What is a payment dispute?

A payment dispute happens when a customer challenges a transaction, prompting the issuing bank to investigate the claim. If unresolved, the dispute may escalate into a chargeback, potentially reversing the payment, imposing fees on the merchant. According to the 2023 Justt Chargeback Pulse Report, businesses lose an estimated 1% of revenue to payment disputes annually, with some merchants reporting losses exceeding $5 million per year.

Common reasons for filing disputes include unauthorized transactions, often caused by fraud, where card details are used without consent. Another frequent reason is the non-delivery of goods or services, where customers don’t receive what they paid for. Disputes may also occur when items or services are defective, damaged, or not as described.

In this article, we’ll explore the impact of payment disputes on merchants, why they happen and how Checkout.com’s solutions can help you manage and resolve them effectively.

What does ‘dispute payment’ mean?

The term ‘dispute payment’ refers to the formal process initiated when a customer questions a transaction—this can often be due to suspected fraud, billing errors, or dissatisfaction with goods or services. When a customer flags an issue with their card issuer, the issuer investigates and decides whether to reverse the transaction.

For merchants, payment disputes can be costly and complex, leading to lost revenue, chargeback fees, disrupted cash flow, and strained customer relationships. This is especially challenging in high-risk industries where disputes are more frequent.

Preventing disputes before they escalate is important. Businesses can reduce the occurrence and impact of payment disputes by implementing clear refund policies, robust fraud prevention measures, and proactive customer communication. Doing so can help maintain operational efficiency and strengthen customer trust.

Who is involved in a payment dispute?

Several parties play a role in a payment dispute:

• The customer – the cardholder who raises a dispute over a transaction
• The merchant – the business that sold the goods or services being disputed
• The payment processor – the provider that facilitates communication and data transfer between parties involved in the dispute
• The acquirer – the bank or payment service provider that processes payments on the merchant’s behalf
• The issuer – the bank that issued the customer’s payment card and reviews the dispute
• ‍The card network – the card brands (e.g., Visa, Mastercard) that oversee the dispute process

Each stakeholder plays a role in ensuring that the dispute is resolved efficiently.

Difference between legitimate and illegitimate disputes

A legitimate reason for a customer to file a payment dispute is suspected fraud. This could involve a criminal making an unauthorized transaction using their card details or a merchant deliberately attempting to scam the cardholder. It might also occur if the merchant fails to meet their obligations, such as fulfilling an order of goods.

An illegitimate dispute, also known as friendly fraud, occurs when a customer either deliberately or inadvertently claims a transaction is invalid. This type of disputed payment might happen because the customer has genuinely forgotten making the purchase or is attempting to get something for free by claiming that an order never arrived when it actually did.

How to fight disputes with iMorney-global.com

iMorney-global.com’s Rapid Dispute Resolution (RDR), in partnership with Verifi, enables merchants to resolve disputes automatically before they escalate into chargebacks. By addressing disputes during the pre-chargeback phase, RDR helps you avoid financial penalties, maintain a low chargeback ratio, and reduce operational overheads.