In 2023, 44% of UK consumers challenged a payment because someone else used their card details. Transaction disputes are on the rise and pose a serious threat to both revenue and reputation for any business operating online.
You’ve probably dealt with a dispute or two, but do you understand the underlying reasons behind them? For many UK businesses, occasional chargebacks can quickly escalate into a major drain on resources and customer trust.
This guide will explore the main causes of transaction disputes, how to handle them efficiently, and the best ways to stop them from happening in the first place.
What is a Transaction Dispute?
A transaction dispute arises when a cardholder questions a charge on their debit or credit card. The process exists to protect consumers against unauthorised or fraudulent payments, but it’s increasingly being abused. Research shows that friendly third-party fraud now makes up less than half of all disputes.
The rest typically involve merchant error or so-called first-party fraud, where the actual cardholder makes a false claim in order to secure a refund. This kind of abuse undermines the trust retailers place in their customers and is notoriously difficult to detect. Still, with the right fraud prevention solution, it’s possible to reduce your exposure.
What Counts as a Legitimate Dispute?
To minimise disputes, businesses need to understand why they happen. Below are the most common valid reasons:
- Unauthorised transactions: This is true fraud, purchases made without the cardholder’s knowledge, often due to account takeovers or stolen payment data.Learn more about combating payment fraud..
- Goods or services not received: Typically a result of stock issues, delivery problems, or miscommunication.
- Faulty or misrepresented items: Disputes often arise from product descriptions that don’t match what was delivered or from manufacturing defects.
- Duplicate payments: These can stem from technical errors or manual processing mistakes.
- Incorrect amount charged: Billing discrepancies due to admin mistakes or pricing errors.
- Cancelled recurring payments: Customers continue to be charged for subscriptions they’ve cancelled.
- Refund not processed: Where a promised credit hasn’t been issued, either due to internal delays or system issues.
If a claim is legitimate, businesses are obliged to provide a resolution, be it a refund or a fulfilment of the order. If it’s not, and evidence suggests the customer is engaging in first-party fraud, merchants can challenge the dispute with the issuing bank.
Disputes vs. Chargebacks: What’s the Difference?
A dispute begins when a customer raises an issue about a transaction, ideally, directly with the merchant. If it’s unresolved, the customer may escalate the matter into a chargeback, which reverses the payment through their bank.
Chargebacks are far more costly. They not only mean lost revenue but also incur fees and can damage your merchant standing with payment providers. The more chargebacks you receive, the greater the risk to your business.
Understanding the Transaction Dispute Process
It’s important to remember that transaction disputes should follow a clear, step-by-step process designed to resolve customer issues efficiently. Understanding this process is key to achieving quicker resolutions and better outcomes for all parties involved. Here’s how the process typically unfolds:
Cardholder Identifies an Issue
A transaction dispute usually begins with the customer. This often occurs when they notice an unfamiliar or incorrect charge on their bank statement. The cardholder might spot an unauthorised transaction, charges for goods or services they didn’t receive, or discrepancies in the amount billed.
Cardholder Contacts the Merchant
Unless they strongly suspect fraud, such as being completely unfamiliar with the merchant listed, customers will often get in touch with the business first to resolve the issue.
This step can lead to a faster and more amicable resolution for both sides, as the merchant can correct the mistake, issue a refund, or resend the goods or services without the need for a formal chargeback. Open and prompt communication helps to clear up misunderstandings and prevent matters escalating to the bank. For merchants, it’s vital to be responsive and make it easy for customers to reach you and have their concerns addressed quickly.
Cardholder Contacts Their Bank
If the issue isn’t resolved, or if the customer chooses not to contact the merchant, they may report the dispute to their bank, either via their banking app or by calling the customer service team. At this point, the customer will explain the nature of the dispute and provide supporting details. The bank logs the case and begins an initial review.
The Bank Investigates the Claim
Banks do not automatically accept every dispute as valid. The issuing bank will review the claim, gather information from the cardholder, and may request supporting documents—such as receipts, order confirmations, or copies of communication with the merchant. If the bank determines the claim has merit, the dispute proceeds.
The Merchant Responds
If the bank deems the dispute potentially valid, it notifies the merchant. The merchant is then required to supply evidence that supports the legitimacy of the transaction. This may include proof of delivery, transaction logs, communications with the customer, or other documentation that verifies the transaction was authorised and fulfilled. How you respond at this stage can significantly influence the outcome.
The Bank Issues a Decision
Based on the evidence submitted by both the cardholder and the merchant, the bank makes a final decision. If the bank finds in favour of the cardholder, a refund is issued and the transaction is reversed, resulting in a chargeback. If the bank supports the merchant’s case, the charge is upheld and no refund is granted.
In most cases, UK banks tend to favour the cardholder if the dispute aligns with recognised reasons for raising a claim. This is why it’s so important to prevent transaction disputes from escalating to this point in the first place.
8 Practical Ways to Prevent Transaction Disputes
Transaction disputes aren’t unavoidable. Many can be prevented by taking proactive steps to optimise key business processes across departments, from customer service to billing and order fulfilment. Below are eight practical strategies you can implement straight away to reduce the number of transaction disputes your business faces:
Clear Communication
Ensure your product descriptions, pricing, and terms of service are accurate and easy for customers to understand. At its core, a transaction dispute reflects a breakdown in expectations. Clear messaging helps your customers know exactly what to expect, boosting satisfaction and reducing misunderstandings.
Reliable Delivery and Tracking
Optimise your order fulfilment process. Use only trusted delivery providers and always offer tracking information to minimise “goods not received” disputes.
Responsive Customer Service
One of the most common reasons customers raise disputes is a lack of response from the business. If they can’t reach you, they’ll go straight to their card issuer—leaving you to cover the chargeback. Quick, accessible support can resolve issues before they escalate and build stronger customer loyalty.
Secure Payment Processing
Introduce strong payment security tools like encryption, tokenisation, and two-factor authentication to prevent unauthorised transactions. A secure checkout experience significantly reduces the risk of fraud and disputes.
Clear Billing Descriptors
Ensure the name that appears on bank statements is recognisable and aligns with your business branding. Clear billing descriptors reduce confusion and help customers recognise legitimate transactions.
Proper Record-Keeping
Maintain thorough records of every transaction, including order details, delivery confirmation, and customer communications. Solid documentation improves your ability to challenge disputes and prevent chargebacks.
Transparent Refund Policies
Display a fair, clearly worded refund policy to address customer concerns before they escalate. When customers understand the refund process, they’re more likely to work with you directly than through their bank.
Regular Account Reconciliation
Routinely review your transactions to identify and correct errors quickly. Use AI-driven tools to detect suspicious activity and prevent fraudulent transactions. Keeping accurate records lowers the chance of disputes and improves financial oversight.
How Sift Supports UK Businesses in Reducing Disputes
Disputes arise from fraud, operational errors, or customer misuse. Sift offers intelligent tools to help UK businesses address all three with a single solution:
- Real-Time Risk Detection – Instantly spot and stop high-risk transactions before they lead to disputes.
- AI-Powered Dispute Response – Receive evidence recommendations to strengthen your case.
- End-to-End Dispute Management – Manage every dispute through a central, easy-to-use platform.
- Chargeback Prioritisation – Focus on high-value claims for greater ROI and improved win rates.
- Customisable to Your Needs – Tailor the platform to fit your business, from automation to managed services.
Want to reduce disputes, fight chargebacks more effectively, and protect your bottom line?
Learn how Sift can help UK businesses stay ahead of payment fraud.
