What is a dispute?
A dispute is a procedure regulated by card networks through which a cardholder requests their issuing bank to review a transaction made with a card or another payment method because it is considered incorrect, unauthorized, or inconsistent with the agreed terms.
During this process, the bank investigates the transaction and manages communication between the parties involved before issuing a final decision.
Common reasons for initiating a dispute
Disputes can arise for various reasons, which are categorized using reason codes. These codes, defined by card networks such as Visa and Mastercard, identify the cause of the claim and determine how the case should be handled.
Some of the most common reasons for initiating a dispute include:
- The customer does not recognize a charge appearing on their bank statement.
- The transaction was carried out without the cardholder’s authorization, potentially indicating fraud.
- The product or service was not delivered within the agreed timeframe.
- The item received does not match what was ordered.
- The amount charged differs from the agreed amount.
- The customer believes that the merchant failed to comply with the agreed service conditions.
How does a dispute work?
The dispute process within card networks (Visa, Mastercard, etc.) follows a structured workflow between the issuing bank and the merchant’s acquiring bank.
1. Claim initiation (Chargeback)
The cardholder files a claim with their issuing bank regarding a transaction they believe to be incorrect, unauthorized, or fraudulent. The issuer reviews the case and, if justified, initiates a chargeback, temporarily withdrawing the funds from the merchant while the transaction is investigated.
Typically, cardholders have between 60 and 120 days from the transaction date or service delivery date to file a claim, depending on the dispute reason and the card network’s rules. However, these timeframes may vary.
2. Representment
The acquiring bank notifies the merchant, who can either accept the chargeback or provide evidence to challenge it, such as proof of delivery, payment authorization, or customer acceptance.
The merchant’s response is submitted to the issuer through the representment process.
Merchants generally have approximately 7 to 30 calendar days to respond, depending on the card network’s rules and the specific dispute reason.
3. Pre-arbitration
If the issuing bank does not accept the evidence provided or new information emerges, it may initiate a pre-arbitration phase. During this stage, the case is reviewed again before being formally escalated.
At this point, there is still an opportunity for the parties to reach an agreement.
Typically, the parties have between 30 and 45 days to accept, negotiate, or respond before the case moves to the next stage.
4. Arbitration
If no resolution is reached during the previous stages, the case is escalated to the card network’s arbitration process, where the network acts as the final authority.
The card network reviews all documentation and issues a binding decision for both the issuer and the acquirer.
The final resolution usually takes an additional 30 to 45 days, depending on the card network and the complexity of the case.
Difference between a dispute and a chargeback
Although the two concepts are related, they do not mean exactly the same thing:
- Dispute: The overall process that begins when a customer questions a charge on their card. It includes the claim submitted to the issuing bank, case review, evidence collection, and communication between all parties involved.
- Chargeback: The specific action of reversing a payment following a dispute and returning the funds to the customer. It is part of the dispute process and may result in the temporary or permanent withdrawal of funds from the merchant.
How do disputes affect merchants?
Disputes can have a direct impact on merchants, both financially and operationally.
When a customer initiates a dispute, the merchant may temporarily lose access to the transaction amount while the case is under review. In addition, the merchant must dedicate resources to gathering documentation, reviewing the transaction, and responding within the required deadlines.
A high volume of disputes can also affect the merchant’s relationship with card networks and financial institutions, potentially leading to increased monitoring, additional costs, or restrictions on payment acceptance.
For this reason, implementing fraud prevention systems, maintaining clear customer service processes, and properly managing evidence are essential to reducing the number of disputes and protecting business revenue.
Learn more about disputes and how to manage them
If you would like to learn more about how chargeback disputes can impact your business, we recommend the following articles:
