Disputes happen when a consumer applies to the issuing bank for a refund on one of the transactions on their statement. This functionality is possible thanks to the Visa, MasterCard, and American Express card networks. The ability to file disputes is necessary to protect cardholders from fraudulent actions by merchants as well as third parties.

There are several main reasons for disputes:

The merchandise the customer received substantially differs from what was claimed on the website.
The cardholder cannot recall the transaction on their statement.
The buyer claims that the item was never delivered or the delivery time was very different from what was claimed.
Fraudulent activity occurs when the cardholder claims they did not authorize the purchase and their card information was stolen.
Mistakes by the seller, such as duplicate invoicing and wrong amount.

There are other reasons for chargeback disputes. This guide was created to explain what a dispute is and how the process works.

Problems With the Bank Dispute Process

While the bank dispute process is a great way to protect cardholders’ rights, sometimes customers may request a refund for no good reason. This can happen because the buyer didn’t understand the merchant or the cardholder didn’t like the product they received.

This is a clear example of friendly fraud. This is a serious problem today and has negative consequences for all market participants. Cardholders, like merchants, need to understand the importance of their role in the bank dispute process. This will help ensure that the process is manageable and happens the way it should. Below is a look at exactly what happens at each stage of the chargeback process.

Step 01: Customer Complaint

The chargeback or bank dispute process begins when a cardholder discovers a transaction on a bank statement and wants to dispute it by contacting the bank. Depending on the bank’s terms and conditions, this process can take place in different ways.

Some banks require the customer to call the branch, while others just need a few taps on the mobile app. The time frame for a claim also varies by bank or card network, but most often, cardholders have up to 120 days from the initial transaction.

The reasons cardholders can dispute a chargeback often fall into one of three categories:

Fraudulent or unauthorized payments

The most common reason is that the consumer did not recognize the merchant or did not approve the transaction. Examples of suspicious transactions may include multiple identical items purchased one after the other at the same outlet, items the consumer never ordered but which were included on their bank statement, and purchases for which shipping information does not match the cardholder’s address.

Billing Errors

A customer’s card account is charged incorrectly or inaccurately for goods or services. Examples of such transactions include the wrong date and time of the transaction, the presence of errors in amounts, the wrong address, and others.

Unsatisfactory service

This category includes reasons that have to do with the quality of service. For example, an item was not delivered on time or in an improper form. Also, some things may be missing from the package, the item may not match the description or other quality issues.

If one of the above problems has occurred, the cardholder can file a claim with the issuing bank to begin the application process.

Step 02: Bank Investigates

In order to make a decision, confirm or deny the dispute, the issuing bank conducts its investigation, examining the customer’s claim. During the investigation, the bank may grant the cardholder a temporary credit before the chargeback is approved. This is done to ensure the buyer is protected from fraud or merchant misconduct.

During the investigation, the bank may request additional documents from the consumer, such as photos of the product, confirmation of incorrect details, records of conversations with the merchant, and so on.

Step 03: Initial Judgement

The next step in the bank dispute process is to review and make a final decision on the buyer’s claim. The chargeback will be approved if the claim seems reasonable to the issuing bank and the evidence is sufficient. The complaint will be denied if it appears to the bank that the reason for the claim is insufficient.

At this stage, it is possible to request additional documents, reimburse the cardholder and write off losses, and issue a chargeback. The bank may choose the first option if the low-value transaction is up to $25. This is a more favorable option, considering the costs associated with filing a chargeback. In this case, the bank dispute process will be considered closed.

Step 04: Chargeback Transmitted to Acquirer

If the bank decides to file a chargeback, it will forward the information to the acquiring bank. In doing so, the issuing bank will request a refund of the amount in dispute from the acquirer. This process is strictly between the two banks. Neither the seller nor the buyer is able to participate.

Step 05: Chargeback Forwarded to Merchant

At this stage, the acquirer will refund the cost of the transaction by debiting the merchant’s account. In addition, it will also charge additional fees for the chargeback, which cover administrative costs. The acquiring bank then sends the merchant information about the dispute. The seller can reject or accept the chargeback.

If the seller accepts the dispute, that is the end of the process. He is charged the amount of the dispute as well as any additional fees. But he doesn’t need to be involved in the process anymore. However, if the seller thinks the chargeback is invalid, he goes on to the next step.

Step 06: Merchant Review and Submit Representment

Friendly fraud is the most common reason for a seller to reject a dispute. If the reason for the chargeback falls into this category, the seller makes a presentation and states the evidence on his side so that credit card dispute resolution will be successful. The seller should compose a detailed letter and attach evidence, bank statements of the transaction, photos of the goods, correspondence with the buyer, and any other information.

Step 07: Acquirer Review

The acquiring bank receives and investigates information from the seller. The bank conducts its investigation and then passes the information on to the issuer. If the evidence from the seller is insufficient, the dispute returns to the seller.