When a cardholder disputes a transaction, it kicks off a process that has both financial and operational consequences for merchants. While many disputes are valid because they concern fraudulent charges, undelivered goods, or billing errors, a growing number of them fall into the category of friendly fraud. That’s when a legitimate customer claims they never made or received the purchase.
For merchants, the dispute process can seem opaque, even arbitrary. And with rising dispute volumes and evolving card network rules, understanding each stage of the process is no longer optional; it’s essential.
What is a Credit Card Dispute?
A credit card dispute starts when a cardholder contacts their issuing bank to challenge a transaction. If the bank agrees there might be a problem, they’ll open a formal investigation. In many cases, the cardholder gets a temporary credit, and the transaction becomes disputed.
Not all disputes are legitimate, though.
Some are clear-cut fraud. Some are true billing errors. But many are what’s known as friendly fraud, where the customer did authorize the purchase, but later claims otherwise (sometimes because they forgot, sometimes because they’re dishonest).
If the issuing bank decides to side with the cardholder, the dispute escalates into a chargeback. That means the money is forcibly pulled from your merchant account, and the customer keeps the product or service.
Dispute vs. Chargeback: What’s the Difference?
The terms are often used interchangeably, but from a merchant’s perspective, a dispute is the warning, and a chargeback is the penalty.
Here’s how to think about it:
What Triggers a Dispute?
Disputes can be triggered for a range of reasons, some legitimate, some not so much. Common dispute reasons include unauthorized charges, non-receipt of goods, incorrect billing amounts, or duplicate charges. Increasingly, however, merchants report cases where customers file disputes despite having received the product or service as described.
This form of friendly fraud, sometimes unintentional and often opportunistic, is on the rise. According to industry data, more than 70% of merchants surveyed in 2024 reported an increase in friendly fraud over the past year. As digital commerce expands and refund expectations shorten, more customers are bypassing merchant support entirely and going straight to their banks.
The Lifecycle of a Credit Card Dispute
Once a dispute is filed, the process follows a strict sequence:
1. Cardholder Disputes a Charge
The cardholder contacts their issuing bank to report an issue with a charge. This may be done through their mobile banking app, a phone call, or an online portal. The bank assesses whether the dispute meets card network criteria and may ask the cardholder for supporting information such as receipts, screenshots, or a timeline.
Most issuers apply a 120-day dispute window, starting from either the date of the transaction or the agreed delivery date, whichever is later. In digital goods and services, issuers may exercise leniency based on the customer’s claimed awareness date.
2. Bank Issues Credit and Files a Dispute
If the issuer finds the complaint valid under card network rules, they will provisionally credit the customer and initiate a dispute through Visa Resolve Online (VROL), Mastercard Claims Manager, or equivalent systems for Amex and Discover.
This triggers a hold or debit against the merchant’s account, even before the merchant has had a chance to respond. Depending on the processor, these funds may be debited immediately or moved into a rolling reserve.
3. The Merchant is Notified
The acquiring bank or payment processor notifies the merchant and typically provides a window to respond with evidence. The notification includes:
- The amount disputed.
- The reason code and its definition.
- The due date for response (representment window).
- Any issuer notes or attached evidence.
Processors like Stripe, Adyen, and Worldpay deliver these notices through dashboards, email, or API hooks. Merchants must act quickly to preserve their right to contest.
4. Representment Begins
The representment window (30 days for Visa, 45 days for Mastercard) is when the merchant can dispute the chargeback.
During representment, the merchant gathers documentation to prove the legitimacy of the transaction. This could include proof of delivery, transaction logs, customer communications, screenshots, or a history of prior successful transactions with the same customer.
A strong response includes:
- Original invoice or receipt.
- Proof of delivery (tracking showing completed status).
- Customer login IP address, device ID, and session logs.
- Screenshots of the checkout process and terms agreed to.
- Communication records showing customer acknowledgment or use.
- Evidence of matching previous successful transactions (for CE3.0 eligibility).
Each document must be attached and labeled according to network standards. Incorrect formatting, file types, or metadata can lead to evidence being rejected.
5. The Issuer Responds
Once submitted, the issuer evaluates the evidence. If they accept the merchant’s case, the funds are returned and the chargeback is reversed. If they find the evidence insufficient, the chargeback stands.
The decision process can take 10–45 days depending on the issuer and network. In some cases, a secondary review team may assess technical evidence like IP logs or cardholder history.
6. Pre-Arbitration and Arbitration
If either party rejects the outcome, the dispute may enter pre-arbitration. This step is most common when a cardholder contests a merchant win or when the issuer alleges procedural errors in the merchant’s submission.
- Pre-arbitration timeframe: 15–20 days to accept or escalate
- Arbitration cost: Typically $500–$1,000 in filing and review fees
- Decision authority: Finalized by Visa or Mastercard and non-negotiable
Arbitration is rare but consequential. Most merchants will settle or concede unless the dispute is high-value or precedent-setting.
New in 2025: What’s Changed?
Recent updates from Visa and Mastercard are reshaping how merchants should approach disputes.
Visa’s Compelling Evidence 3.0 initiative, introduced in 2023 and gaining traction throughout 2024 and 2025, allows merchants to use a cardholder’s prior undisputed purchase history as part of their defense. If a merchant can show that the same customer made successful, undisputed purchases in the past those data points can now be considered compelling evidence against friendly fraud.
Additionally, the Visa Acquirer Monitoring Program (VAMP) has adopted stricter thresholds for dispute volumes. Merchants that exceed 1.5% dispute ratios (or even lower thresholds by 2026) may face formal scrutiny from acquirers, regardless of the final outcomes of their cases. Mastercard’s Excessive Chargeback Program applies similar logic and financial penalties.
The key takeaway: even if you’re winning disputes, too many of them can still trigger network-level intervention.
Need Help With Your Disputes? We’ve Got You Covered
Chargebacks aren’t just frustrating; they’re expensive, time-consuming, and often preventable. At ChargebackStop, we help merchants protect revenue, recover lost sales, and stay compliant with card network rules.
Whether you’re drowning in friendly fraud, struggling with representment, or just trying to keep your dispute ratio under control, our tools and team are built to help.
See how ChargebackStop can reduce your chargebacks and improve your win rate. Book a demo today.
