Understanding the Dispute Process

The transaction dispute process begins when a customer raises a dispute with their issuing bank. Then, the customer and merchant submit evidence supporting their claims. If the payment was made via card, the card network will review the evidence and provides a resolution.

However, if the payment was made via ACH Direct Debit, the dispute cannot be challenged and will be considered lost, by default.

Card Payment Disputes

Here’s a step-by-step explanation of how this works:

Step 1: Inquiry

The first step in the dispute process is when a customer makes a formal inquiry at the bank regarding a payment. The bank notifies the card network, who then notifies the merchant.

In this process, no amount is withdrawn. The merchant can reach out to the customer and resolve the inquiry, or submit documents to the card network to prevent this from escalating to a dispute.

Step 2: Dispute

Customers can file a dispute with their bank when they find a payment invalid. This could be either because the customer claims the transaction was fraudulent, the order was canceled or damaged or any other reason.

When a customer files a dispute, a chargeback is automatically deducted from the merchant’s account along with a fee.

Step 3: Response Submission

When a customer files a dispute, the merchant is notified. There are two ways to respond to disputes after you review the payment:

• Challenge: Challenge a customer’s dispute by submitting evidence against their claim within a specified period.

• Accept: Agree with what the customer has claimed and accept the dispute.

Step 4: Response Review

Once the response has been submitted, it is immediately forwarded to the card network. They review the documents and evidence submitted by the merchant.

Step 5: Dispute Resolution

If the evidence is compelling enough, the card network resolves the dispute in the merchant’s favor and reverses the chargeback. Otherwise, the claim is rejected and ends in the customer’s favor, and the merchant receives nothing.

ACH Direct Debit Disputes

ACH Direct Debit disputes follow a different process from card disputes. As per the rules defined by the National Automated Clearing House Association (NACHA), ACH disputes are final and cannot be contested.

Customers commonly raise an ACH dispute for the following reasons:

• Unauthorized transaction: The customer did not authorize the debit, or the authorization was revoked before the transaction occurred.
• Incorrect amount: The debit amount differs from what was authorized by the customer.
• Incorrect date: The debit was processed earlier than the date authorized by the customer.

In some cases, an ACH payment may initially appear successful but later fail if the customer’s bank returns the transaction. When this happens, the amount is reversed, and it’s treated in the same way as an ACH dispute.

Once an ACH dispute is raised and approved by the customer’s bank, the amount is automatically debited from the merchant’s account. Merchants cannot respond to or challenge the dispute, and the reversal is permanent