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 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 influence over the outcome, which is at the sole discretion of the account owner’s bank.

Before the dispute

Sometimes, your platform alerts you to 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) reports that card issuers on these two networks generate to flag payments 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 percent won’t.

Regardless of the likelihood of escalation, it’s not always a good strategy to refund all EFWs 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. It’s probably not worthwhile to refund EFWs on charges more than 35 percent higher than your dispute fee.

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 the Best practices for preventing fraud apply to your situation, it makes sense to more aggressively refund EFWs.

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 the networks use to process EFWs are separate from the systems they use to process disputes, and the two aren’t necessarily in sync.

Inquiries

Some card networks initiate a preliminary phase before creating a formal dispute and chargeback. This preliminary phase is called an inquiry, though these are sometimes also called a “retrieval” or a “request for information”. American Express and Discover are the networks that most often use this phase, while Mastercard and Visa don’t use it anymore.

During the inquiry phase, the cardholder’s bank requests transaction clarification, often because the cardholder doesn’t recognize 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 inquiry, or by issuing a full refund. Inquiries on partially refunded charges can still escalate to a chargeback.

Unwinnable chargebacks

With charges on Discover cards, failing to respond to an inquiry 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 inquiries immediately, and make every effort to resolve issues amicably with your customer during this stage.

If an inquiry has been open for 120 days without escalation to a chargeback, the inquiry will be marked as closed. At this point, you can be confident the card network won’t escalate it—they don’t provide an explicit “win” message for inquiries.

During the dispute

Whether it’s because of an inquiry 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 (like a vacation 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 the outcome.

The full lifecycle of a dispute, from initiation to the final decision from the issuer, can take as long as 2-3 months to complete. There are no actions a business can take to reliably accelerate this timeline, other than to decline to contest the dispute by accepting it.

At the completion of the dispute process, the issuer either overturns the dispute in your favor or upholds the dispute in their cardholder’s favor.

If the issuer overturns the dispute, they return the debited chargeback amount (but not 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), cards processed on the Cartes Bancaires network incur no dispute fee.

Unchallengeable disputes

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

• Inquiries for Discover cards can turn into unchallengeable disputes if you don’t submit evidence for the inquiry.
• 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 affects only businesses in the Single Euro Payments Area (SEPA) processing payments on the Cartes Bancaires network, and not businesses elsewhere charging 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

After you submit 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 through your account or 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 favor.