Consumers have the legal right to dispute debit- or credit-card charges they believe invalid. We look at how payment disputes impact everyone involved.
Globally, about 1 billion credit card transactions happen every day. Most occur with no problems; the cardholder makes a purchase, then the merchant gets paid. Everyone is happy…right?
Of course, with that many transactions happening, you’re going to run into the occasional customer who’s dissatisfied with a purchase. That’s when customer payment disputes enter the picture.
What are payment disputes? Are they the same as refunds? Is it easier for consumers to just skip the merchant altogether? In this post, we cover different types of payment disputes, find out who is involved in the process, and examine the situations in which disputes should — and should not — be used.
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A payment dispute involves a situation in which a cardholder claims a transaction registered to their account is invalid. The cardholder contacts their bank to explain the situation and ask that the bank reverse the transaction.
A payment dispute is simply a disagreement between a cardholder and a merchant about a charge. This can be a little confusing; Visa uses the term “dispute” instead of “chargeback”. For other card brands, though, disputes and chargebacks are not necessarily the same thing. For these card networks, a dispute happens before a chargeback.
A dispute typically starts after a payment card transaction. The cardholder might see a questionable charge on their monthly statement, or they believe the merchant is taking advantage of them. The customer then calls the bank which issued their card to dispute the payment.
If the issuer is able to explain the payment to the customer’s satisfaction, the case will be closed. Otherwise, the transaction dispute is escalated to a chargeback, which is much worse for the merchant.
Learn more about transaction disputes
If a cardholder wants to undo a transaction, calling the bank seems like a reasonable solution. It’s not always the right move, though.
Disputes and refunds are very different processes. Traditional refunds come directly from the merchant. With disputes, though, the bank pays the consumer upfront. They then claw back the transaction amount from the merchant’s account.
From a customer’s perspective, there doesn’t seem to be much of a difference: they get their money back either way. Comparing the two actions side-by-side, however, shows how chargebacks are much harder on the merchant.
Learn more about disputes vs. refunds
Authorization reversals are essentially a way for merchants to undo a transaction before it fully settles, releasing any funds that were temporarily held.
This process is valuable for addressing transaction errors or when a customer decides to cancel a purchase, ensuring those funds are promptly available for other uses. While not always the first choice, providing a reversal is a strategic move that can prevent payment disputes from deteriorating into chargebacks. It helps maintain customer satisfaction and sidestep unnecessary fees.
They can also preemptively tackle developing disputes by dealing with issues like mistaken double charges or change of heart purchases before they escalate. Acting quickly to cancel a transaction helps keep consumer funds fluid and reduces the risk of chargebacks. This balance ensures a smoother merchant-consumer relationship and protects the merchant's image.
Learn more about authorization reversals
Disputes typically stem from customer expectations not being met. Common reasons for a dispute include:
These issues are usually rooted in innocent mistakes or confusion. Regardless, they still push customers towards seeking resolutions through the card dispute process. This reflects the need for clear communication and responsive service from merchants.
Learn more about customer complaints
Cardholders can dispute fraudulent charges on a debit card, much like how they dispute credit card transactions. That said, there are some notable differences. The key differences regard deadlines for disputes and liability for fraud.
Of course, modern issuers of credit cards, and even most debit cards, typically offer “zero liability” guarantees for cardholders. This means cardholders are not responsible for any fraudulent charges, even if they reported the fraud after the fact.
Two different banks play into the dispute process. The bank that issued the payment card used (“the issuer”) represents the cardholder. The bank that hosts the business’s merchant account (“the acquirer”) represents the business.
For obvious reasons, issuers have an incentive to accept their customers’ claims over those of businesses. That’s why card schemes have created extensive dispute guidelines for banks.
Among other things, the issuer is required to investigate claims from both sides before placing blame. Investigators will consider many factors, such as whether the cardholder had previously been a merchant customer and whether the charge fits the cardholder’s usual buying pattern. Their goal is to learn whether the transaction was truly invalid.
The case can be closed if the bank determines the claim has no merit. Otherwise, the issuer files the chargeback.
Learn more about how banks investigate disputes
Retrieval requests were initially steps taken by card issuers to gather more information from merchants about a transaction, often hinting at a forthcoming dispute. This method allowed issuers to clarify transaction details directly with merchants.
With the advent of more sophisticated digital platforms like Visa Order Insight and Mastercard Consumer Clarity, the need for traditional retrieval requests has diminished. These modern platforms offer an in-depth view of transaction details, rendering retrieval requests obsolete for these card networks.
With the advent of more sophisticated digital platforms like Visa Order Insight and Mastercard Consumer Clarity, the need for traditional retrieval requests has diminished. These modern platforms offer an in-depth view of transaction details, rendering retrieval requests obsolete for these card networks.
That said, American Express and other card brands continue to employ retrieval requests for disputed card transactions. So, it’s important to still understand the role they play in the dispute process.
Learn more about retrieval requests
The dispute resolution process begins when a cardholder spots a discrepancy or issue with a transaction, taking the initial step to resolve the matter directly with the merchant. This is often the quickest and simplest route to address concerns such as billing errors, dissatisfaction with a product or service, or unauthorized charges. If this direct approach doesn't lead to a satisfactory outcome, the cardholder is prompted to escalate the situation by formally disputing the charge through their card issuer:
The cardholder contacts their credit card issuer to file the dispute. The cardholder supplies all relevant evidence they have to substantiate their claim.
Following the submission of a dispute, the card issuer undertakes a preliminary review, which might include issuing a temporary credit to the cardholder, signaling the start of the official dispute process.
If the bank finds the cardholder’s claim credible, they’ll file a chargeback. The decision by the issuer will depend on the strength and relevance of the information provided by both parties, aiming to resolve the dispute fairly.
There are additional steps, depending on how the merchant and their acquiring bank opt to respond. A dispute may progress to representment, as well as a second-cycle chargeback, or even arbitration.
Learn more about the credit card dispute resolution process
As we outlined above, a transaction can only be legitimately disputed for one of a set number of chargeback reasons. None of this stops invalid chargebacks from being filed, of course. Cardholders may claim that one of the conditions applies even if it doesn’t. This is a practice called “friendly fraud.”
Friendly fraud is not always intentional. Many circumstances could lead to a cardholder accidentally disputing a payment without a valid reason. For example:
On the other hand, some payment disputes are deliberate chargeback abuse. Some motives for deliberate false disputes include:
It’s important to note, however, that from the merchant’s perspective, it really doesn’t matter whether friendly fraud is accidental or deliberate. The negative effects are the same.
Learn more about friendly fraud
Chargebacks aren’t going to go away. Even if no one ever intentionally misused the dispute process, a considerable number of friendly fraud chargebacks would still happen by accident.
Deploying the right dispute management system can be a crucial move. These systems have two basic purposes: preventing chargebacks and recovering money from invalid disputes. Some solutions are available as a software package, while other providers offer a fully managed service.
With SaaS (or “software as a service”), merchants license dispute management software on a subscription basis and then use that software to facilitate chargeback self-management. In contrast, a fully managed solution involves outsourcing all chargeback operations to a third party.
Many merchants find that a combination of tactics works best. In this situation, there may not be a “right” or “wrong” answer. The best solution is the one that works for the merchant.
Learn more about dispute management
Payment disputes may be necessary…but payment dispute abuse is a fast-growing problem. No one party in the process can resolve the issue. Merchants, cardholders, banks, and card networks need to work together to close loopholes in the system.
Education is key. Consumers who understand the full picture are less likely to make simple mistakes that result in chargebacks. For merchants, knowing the true sources of chargebacks can help stop many disputes before they start. Unfortunately, that information can be hard to come by.
The experts at Chargebacks911® understand this. That’s why we offer the most comprehensive dispute management services and products available. Our transparent, end-to-end solutions go beyond prevention to revenue recovery and future growth.
Whatever you need to fight disputes, we can help. Contact us today for a free demo.
A dispute in payments is when a cardholder questions a transaction with their bank or card issuer. This is often due to unauthorized charges, billing errors, or dissatisfaction with a purchase. The cardholder is seeking a resolution such as a refund or charge reversal.
To resolve a payment dispute, first attempt to settle the matter directly with the merchant. If that fails, formally file a dispute with your card issuer, providing all necessary documentation and evidence related to the transaction.
When you dispute a payment, your bank or card issuer reviews the claim against the merchant's record of the transaction, potentially issuing a temporary credit to you while investigating. Based on evidence from both sides, they decide whether to permanently reverse the charge or deny the dispute.
Payment disputes typically take between a few weeks to a couple of months to resolve, depending on the complexity of the case and the responsiveness of both the card issuer and the merchant involved. However, some disputes may be expedited or delayed based on various factors, such as the availability of evidence and the specific policies of the card issuer.c
One example of a payment dispute is when a customer notices a charge for a service they didn't authorize on their credit card statement and contacts their bank to investigate and potentially reverse the charge. Another example could be a customer receiving a damaged item from an online purchase and requesting a refund from the merchant, escalating to a dispute if the merchant fails to provide a satisfactory resolution.
When you dispute a charge, the card issuer may temporarily credit your account while investigating, but ultimately, the responsibility for covering the disputed amount falls on either the merchant or the card issuer, depending on the outcome of the investigation and the reason for the dispute.
