchants
- Issuing bank: Protects customer, ensures fair review.
- Acquiring bank: Coordinates with merchant, ensures compliance.
- Card network: Provides framework, deadlines, and arbitration support.
- Merchant: Must maintain strong documentation and respond quickly.
Chargeback Lifecycle Explained
A chargeback is not just one step — it’s a cycle that can take 30 to 120 days depending on bank and card network.
From dispute to resolution
- Day 1–7: Customer raises a dispute.
- Day 8–30: Issuing bank reviews and forwards to acquirer.
- Day 31–60: Merchant provides evidence.
- Day 61–120: Resolution, refund, or arbitration.
Pre-arbitration stage
If neither party agrees, the case enters pre-arbitration. Here, the card network gives one last chance to settle without formal arbitration. If still unresolved, arbitration may follow, where the card network imposes binding resolution.
Common Reasons for Chargebacks
Credit Card vs Debit Card Chargeback Process
- Credit card chargebacks: Easier to process as the amount is not yet deducted from your savings account.
- Debit card chargebacks: More sensitive since actual funds are debited. Refund timelines may be longer.
In both cases, RBI mandates fair handling, but banks have different internal timelines.
How Indian Banks Handle Chargebacks (RBI Guidelines)
The Reserve Bank of India (RBI) has issued circulars directing banks to:
- Allow customers to raise disputes via branch, email, net banking, or mobile app.
- Complete initial investigation within 7 working days.
- Provide provisional credit if fraud is confirmed.
- Follow timelines set by Visa/Mastercard/RuPay for merchant response.
Tips for Merchants to Reduce Chargebacks
- Use 3D Secure / OTP verification for all card transactions.
- Keep invoices, delivery proofs, and customer communication handy.
- Train staff to avoid billing errors or duplicate charges.
- Clearly mention refund and cancellation policies.
- Monitor fraud with AI-based fraud detection tools.
Comparison: Chargeback vs Refund vs Reversal
FAQs on Chargeback Processing
What is chargeback processing in banking?
It is when a bank reverses a disputed card transaction on behalf of the customer.
How long does the chargeback cycle take in India?
It usually takes 30–120 days depending on the bank and card network.
What are common reasons for chargebacks?
Fraudulent transactions, merchant errors, non-delivery, or defective services.
Can I dispute a credit card charge online?
Yes. Most Indian banks allow disputes through net banking or mobile apps.
What is pre-arbitration in the chargeback process?
It is the last stage before arbitration where banks try to resolve disputes without legal escalation
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