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Payment disputes 101
Maya, a small-time business owner, was gobsmacked when she received an unexpected mail notification that a chargeback had been initiated. One of her customers claimed that the services were “not delivered as promised”. Maya quickly checked the records - right from emails to delivery confirmation and the customer’s thank you note. She spent close to a week or so gathering documents that included a maze of bank references and transaction codes, responding to queries of the payment gateway, the processor, and other stakeholders to defend her case. She eventually won but at the cost of time, stress, and a temporary hit to her cash flows.
Sounds familiar?
No business wants payment disputes, but they have to be prepared to handle them. Businesses should be equipped to deal with subjective claims like “not delivered as expected,” or “defective goods,” or quantifiable claims like “partial delivery,” “duplicate charges,” “payment failures,” and the like.
The objective of this article is to unravel the complexities of disputes. It will help you answer why disputes happen, how the process works across popular payment methods, how to respond to disputes, and more.
Whether you are a founder who just received your first chargeback, a finance lead defining SOPs, or someone from customer support dealing with tough conversations, this guide will help you navigate disputes with confidence.
Payment disputes 101
What is a payment dispute?
suspected fraud, incorrect charges, or dissatisfaction with the goods or services. The customer flags it with the issuing bank, which typically initiates an investigation into the claim. The dispute resolution or closure process involves the merchant, payment processor, payment gateways, and the card network.
A dispute will result in one of the three possibilities: a chargeback, refund, or failure claim. In most cases, the onus is on the business to counter the claim made by the customer and prove that the transaction was legitimate and fulfilled as promised.
What triggers disputes in online payments?
Digital payments are easy, fast, and convenient. However, it removes face to face clarity, leading to misunderstandings, miscommunication, and misuse.
Typically, disputes arise from:
Service gaps
Unauthorized or fraudulent transactions
Incorrect charges
Lack of consent for recurring or subscription renewal payments
Lack of clarity in refund and cancellation policies
Misunderstandings of the offering
How do unresolved disputes affect your business?
Disputes when not addressed in time can lead to:
Cash flow disruptions - Funds are generally reversed by the payment gateway when disputes are not answered in time, leading to cash flow disruptions.
Customer dissatisfaction - You don’t want your customers to be left out. It may damage the trust they have in your brand.
Increased operational costs - As internal teams chase transaction logs and evidence, the business has to pay for this.
Higher dispute ratios - Payment gateways or processors may hold or withdraw services as a result of this.
Glossary of payment disputes
Chargebacks: Cardholders request their bank reverse a charge due to fraud or dissatisfaction.
Duplicate charges: The same amount is deducted multiple times due to processing errors.
Failed payments: Payment was debited from the customer but not reflected on the merchant side.
Partial delivery claims: Only a portion of the order or service was fulfilled.
Fraudulent transactions: The card or account was used without authorization.
Product/service mismatch: The item received was not what was described or promised.
Subscription disputes: Auto-renewals were made without proper notification or consent.
Who are the key stakeholders involved in a dispute resolution process?
Understanding the players helps clarify responsibilities.
Customer/Payer: Flags a transaction as fraudulent, incorrect, or unsatisfactory.
Merchant: Provides supporting records (invoices, delivery confirmations, refund logs, or service usage data) to justify the transaction.
Payment gateway & acquirer: Relays dispute details between the merchant and the bank, attach technical transaction metadata, and keep the merchant updated through dashboards and reports.
Issuing bank: Investigates claims and makes decisions for card, UPI, and net banking disputes.
Card network (Visa/Mastercard/Amex/RuPay): Defines rules and timelines for card chargebacks.
NPCI (for UPI): Governs UPI dispute rules and arbitration.
RBI (for net banking): Sets regulatory timelines for failed transactions and ensures compliance across banks.
NACHA/CFPB (for ACH in the US only): Oversees rules and consumer protections for ACH disputes.
How does the dispute resolution process work?
The dispute resolution process varies in accordance with the country’s regulator, rules, and infrastructure. Here’s a breakdown of how disputes are handled in India and the US.
Dispute resolution in India
UPI disputes
These disputes usually occur when a payment fails (debited but not credited), is duplicated, is made without authorization, or when the merchant does not deliver the promised goods or services.
The process
Customer raises dispute in UPI app: The customer goes to their UPI app (Google Pay, PhonePe, Paytm, BHIM, etc.), selects the transaction, and taps “Raise Dispute.” This request goes to the payment service provider (PSP) and then to the issuing bank.
Issuing bank investigates via NPCI switch: The bank checks the UPI transaction logs. If the issue is “debited but not credited,” RBI mandates auto-reversal within T+1 working days.
Payment gateway relays info: If the transaction involved a merchant, the acquiring bank notifies the payment gateway that processed the merchant’s UPI collection. The gateway relays this dispute to the merchant via their dashboard or by email and requests supporting documents (proof of service, delivery confirmation, refund logs).
Evidence exchange: The merchant uploads evidence through the gateway portal (invoices, proof of delivery, communication). The gateway forwards this evidence to the acquiring bank, which then pushes it to NPCI and the issuing bank for review.
Resolution: If the bank and NPCI accept the merchant’s proof, the merchant keeps the funds. If not, the funds are reversed to the customer. The gateway updates the dispute status in the merchant dashboard and reflects the adjustments in settlement reports.
Timeline
Failed transactions take T+1 working days for auto-reversal. Other disputes usually take 3–7 working days, but sometimes may extend up to 30 days, if escalated to NPCI arbitration.
Credit/Debit card disputes (Visa/Mastercard/RuPay)
Credit or debit card disputes often occur when fraudulent transactions take place, goods are not delivered as promised,or due to duplicate billing. Here’s a detailed look at the process.
The process
Customer disputes with the issuing bank: The customer raises the dispute via mobile or internet banking, by calling, or by visiting the issuing bank’s physical branch. The issuing bank may provisionally credit the customer and raise a chargeback through the card network (Visa, Mastercard, RuPay).
Card network routes to the acquiring bank: The acquiring bank receives the dispute and passes it to the payment gateway that processed the merchant’s transaction.
Gateway notifies the merchant: The gateway sends dispute alerts via an email or a dashboard notification. The merchant must respond with evidence such as an invoice, delivery proof, and the refund or cancellation policy to defend their case.
Evidence submission: The merchant can upload evidence through the gateway. Payment gateways like Zoho Payments have a dedicated module for this. The gateway validates the formatting, attaches transaction metadata (authorization logs, AVS, CVV, 3D Secure details), and submits everything to the acquiring bank which, in turn, submits it to the card network and finally reaches the issuing bank.
Decision: The issuing bank reviews the evidence. If the merchant’s evidence is strong, the funds are restored. If weak or missing, the chargeback is upheld and the funds are permanently reversed.
Timeline
Visa and Mastercard network cards take 30–120 days depending on the dispute reason code. The merchant response deadline is usually 7–14 days (gateway enforces this window).
Net banking disputes
Net banking disputes usually occur when a payment is debited but not credited, billed twice, or recorded incorrectly during a settlement.
The process
A customer raises a complaint with the issuing bank via online banking, call center, or branch.
The issuing bank investigates and confirms the transaction status in the settlement logs.
The acquiring bank forwards the dispute to the payment gateway. The payment gateway maps the bank reference number to the merchant transaction and notifies the merchant.
The merchant provides transaction evidence (invoice, service logs, refund details) via the gateway portal. The payment gateway relays this back to the acquiring bank.
If the debit was invalid, a refund is processed to the customer. If it's found to be valid, the merchant keeps the funds. The payment gateway updates the settlement reports accordingly.
Timeline
RBI mandates refunds for failed transactions be made within T+1 working day. For other issues, it generally takes five to seven business days.
Dispute resolution in the US
ACH disputes
These generally occur from unauthorized withdrawals, incorrect amounts, duplicate debits, or late returns not processed within the required timeframe.
The process
Customer raises a dispute with the bank: A customer files a claim within 60 calendar days of their bank statement.
Bank initiates ACH return: The issuing bank investigates and creates a return entry under NACHA rules (e.g., R10/R11 codes for unauthorized transactions). The customer may receive a provisional credit while the case is under review.
Acquirer/payment gateway notified: The merchant’s acquiring bank passes the return to the payment gateway. The gateway flags the transaction in the merchant dashboard, deducts the disputed amount from settlements (if provisionally reversed), and requests supporting documentation.
Merchant provides authorization proof: The merchant uploads ACH authorization forms, signed agreements, or digital consent records via the gateway portal. The payment gateway packages and forwards these to the acquirer, which relays them to the customer’s bank.
Resolution: If the merchant's proof is valid, the return is reversed and the funds are restored. If not, the debit is permanently reversed and the merchant absorbs the loss. The gateway updates the dispute status in the merchant’s dashboard and reconciliation reports.
Timeline
The customer filing window is 60 days from the bank statement date for unauthorized debits. Bank investigations take 10 business days, but can extend to 45 days with provisional credits.
Credit/Debit card disputes (Visa/Mastercard/Amex/Discover)
These typically arise from fraudulent or unauthorized transactions, duplicate billing, goods or services not delivered, or customer dissatisfaction with the purchase.
The process
Customer disputes with the issuing bank: A customer contacts their bank (online, phone, or at a branch). The bank may issue a provisional credit and raise a chargeback via the card network (Visa, Mastercard, Amex, or Discover).
Card network routes case to acquiring bank: The network sends the dispute to the merchant’s acquiring bank.
Gateway notifies merchant: The acquiring bank passes it to the payment gateway, which alerts the merchant via email and the dashboard. The gateway provides details like the reason code, disputed amount, and deadline.
Merchant responds with evidence: Through the gateway portal, merchants can upload compelling evidencesuch as invoices, delivery receipts, service logs, and refund or cancellation policies. The gateway attaches transaction metadata (e.g., AVS, CVV, 3D Secure, recurring payment consent) and forwards it to the issuing bank via the acquiring bank and card network.
Review and decision: The issuing bank reviews the evidence under the card network's rules. If the merchant's proof holds, the funds are returned; otherwise, the chargeback stands. The gateways update the dispute status and settlement adjustments in the merchant dashboards.
Timeline
The response window for merchants is usually 7–14 days (set by the gateway/acquirer). Resolution may take 30–120 days, depending on the card network and reason code.
How businesses can prevent disputes
Be transparent
Disputes often arise from unclear expectations. Clearly display product/service descriptions, pricing, delivery timelines, and refund or cancellation policies on your website, invoices, and checkout pages.
Use signed proof
For goods, collect delivery confirmations like digital signatures or OTP-based confirmations. For services, retain acceptance emails or usage logs.
Communicate proactively
Surprises often trigger disputes. Notify customers about subscription renewals, shipping delays, or partial fulfillment in advance. Some payment gateways, such as Zoho Payments, also allow automated reminders for recurring charges, helping customers stay informed before debits occur.
Offer easy refunds
Resolving issues directly with customers is faster and cheaper than handling chargebacks. Gateways like Zoho Payments let merchants issue refunds directly from their dashboard, reducing the chances of escalation.
Leverage fraud tools
Unauthorized use is one of the most common triggers of disputes. Advanced gateways provide fraud detection, 3D Secure support, and OTP validation to minimize risks.
Keep records organized
Winning a dispute depends on quick access to documentation. With Zoho Payments, merchants get a unified dashboard with transaction logs and settlement reports, making it easier to respond within deadlines.
Best practices when responding to disputes
Act quickly
Every dispute comes with strict timelines. For card chargebacks, merchants often get only 7–14 days to respond; for UPI, it can be as short as 3–7 days. Missing these deadlines almost always results in losing the case. Payment gateways like Zoho Payments send alerts and notifications so merchants don’t miss critical response windows.
Submit strong evidence
Provide clear documentation that proves the transaction was valid, like invoices, delivery confirmations, communication logs, or screenshots of refund and cancellation policies shown at checkout.
Be professional
Keep responses factual and concise. Banks and networks give weight to structured evidence, not emotional arguments.
Track dispute metrics
Monitor dispute ratios (number of disputes per 100 transactions). Visa and Mastercard flag merchants who cross 1%, which can lead to penalties or withheld settlements. Payment gateways such as Zoho Payments offer dispute reports and analytics, making it easier to spot patterns before they become compliance risks.
Learn from disputes
Each dispute is a signal. If multiple customers claim “not as described,” review your product descriptions. If recurring issues stem from subscriptions, adjust your renewal communication. Some gateways also let you tag disputes by reason code, helping finance teams identify trends and refine policies.
Conclusion
Maya’s story isn’t unique. Every growing business will face disputes at some point. The difference lies in how prepared you are when they occur. With clear processes, transparent communication, and the right tools, disputes don’t have to drain your time, cash flow, or customer trust.
From UPI to cards and ACH to net banking, the rules may vary across countries, but the principle is the same: respond fast, respond with evidence, and learn from every case. Payment gateways like Zoho Payments make this easier by giving businesses real-time alerts, refund options, fraud checks, and organized dispute dashboards. Disputes can act as an opportunity to build trust, improve operations, and show your customers that your business stands behind every transaction.