Pre-arbitration chargeback

A pre-arbitration chargeback is a request made by the customer to reopen a chargeback claim they had filed earlier. If your business provides a receipt that needs to contain more information about the customer and the details of the provided service, the bank will initiate pre-arbitration. The process can also be referred to as a second chargeback.

At Paystack, you can receive a pre-arbitration on a regular chargeback (please find more details on a regular or first chargeback here or a fraud chargeback here). For regular chargebacks, the pre-arbitration chargeback stage is a business's last opportunity to resolve a chargeback successfully. However, how Paystack handles pre-arbitrations on fraud chargebacks differs from how they are treated when it is a regular chargeback.

When your business receives a pre-arbitration on a regular chargeback, the chargeback will be reopened on your Dashboard, and you'll have 24 hours to resolve it. You will also be sent an email informing you of the pre-arbitration chargeback reopened on the Dashboard. We will send you a notification of this via email, as well as reminder emails every 4 hours until you have successfully resolved the chargeback.

To ensure that you receive the notifications about pre-arbitration chargebacks and resolve them in time, the chargeback email addresses on your Paystack account must be closely monitored email addresses of your business. Please take a moment to review the email address(es) set as your Disputes Email.

When a customer raises a pre-arbitration chargeback, you have another opportunity to respond to the chargeback. At this stage, you will need 72 hours to respond. The chargeback can either be accepted or declined. To correctly resolve this chargeback, it is helpful to reach out to the affected customer to understand their issue so you can solve it.

You should accept the chargeback if you want the customer to get their money back. After accepting the chargeback, the customer will get their refund within 12 working days.

If you want to decline the chargeback at this stage, you'll need to provide additional evidence in your possession to help prove that the customer's claim is false. This evidence has to follow the guidelines of the card schemes.

The additional evidence that will be required to decline pre-arbitration chargebacks successfully is dependent on the business's industry, as highlighted below.

At the first chargeback stage, evidence of the customer's deposit of the disputed amount in their betting wallet would have been provided. When a pre-arbitration has been raised on the same transaction, additional evidence required to decline the chargeback further is a statement of the customer's betting wallet account.

This statement of account has to show activity done by the customer before and after the disputed transaction. This activity could be deposits in the wallet or withdrawals from the wallet. The statement of account has to show activity on the account at least two days before and after the disputed transaction.

As with the betting industry, additional evidence for a pre-arbitration chargeback should be a statement of account showing the customer’s savings history that must include the disputed transaction. The bank has to see proof that the customer's account is active and that the customer deposited and withdrawn the disputed transaction.

For airlines, there’s a pre-arbitration chargeback received on a transaction; the airline needs to provide additional information showing that the customer used the flight ticket issued. This additional information should be:

• A screenshot of the flight manifest showing the customer's name, evidence that the customer boarded the flight and used the ticket issued.
  
  

  • If the customer requested a route change, the previous ticket issued to the customer for the former route they chose when making the booking should be provided to present to the bank. If the customer made an additional payment for a difference in prices due to the route change, evidence of this also needs to be provided.
    
    

  • If the airline does further checks and sees that the customer did not board the flight, the pre-arbitration chargeback should be accepted, in line with the refund policy set by the airline; a screenshot of the airline’s policy must also be provided to present to the bank. If the flight booking is non-refundable, a screenshot showing that the booking is non-refundable needs to be provided, too.

For lending businesses, the additional information that should be provided to decline a pre-arbitration adequately is:

• Details of the loan amount transferred to the customer: If the loan was sent to the customer via a transfer from the business's Paystack Dashboard, a screenshot of the transfer should be provided that clearly shows the date it was transferred and the receiving account. If the loan was transferred to the customer outside Paystack, then payment advice should be provided, preferably from your banking app.
  
  

• Overdue charges: If the customer’s loan repayment was overdue, the business must provide details from their website of the number of days the customer was overdue and how much they were charged for it.
  
  

• The business should provide a detailed explanation of the customer’s loan history to present to the bank.

For businesses that require the delivery of physical goods to an address, the business needs to provide additional details such as:

• Proof of delivery that has been signed by the customer either via a PIN or by electronic signature. This should be made available by the logistics company used to deliver the item to the customer.
  
  

• If you don't have a signed proof of delivery, email communication with the customer showing they received the goods they paid for should be provided.
  
  

• Email communication with the customer stating that they no longer are disputing the transaction in question. In this instance, the customer should also be encouraged to reach out to their bank directly to inform them of this.

If you decline the pre-arbitration chargeback and the customer is still unsatisfied, they can request another reopening of the chargeback. If the chargeback is reopened, it will go to the arbitration stage. Significant losses can be incurred at the arbitration stage, so it’s best to avoid them.

If a fraud chargeback has been declined, the customer or their bank can escalate it to a pre-arbitration. Unlike pre-arbitrations for regular chargebacks, attempting to decline a fraud pre-arbitration chargeback automatically moves it to the ARBITRATION stage.

At the arbitration stage, the card schemes independently decide the case, ruling either in your favour or the cardholders. In the event of a ruling in favour of the cardholder, you will incur an arbitration fee of $750 per transaction, in addition to the complete reversal of the transaction amount to the cardholder. For further insights, please refer to this article. Due to the sensitive nature of fraud chargebacks, card schemes often lean towards ruling in favour of their cardholders.

Paystack strongly advises accepting fraud pre-arbitration chargebacks to mitigate the risk of financial losses associated with lost arbitration cases. Moreover, consistent involvement in arbitrations can impact your reputation. At Paystack, we are dedicated to safeguarding the standing of your business by recommending that fraud pre-arbitration chargebacks be accepted.

When you have received a fraud pre-arbitration chargeback, we will reach out to you via email, providing all the details of the transaction(s) in question, and then advise that you should accept the pre-arbitration chargeback. Accepting the chargeback means that the funds for the transaction will be deducted from your subsequent payouts.

You can find more information on arbitration chargebacks here.