When a customer challenges a charge and the normal chargeback steps can’t resolve the disagreement, the card network steps in to decide the outcome in a process called chargeback arbitration. Businesses that accept card payments should be aware of what chargeback arbitration entails so they can handle cases appropriately if they arise. This matters because businesses in a 2025 survey identified 45% of their chargebacks as fraudulent.

Below, we’ll explain how chargeback arbitration cases escalate, what evidence matters, and what’s at risk.

What’s in this article?

• What is chargeback arbitration?
  
• When does a payment dispute escalate to chargeback arbitration?
  
• How does the chargeback arbitration process work across major card networks?
  
• What determines the outcome in chargeback arbitration?
  
• What are the costs, liabilities, and performance impact of arbitration for businesses?
  
• What common challenges complicate arbitration?
  
• How can businesses reduce the likelihood of entering arbitration?
  
• How Stripe Radar can help
  

What is chargeback arbitration?

Chargeback arbitration is the final stage of a credit card payment dispute and occurs after the cardholder challenges a charge and the business fights it. The card network then steps in to make a binding decision on who owes the money.

During arbitration, card networks review the dispute record, including the original chargeback, the business’s response, the issuer’s position, and any documentation exchanged. It’s rare for cases to reach this stage because both sides know arbitration can be expensive and unforgiving.

When does a payment dispute escalate to chargeback arbitration?

A dispute reaches arbitration only when both sides have pushed through every earlier step without agreeing on who should absorb the loss. A cardholder has filed a chargeback, the issuer has flagged the transaction, and the business has submitted representment (i.e., the business’s formal response and evidence submitted to challenge the chargeback). If the issuer still disagrees, that’s when the case would move to a second round of review.

Pre-arbitration is a final checkpoint. Visa requires the issuer to initiate pre-arbitration before arbitration can be filed. This step gives the business another chance to accept liability or decline. Mastercard has an equivalent process if the dispute continues after the second presentment. In both systems, if the business refuses to accept the chargeback, the case is eligible for arbitration. Many businesses accept the loss at this point because arbitration fees and requirements can be steep.

Some payment providers won’t take cases to arbitration. This dispute structure protects businesses from paying arbitration fees on unwinnable cases.

How does the chargeback arbitration process work across major card networks?

Arbitration follows a similar logic across the card networks, but the steps, terminology, and decision-makers might vary.

Here’s how two of the major credit card networks operate:

Visa

Visa uses an automated system called Visa Claims Resolution and requires a predispute attempt before escalation. If the issuer rejects the business’s representment, Visa will proactively provide an automated dispute decision. Afterward, acquirers and businesses have the ability to respond only under certain conditions, including if there’s compelling evidence or an invalid dispute.

Mastercard

Mastercard’s process is more traditional than Visa’s. After the business submits its formal response to the chargeback, an issuer that still disagrees can escalate; Mastercard calls this second presentment. If neither side backs down, the case moves to Mastercard’s pre-arbitration and arbitration case filing process. The arbitration case is the final event in this dispute resolution cycle, when Mastercard determines who’s responsible for the charge.

What determines the outcome in chargeback arbitration?

During arbitration, a third party takes a final look at the evidence both sides have exchanged. Here’s what they’re looking for to determine the outcome:

• Relevant, well-structured evidence: Arbitrators will likely want documentation that directly addresses the dispute reason. For example, fraud cases might call for proof of cardholder authorization, such as address verification service (AVS) or card verification value (CVV) matches, device or Internet Protocol (IP) data, and signed receipts. “Not received” disputes might hinge on delivery records such as tracking, signatures, and usage logs for digital goods.

• Supporting context: Terms of service, refund policies, and customer communications can help show what was promised and what happened. All evidence should be easy to read and labeled.

• Procedural compliance: Arbitrators check whether each side followed the rules, met deadlines, and submitted documentation correctly. When the evidence is evenly matched, networks tend to favor the cardholder. That makes strong, organized, rule-compliant documentation important for businesses.

What are the costs, liabilities, and performance impact of arbitration for businesses?

When a case reaches this stage, the disputed funds might be long gone. Then the business must weigh the financial risk.

Be mindful of these issues:

Arbitration fees can be high

These fees sit on top of the original chargeback amount, which means a loss can cost more than the transaction.

The logistical burden is real

Preparing an arbitration file takes time: you must review past correspondence, organize evidence, draft arguments, and coordinate with your acquirer or payment service provider. These cases can take weeks or longer to resolve, which ties up internal resources while the disputed funds remain unrecoverable.

Liability for the disputed amount doesn’t change

If you lose, the chargeback stands and the transaction revenue is gone. If the dispute involved physical goods, you’ve also lost the product. Even if you win, the dispute still counts toward your overall chargeback volume.

High dispute counts affect your standing

Your chargeback ratio reflects every dispute filed. Excessive dispute activity can lead to deeper scrutiny from acquirers or, in extreme cases, placement in network monitoring programs. Either scenario can increase costs or limit processing stability.

The math doesn’t often work in the end

Escalation makes sense only for higher-value disputes with strong evidence. For low-cost cases or ambiguous ones, arbitration can turn a small loss into a larger one without improving your dispute performance metrics.

What common challenges complicate arbitration?

Arbitration is difficult to reach and hard for businesses to win. Here’s why:

• Businesses bear the burden of proof: Networks want to protect customer trust. So when a case is unclear, the decision often leans toward the cardholder. Businesses must present evidence that leaves little room for doubt.

• Deadlines and format rules are rigid: Filings can be rejected outright for mistakes such as late submission. Visa, for example, has a simplified dispute process and has strict windows for responses.

• The process demands time and coordination: Gathering records, pulling customer communications, retrieving technical logs, and packaging everything is cumbersome.

• Outcomes can feel unpredictable: Networks weigh the evidence and their policies on consumer protection, so strong documentation doesn’t always guarantee a win.

• There’s almost no chance for a do-over: Arbitration is effectively final. Appeals might be possible but are rarely available or viable, which means any oversight in the filing can determine the outcome.

How can businesses reduce the likelihood of entering arbitration?

The best way to avoid arbitration is to prevent disputes from escalating.

Consider these tactics to minimize disputes that escalate:

• Strengthen fraud controls: Use tools that catch suspicious activity early, such as AVS and CVV checks, 3D Secure, device or IP analysis, and well-tuned fraud models. Every fraudulent charge you block is one less dispute to fight.

• Set clear expectations with customers: Accurate product descriptions, transparent billing descriptors, and visible refund policies minimize confusion and “I don’t recognize this charge” disputes.

• Make customer support convenient: Fast, human help can solve a lot of issues before they reach the bank. A quick explanation, refund, or replacement might prevent a dispute that would otherwise enter the chargeback cycle.

• Respond to disputes with precision: A well-organized representment can stop escalation. Strong evidence presented early is a good way to avoid pre-arbitration and arbitration.

• Use your available tools: Dashboards, evidence templates, alerts, chargeback management software, and automated data collection can help decrease errors and improve response quality. Providers such as Stripe facilitate evidence submission and can help businesses avoid costly late-stage escalation.

• Review dispute patterns, and fix root causes: Track why disputes happen, look for recurring themes, and adjust policies, product pages, or processes. Over time, this can lower dispute volume and reduce the likelihood of cases reaching arbitration.

How Stripe Radar can help

Stripe Radar uses AI models to detect and prevent fraud, trained on data from Stripe’s global network. It continuously updates these models based on the latest fraud trends, protecting your business as fraud evolves.

Stripe also offers Radar for Fraud Teams, which allows users to add custom rules addressing fraud scenarios specific to their businesses and access advanced fraud insight.
Radar can help your business:

• Prevent fraud losses: Stripe processes over $1 trillion in payments annually. This scale uniquely enables Radar to accurately detect and prevent fraud, saving you money.

• Increase revenue: Radar’s AI models are trained on actual dispute data, customer information, browsing data, and more. This enables Radar to identify risky transactions and reduce false positives, boosting your revenue.

• Save time: Radar is built into Stripe and requires zero lines of code to set up. You can also monitor your fraud performance, write rules, and more in a single platform, increasing efficiency.

Learn more about Stripe Radar, or get started today.