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What Happens If A Customer Disputes A Payment?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedNov 20212 min read

A customer can dispute a payment in one of two ways. Firstly, they can make a complaint directly to the merchant. Secondly, they can complain to their bank/card-issuer/ewallet. What happens next depends on the payment method used and the bank/card-issuer/ewallet’s policy.

The basics of a payment dispute

Payment disputes can typically be divided into two main categories. The first is when a customer does not recognise a transaction. The second is when a customer does not agree with some aspect of a transaction.

In the first instance, the customer will contact their bank/card-issuer/ewallet for further information. This may be enough for the customer to decide whether or not they recognise the transaction. If it isn’t, the customer may get the merchant’s details and contact them for further information on the transaction.

In the second instance, the customer may contact the merchant first to raise a complaint. Ideally, the customer and the merchant will resolve the situation together. If they do not, the customer may go to their bank/card-issuer/ewallet and request to raise a payment dispute.

Alternatively, the customer may contact their bank/card-issuer/ewallet first. If they do, the bank/card-issuer/ewallet may request the customer to contact the merchant before raising a formal payment dispute. This decision typically depends on the circumstances behind the payment dispute and the bank/card-issuer/ewallet’s own policies.

The process of a payment dispute

The exact process of a payment dispute depends on the payment method used. It may also depend on whether the transaction is UK domestic or international. With direct debits, UK domestic transactions are covered by the Direct Debit Guarantee. Direct debit schemes in other countries operate similar schemes but there are variations in the exact rules.

The payment cards’ networks and ewallets all operate their own payment dispute schemes. Although these are unique to each company, they all work along the same basic lines. The customer provides the details of the dispute. The card-issuer/ewallet raises a chargeback using one of a selection of reason codes. The merchant either accepts it or represents it.

If the cardholder and merchant cannot agree on who is liable for a payment, it goes to the payment network/ewallet for arbitration. From the perspective of the payment networks/ewallets this is a final decision. In the real world, however, this may not necessarily be the case. The merchant could potentially still pursue legal action. This would, however, be very unusual.

Preventing payment disputes

When it comes to payment disputes, prevention is a lot better than cure. The key to preventing a payment dispute is to communicate effectively with your customer. Firstly, you need to be sure that they are who they say they are. As with life in general, most customers will be totally legitimate. Sadly, however, you have to be aware of the possibility of fraud.

All other actions related to protecting yourself against chargebacks essentially hinge on effectively setting expectations. In simple terms, you need to make sure that customers are 100% clear on three main points.

What they are buying
When and how they can expect it to be delivered/performed
When and how they will be charged.

If you manage all of these points effectively, you will minimise your exposure to chargebacks. Furthermore, if you document the fact that the customer was made clearly aware of these points, you will give yourself the best, possible chance of winning any payment dispute.

What this will mean in practice will depend on your business. The guiding rule, however, is ‘belt and braces’. For example, if you are selling products on a website, then include clear photos and/or video plus a text description of the item.

We can help

If you’re interested in finding out more about payment disputes and how to prevent them, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.