What Are Transaction Disputes: Common Reasons When They Occur

Recently updated on October 25th, 2022 at 11:00 am

Today’s e-commerce sellers confront not just tough competition, but also an increase in chargebacks. On the one hand, this helps purchasers to protect their money, but it also causes sellers to face huge losses, reducing their earnings. 

However, a large number of cardholders use the option to dispute a transaction, not only when there is an urgent need but even when there is no legitimate reason. Thus, many sellers are in distress.  

We will talk about dispute transaction meaning, how this process takes place, as well as strategies for ending such disputes.  

What does this process mean?  

Many sellers have heard about chargebacks that cause them huge losses. However, before this process starts, the dispute process takes place. This process does not necessarily have to end with the seller being obligated to return the money to the buyer. Sometimes such cases end in favor of sellers.  

Buyers might have a dispute transaction reason. They can get in touch with their bank, of which they are a customer. They can do so by calling their bank or utilizing their bank’s mobile app. Having contacted the bank, the bank’s consultants will begin to consider the reasons, as well as consider the client’s evidence to return the money to the client legally. If all the information provided is convincing, then only in this case the bank starts the chargeback process.

This is a vital tool provided to cardholders by payment systems, banks, and card networks. They serve as a guarantee that buyers can dispute any illegal transaction. Thus, card users can be sure that in case of fraud or interaction with unscrupulous merchants, they can demand a chargeback.  

How does the process work?  

It may appear that buyers only need to call the bank to receive their funds back. However, each bank has its protocol. Here’s how it works: 

1. The buyer leaves an application by contacting their bank. The bank begins to consider the application, paying attention to all the data provided, and may also request the client for additional information to start the chargeback process;  
2. The bank returns the money to the client until the circumstances are clarified. Once all the evidence has been considered, the buyer will either keep their money or have to pay if the seller can prove themselves right;  
3. The client’s bank opens a dispute, after which it sends all the necessary information to the bank whose client is the seller;
4. Having received all the necessary information, the seller’s bank considers the complaint. If the complaint is justified, the bank sends the seller information about the claim and debits the transaction amount from his bank account. However, in addition to this, the seller is also obliged to pay additional fees;  
5. The seller receives a claim and also gets the opportunity to provide his evidence. If the seller manages to win the case, the fees are not returned to him;  
6. If the seller does not agree with the accusations, then he has the opportunity to send his bank all the information about the transaction, as well as present evidence of his innocence;  
7. Having received the evidence, the seller’s bank sends all the information to the buyer’s bank;  
8. The buyer’s bank reviews the information provided. After that, the bank makes a decision, either in favor of the seller or in favor of the buyer.  

Thus, each seller has the opportunity to influence the final decision. It is all about managing transaction disputes. If you do not participate in this, you will continue to suffer huge losses.  

Buyers may illegally initiate disputes  

The ability to dispute illegal transactions guarantees that buyers will be safe when dealing with fraudulent or unreliable sellers. However, cases have recently become more frequent when some buyers abuse this opportunity to return money for the goods or services purchased and received.  

Usually, if the buyer has any claims against the seller, then the first thing he should do is contact him to resolve the problem. However, many purchasers choose to skip this step, thus it is much faster for them to call their bank to get a chargeback rather than negotiate with the seller. Abuse of this feature is called friendly fraud.

However, not every cardholder understands that the chargeback process is not as fast as they would like. First, the bank will return the money, however, when the dispute process is over, the buyer will have to pay again if the seller proves his case.  

For the buyer, the consequences of such actions may not be as disastrous as for the sellers. They have to not only refund the funds but also pay large fees to the banks. However, they are not the only issues. If the frequency of chargebacks grows, card networks may designate sellers as high-risk merchants. In the worst case, all this may end up with the seller not being able to process transactions at all.  

In general, this is an unpleasant process for a seller who does his job conscientiously, which involves a costly and lengthy legal process and can take up to several months.

Effective strategy merchants can use

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No bank wants to lose the trust of their customers, so customer protection is their top priority. However, sellers should not sit back and watch their profits dwindle.  

Here’s what sellers can do:  

• Encourage buyers to contact them for information in case of any problems. To do this, on the site, buyers must have access to contact information;  
• Fix any mistakes on your end. Sellers should check how billing statements are issued to buyers and check everything for errors. In addition, they should remember to notify promptly of any delays in delivery;  
• Use software to manage disputes and chargebacks. Such software will help track any activity related to chargebacks. It also allows you to collect information that can become evidence in case of problems with scammers or buyers who commit friendly fraud.  

Conclusion  

Buyers who are unhappy with the things they purchased from eCommerce platforms can quickly file a transaction dispute to get their money refunded. Buyers, on the other hand, frequently take advantage of this opportunity. This all leads to major issues with payment service providers for retailers. In such cases, merchants should use an effective strategy to deal with transaction disputes as well as chargebacks.