What Happens To The Merchant When You Dispute a Charge


When a cardholder disputes a transaction, the credit card’s issuing bank notifies the merchant of the payment dispute. The issuing bank then launches an investigation, which could lead to the dispute being granted (and the merchant losing the sale), or denied (and the merchant keeping the sale).

Most of us have only seen the customer’s perspective in payment disputes. But what happens to the merchants that are involved? This article will give you a look into the merchant’s point of view when a cardholder disputes a transaction, as well as explain how the dispute process works.

What is a dispute transaction?

A dispute transaction occurs when a debit or credit card holder claims that a purchase made using their card is not legitimate. The cardholder then requests that their bank refund the amount of money used in the unauthorized transaction to their account. The cardholder may allege that the purchase was fraudulent, that they did not receive the product or service they paid for, or that the amount they paid was incorrect.

Why might someone dispute a transaction?

A customer might contact their bank, credit card company, or sometimes the merchant directly, about disputable debit or credit card transactions for these reasons:

  • They lost their card and believe someone used it
  • They don’t recognize a transaction on their credit card statement
  • Their statement shows a higher payment than they intended to make for something
  • Their identity was stolen online
  • They did not receive what they bought.

In any event, the chargeback process is fairly straightforward and usually works out in the cardholder’s favor.

What could a dispute transaction look like for the merchant?

The merchant or business owner involved in the disputed transaction will be notified of the chargeback request. They may be required to show that the charge was legitimate. This could mean offering receipts, invoices, or other documentation to show that the charge is not up for debate.

  • If the merchant is successful and the chargeback is denied, then they keep the sale and the cardholder is charged.
  • If the merchant is unable to prove that the sale was legitimate, they likely lose the chargeback dispute, and they must begin the refund process.
  • If a merchant is unable or unwilling to respond to a chargeback investigation, the result is that they do not provide evidence to show that the charge was legitimate. Thus, they will almost certainly lose the dispute.

In addition, if the merchant loses the chargeback dispute, they may be required to pay a fee to the credit card company. This is called a “chargeback fee.” If a particular merchant account is the subject of too many chargeback investigations, it can be put on a kind of “chargeback watchlist,” as well as be charged higher chargeback fees by the card issuer.

Once a merchant has lost a chargeback dispute, there is no further action to take. They lose the disputed funds and they cannot appeal the final decision. If the dispute claim makes it to the final phase in the resolution process, described below, then it will not likely turn out in the merchant’s favor.

How does the chargeback process work?

The process involves a series of steps established by credit card networks in cooperation with issuing and acquiring banks. The goal of the chargeback process is to secure strict consumer protections in the event of credit card fraud, fraudulent charges, and unauthorized transactions. The banks function kind of like mediators in these disputes, working between the card network and the merchant.

Overview of the chargeback process:

  1. The cardholder first contacts their bank to request a chargeback.
  2. The bank launches an investigation into the disputed transaction.
  3. The bank will then decide whether or not to grant the chargeback. If they grant it, the transaction is reversed on the cardholder’s account. If they deny it, the merchant keeps the sale.

What are the phases of the chargeback process?

There are three big phases that a chargeback dispute could move through, but not every dispute needs to go through all three phases. The phases are the first chargeback, the second chargeback, and, occasionally, arbitration.

The first chargeback

This is the transaction dispute that starts the whole process. The merchant will receive a chargeback notification and might be asked to provide evidence that the charge was legitimate. The merchant then has the chance to dispute the chargeback with contrary evidence or information, which leads to phase two.

Second chargeback

This second phase is kind of like an appeals process, wherein the merchant disputes the initial chargeback claim. It is sometimes called the second chargeback or pre-arbitration. Here, the merchant can offer support or evidence not previously available to the investigating bank. This happens when new information that supports the merchant is discovered, evidence not previously available becomes accessible to the merchant, etc.

The bank, in turn, can respond by presenting new evidence or information to support the cardholder’s dispute. If no resolution can be made, the dispute moves on to the final possible phase, arbitration.

Pro Tip

If you are a business owner, make sure to keep thorough records of your sales. That way, in case of customer disputes, you have as much documentation as possible so that you can come out of a chargeback investigation on top and keep your sale.


The dispute could wind up in the arbitration process if it can’t be resolved in either of the first two phases. Arbitration is basically a way to resolve disputes with the help of a neutral third party. In most cases, the arbitrator is the issuing/acquiring bank.

All banks agree to the arbitration procedures of the card networks they work with, but note that each network has slightly different procedures. For instance, Visa does not allow for an appeal (phase two) to the card issuer’s determination after its investigation into the disputed charge. Other networks allow the merchant to dispute the results of the investigation before the issue is sent to arbitration.

Arbitration is the last possible phase for a reason: it’s inconvenient and expensive. The disputed transaction would need to be huge for the card network to pursue it via arbitration.

Possible outcomes

There are two possible outcomes at the end of a chargeback dispute: either the merchant keeps the sale, or they lose it. There are a number of rigid steps that must be taken in the investigation of a chargeback claim, and the process does not always work out in the merchant’s favor.

Protect yourself from fraud

Make sure that you’re protected in case of a fraudulent transaction. These credit cards offer fraud and identity theft protection.


Does the merchant get paid if you dispute a charge?

The merchant only gets paid if they are successful in proving their case and a chargeback is denied. If they cannot provide evidence or do not respond to the dispute, then they will not get paid.

Do banks contact the merchant in a dispute?

Yes, the customer’s bank will contact the merchant to notify them of the dispute and launch an investigation into the disputed charge.

How often do merchants win chargeback disputes?

It’s hard to pin down an exact percentage, but more often than not, merchants either don’t bother to fight a dispute or don’t have enough evidence to win.

How long does it take for a merchant to respond to a dispute?

Different credit card networks, such as Visa or Mastercard, have different time requirements for merchants to respond to a dispute (usually 30-45 days). In the case of a billing dispute, your credit card issuer must send you a letter stating that it has received your dispute within 30 days of receiving it. It must then complete its investigation within two complete billing cycles or 90 days.

What if a merchant doesn’t respond to a dispute?

The Fair Credit Billing Act (FCBA) gives buyers the right to ask merchants for an explanation for transaction charges. If the merchant is unable or unwilling to prove that the sale was legitimate, they likely lose the chargeback dispute, and they must begin the refund process.

Key takeaways

  • Dispute transactions are dealt with through the chargeback process.
  • The chargeback process has three possible phases (notification and dispute, appeals, and arbitration), but not all dispute transactions go through all three phases before being resolved.
  • The merchant might be asked to show that the disputed charges were legitimate through documents or other evidence.
  • Occasionally, the dispute goes all the way through an arbitration process, though this is rare.
  • Once a card’s issuing bank grants a chargeback, the merchant cannot dispute it.
View Article Sources
  1. Fair Credit Billing Act – Federal Trade Commission
  2. How Long Can the Issuer Take to Resolve My Credit Card Billing Dispute – Consumer Financial Protection Bureau
  3. What Happens If You Falsely Dispute a Credit Card Charge? – SuperMoney
  4. 4 Things to Do After Your Credit Card Is Hacked For Protection – SuperMoney
  5. Fraud Alerts and Credit Freezes: Options Against Identity Fraud – SuperMoney