A dispute occurs when an account owner contacts their bank to contest a payment to you for a number of possible reasons. When someone files a dispute, the process varies slightly across different card networks, but typically follows a standard pattern, as shown here:

When an account owner disputes a charge to their payment account, your platform

• Notifies you of the dispute through your account
• Debits the disputed amount, plus a dispute fee, from your account balance until the dispute is resolved
• Provides you with an explanation of the dispute and access to the account owner's claim to their bank
• Steps you through the process of submitting convincing evidence to counter the dispute

Throughout this process, your platform facilitates your case, but doesn't have any influence over the outcome, which is at the sole discretion of the account owner's bank.

Before the dispute

Sometimes, your platform alerts you with pre-dispute notifications before an actual dispute is filed. Pay attention to these notifications because:

• You might avoid a dispute entirely with proactive customer service and transaction clarification
• Failure to respond in the pre-dispute phase can have negative implications in the formal dispute phase

Early fraud warnings

Early fraud warnings (EFWs) are messages sourced from Visa TC40 reports and Mastercard SAFE (System to Avoid Fraud Effectively). Card issuers on these two networks generate these reports to flag payments that they suspect might be fraudulent.

EFWs don't require any action or response from you. You might proactively refund the charge to prevent the cardholder from initiating a dispute, or you might wait and see if a fraud dispute happens. Most EFWs turn into a fraud dispute if you do nothing, but about 20 per cent won't.

Regardless of the likelihood of escalation, refunding all EFWs is not always a good strategy. This is because if you're too aggressive in issuing refunds for all EFWs, you'll inevitably be refunding some transactions that would never have become disputes.

All other things being equal, an analysis suggests that the optimal point for issuing a refund on early fraud warnings is on charges that are roughly less than or equal to your dispute fee. Refunding EFWs on charges that are more than 35 per cent higher than your dispute fee is probably not worthwhile.

Cases where refunding makes more sense

The main exception to the optimal refund strategy above is if you have reason to worry about the effect of the dispute itself on your business.

If any of the conditions described under Best practices for preventing fraud apply to your situation, it makes sense to refund EFWs more aggressively.

Although it's called an early fraud warning, it's possible to receive an EFW even after you receive a fraud dispute on a charge. This is generally because the systems that the networks use to process EFWs are separate from the systems that they use to process disputes, and the two aren't necessarily in sync.

Enquiries

Some card networks initiate a preliminary phase before creating a formal dispute and chargeback. This preliminary phase is called an enquiry, but it can sometimes be known as a "retrieval" or a "request for information" as well. American Express and Discover are the networks that use this phase most often, while Mastercard and Visa don't use it any more.

During the enquiry phase, the cardholder's bank requests transaction clarification, often because the cardholder doesn't recognise the transaction description. You can resolve the case without incurring a dispute fee by either providing satisfactory evidence that answers the dispute type for the enquiry or by issuing a full refund. Enquiries on partially refunded charges can still escalate into a chargeback.

Unwinnable chargebacks

With charges on Discover cards, failing to respond to an enquiry can signal to the issuer your implicit acceptance of the claim, resulting in an escalation to a formal, and likely unwinnable, chargeback. Unless you intend to accept financial liability, always respond to enquiries immediately and make every effort to resolve issues amicably with your customer at this stage.

If an enquiry has been open for 120 days without escalation to a chargeback, the enquiry will be marked as closed. At this point, you can be confident that the card network won't escalate it – they don't provide an explicit "win" message for enquiries.

During the dispute

Whether it's because of an enquiry that escalated or for some other reason, when an account owner files a formal dispute against a payment, the action initiates a chargeback where the card network pulls the funds for the dispute from your account balance and holds it for the entire duration of the dispute. This might be for the full amount of the charge or a different amount.

Receiving a dispute

The initiation of a dispute triggers several processes:

• Your account balance is debited for the disputed amount plus a dispute fee
• You can't issue a refund outside the dispute process while the dispute is open
• Your dispute rate with that card network increases

Timing

Card networks typically allow cardholders to initiate disputes within 120 days of the original payment, but their rules allow more time in some situations. Certain industries, such as travel or event ticketing, where the payment might be made long before the event occurs, are prone to longer time intervals between the original purchase and a dispute. Generally speaking, when a customer makes a payment for something that will happen in the future (such as a holiday reservation, a professional services appointment or an event ticket), the clock starts on the date of the event, not the date of the payment.

Following the creation of the chargeback, you have a limited amount of time (usually 7 – 21 days, depending on the card network) to respond to the card issuer.

If you submit evidence, the issuer also has a limited amount of time (usually 60 – 75 days, depending on the card network) to evaluate the evidence and decide on the outcome.

The full lifecycle of a dispute, from initiation to the final decision from the issuer, can take as long as two or three months to complete. Businesses are unable to take any actions to accelerate this timeline reliably, other than to decline to contest the dispute by accepting it.

Once the dispute process is complete, the issuer either overturns the dispute in your favour or upholds the dispute in their cardholder's favour.

If the issuer overturns the dispute, they return the debited chargeback amount (but not the dispute fees) and this amount is passed back to you. The initial dispute fee is not returned.

If the issuer upholds the dispute, nothing changes from your perspective and no money moves. The timing of the cardholder's credit is entirely at the issuer's discretion.

Dispute fees

The dispute fee is $15.00 (or your local equivalent). This fee is deducted from your account balance when a cardholder initiates a dispute.

For businesses in the Single Euro Payments Area (SEPA), no dispute fee is incurred for cards processed on the Cartes Bancaires network.

Unchallengeable disputes

You can't challenge some types of disputes under the rules of the card network that they were processed on. In general, they are immediately closed as lost, and you have no opportunity to present evidence to the issuer.

• Enquiries for Discover cards can turn into unchallengeable disputes if you don't submit evidence for the enquiry.
• The Cartes Bancaires network requires a higher standard of evidence from the cardholder before allowing them to initiate a dispute, but then prohibits you from challenging the dispute. This only affects businesses in the Single Euro Payments Area (SEPA) that process payments on the Cartes Bancaires network, and not businesses elsewhere that charge cards issued by Cartes Bancaires. Learn more at Cartes Bancaires.

Disputed amount

A disputed amount might be lower or higher than the amount of the original charge. The following table outlines some of the most common reasons for this difference.

After the decision

Once you've submitted your evidence, the next notification from the card issuer is the final decision. The status of the dispute is updated to won or lost, and you'll be notified either through your account or by email as soon as the issuer makes its decision clear.

This outcome is final for all parties. You can't overturn a lost dispute, but your customer also can't overturn a dispute decided in your favour.