Conflict is a part of life and in the credit card processing world, we sure have our fair share of conflict! A 'Credit Card Dispute' happens when a customer is not happy with their purchase (for any reason) and they choose to contact their card issuing bank to reverse the credit card transaction.
These disputes have many impacts on merchants and the credit card processing industry overall.
Merchant Account Approvals: Because consumers have up to 6 months (past any implied warranties) to dispute a transaction, business owners have to be credit approved in order to gain a merchant account. A business owner must be able to prove their ability to handle disputes from their customers so account balances and credit history play a part in whether a business owner can get approved to accept credit cards using a traditional merchant account.
Merchant Account Parameters: During the approval process, business owners are approved for a certain ticket size, monthly volume and the way they can accept credit cards. The parameters are set up based on the risk factors related to the particular business type as well as the credit history and financial standing of the business owner. When merchants elect to process transactions outside of their approved parameters, they run the risk of having their funds held, having to process refunds or having their account terminated.
Chargebacks (Disputes): When a customer decides to dispute a charge on their credit card statement, it is called a chargeback. Processing companies assess a fee for chargebacks (typically between $15 and $30 each). Processors also remove the disputed funds from the business's account right away. Businesses are required to provide proof that they had permission to charge the card, that the products or service was delivered as agreed and that any challenges were resolved. If a business owner cannot provide such proof, the customer wins the chargeback and funds are not returned to the merchant. If a business owner provides the necessary proof and the card issuing bank agrees with them, the funds are returned but the chargeback fees are not refunded.