Arbitration, by definition, is a dispute resolution method in which disputes between parties are resolved by arbitrators chosen by the parties themselves, rather than by the state's official judicial bodies.
In payment systems, arbitration refers to the process in which, following a chargeback submitted by the cardholder, if the issuer and the acquirer (POS/ATM bank) cannot agree on meeting the chargeback request and the cardholder's dispute continues, the merchant applies to the card scheme (Mastercard/Visa/Troy, etc.) that the card belongs to for a resolution.
The bank that receives written instructions from the cardholder that the dispute is continuing initiates a different process depending on the card type. It starts a Pre-Arbitration process for Visa cards, and a Second Chargeback (Arbitration Chargeback) process for Mastercard cards.
Before applying to the Arbitration Committee, a Pre-Arbitration/Pre-Compliance letter must be sent to the other party to resolve the issue, and the following periods must be allowed for the other party to evaluate the situation and take corrective action.
- The expected period for Pre-Arbitration is 5 days.
- The expected period for Pre-Compliance is 15 days.
9As a result of the second dispute process initiated by the issuer, the acquirer either accepts or rejects the dispute. This process works differently for Visa cards and for Mastercard cards.
1If the transaction was made with a Mastercard-branded card, the acquirer cannot reject the second dispute (Second Chargeback) it receives and send it back to the issuer. It has two options: accepting the dispute, or taking the dispute file to the Mastercard Arbitration Committee. If the dispute file is taken to Mastercard, the Mastercard Arbitration Committee decides the outcome of the dispute from that point on.
–If the transaction was made with a Visa-branded card, the acquirer can decline to accept the second dispute (the Pre-Arbitration process) it receives and send the dispute back to the issuer. The issuer then takes the matter to the Visa Arbitration Committee. From that point on, the Visa Arbitration Committee decides the outcome of the dispute.
