How Do Banks Investigate Disputes? A Merchant’s Guide to the Bank Investigation Process

When you run a business that accepts credit and debit cards, you’re usually required to have a merchant account with a bank. This is the bank that processes your customers’ card payments and deposits the money into your business account. If you have a dispute with a customer over a credit or debit card transaction, the bank will investigate the matter.

The investigation process can be complex, and it’s important to understand how it works so you can be prepared if a dispute arises. In this guide, we’ll explain the bank investigation process and what you can expect.

When a Dispute Arises

If a customer disputes a charge on their credit or debit card statement, they will contact their card issuer to file a claim. The card issuer will then contact the merchant’s bank to begin an investigation.

The first step in the investigation is for the merchant’s bank to confirm that the transaction in question did indeed take place and that it was authorized by the cardholder. The bank will also look into whether the transaction was properly processed according to the card network’s rules.

If the merchant’s bank finds that the transaction was authorized and processed correctly, the dispute will be closed and the customer will be told to contact the merchant directly to resolve the issue. If the merchant’s bank finds that the transaction was unauthorized or processed incorrectly, the dispute will be forwarded to the merchant for resolution.

The Merchant’s Role in the Investigation

If the dispute is forwarded to the merchant for resolution, the merchant will have 10 days to respond to the claim. The response must include documentation that proves that the transaction was authorized and processed correctly. This documentation can include sales receipts, invoices, shipping documents, or any other relevant evidence.

If the merchant does not respond to the claim within 10 days, the dispute will be automatically decided in favor of the cardholder and the funds will be returned to them.

If the merchant responds to the claim within 10 days but does not provide enough evidence to prove that the transaction was authorized and processed correctly, the dispute will be decided in favor of the cardholder and the funds will be returned to them.

If the merchant responds to the claim within 10 days and provides enough evidence to prove that the transaction was authorized and processed correctly, the dispute will be decided in favor of the merchant and the funds will be returned to them.

The Outcome of the Investigation

In most cases, the outcome of the investigation will be one of the following:

• The funds are returned to the cardholder

• The funds are returned to the merchant

• The funds are held by the bank pending further investigation

It’s important to note that even if the merchant wins the dispute, the customer’s credit card issuer may still charge them a fee for filing the dispute. This fee is typically $50 or less.

How to Prevent Disputes

There are a few things you can do to help prevent disputes from happening in the first place:

• Make sure your customers understand that they will be charged for the items or services they purchase from you

• Get authorizations for all credit and debit card transactions

• Make sure your prices are clear and easy to understand

• Don’t bill your customers for more than they agreed to pay

• Keep accurate records of all transactions

• If a dispute does arise, make sure you respond to it promptly and with all the necessary documentation

Following these tips can help you avoid disputes and the hassle of the bank investigation process.