Disputes and Chargebacks in Payments: How to Avoid Them with Yugo

Chargebacks and disputes are red flags for any business.

They signal customer dissatisfaction, potential fraud, and financial loss for the merchant. Whether you operate in e-Commerce, CFD & Forex trading, iGaming, or Web3, such issues undermine operational efficiency and pose barriers to sustainable growth.

Although chargebacks and disputes are closely connected, they aren’t one and the same. The confusion is understandable: after all, disputes often lead to chargebacks. However, managing disputes effectively can reduce the likelihood of chargebacks and minimize the damage they cause.

In this article, we explore the key differences between disputes and chargebacks, how the process works, why it matters across industries, and most importantly: how Yugo’s open banking and blockchain payment solutions help prevent these issues at their source.

Difference Between a Chargeback and a Dispute

Although often used interchangeably, a dispute and a chargeback are not the same thing.

• Dispute:
  A dispute happens when a customer questions or challenges a transaction with their issuing bank. At this stage, no money has been reversed yet,  the transaction is simply "under investigation."
  
  
• Chargeback:
  If the customer’s bank accepts the dispute after investigation, the disputed transaction is forcibly reversed. The merchant loses the transaction value and may also incur additional fees and penalties.

In short:

• A dispute is the start of a transaction query.
• A chargeback is the end result if the dispute is upheld.

How Do Disputes Work?

To initiate a dispute, customers must first attempt to resolve the issue directly with the merchant. If the merchant is unresponsive, uncooperative, or unable to solve the problem, the customer can escalate the matter by filing a dispute through their issuing bank. Depending on the payment network and provider, disputes must usually be filed within 60 to 120 days from the original billing date.

There are several legitimate reasons why a customer might dispute a charge:

• Fraudulent Transactions: Card-not-present fraud remains a leading cause of disputes, where stolen card details are used for unauthorized purchases.
  
  
• Product Issues: If a purchased item is damaged, defective, or never delivered, customers may file a dispute if the merchant does not offer a prompt resolution.
  
  
• Billing Errors: Sometimes customers misunderstand legitimate charges, especially when the merchant name appearing on their bank statement differs from the brand they interacted with, or when they forget about a subscription or recurring payment.

Strong, proactive customer service,  such as sending order confirmations, providing clear billing descriptors, and offering prompt refunds when necessary can often prevent disputes from escalating.

However, not all disputes are legitimate. Chargeback fraud: when customers knowingly dispute a valid charge accounts for a significant portion of all cases. It is estimated that up to 86% of chargebacks result from either intentional or unintentional fraud. Businesses must remain vigilant, adopting measures like delivery confirmations, digital signatures, and transparent communications to protect themselves.

If the issuing bank finds the dispute credible, the customer may receive a temporary credit while the case is investigated. The merchant then has an opportunity to submit evidence to contest the claim. If the merchant's evidence is insufficient or the customer’s case is strong, the dispute moves forward and may become a chargeback.

How Does a Dispute Become a Chargeback?

If the issuing bank determines that the customer's claim is valid, it transitions from an open dispute into a formal chargeback.

This process typically includes:

• Reversal of funds from the merchant’s account
• Additional chargeback fees imposed by the acquirer or payment processor
• Potential negative impact on the merchant’s dispute-to-transaction ratio
• Reputational harm, especially if disputes accumulate
  
  

Too many chargebacks can result in being categorized as a "high-risk merchant," leading to increased costs, restricted payment processing, or even termination of merchant accounts.

Three Common Types of Chargeback Fraud

While some chargebacks result from merchant mistakes or customer misunderstandings, a significant share originates from fraudulent behavior. The three most common forms of chargeback fraud are:

Friendly Fraud

Friendly fraud occurs when a legitimate cardholder makes a purchase but later disputes the transaction without valid reason. This can happen accidentally  such as forgetting a purchase or misunderstanding the merchant’s name or maliciously, when a customer intentionally tries to reclaim funds while keeping the product. Friendly fraud can be divided into innocent (accidental) and deliberate (opportunistic) cases.

Criminal Fraud

Criminal fraud involves stolen payment information. Here, fraudsters use another person's credit card details to make purchases. The true cardholder, unaware of the transaction, disputes the unauthorized charge after discovering it on their statement. Criminal fraud typically leaves businesses vulnerable to chargebacks after the goods or services have already been delivered.

Triangulation Fraud

Triangulation fraud is a complex scam involving three parties: the victim, the fraudster, and a legitimate merchant. Fraudsters lure customers to buy goods at suspiciously low prices through fake online stores or marketplace listings. Using stolen card information, they then purchase the real goods from a legitimate store and have them shipped to the unsuspecting customer. Meanwhile, the stolen card details are often reused for further fraudulent transactions.

How Can You Prevent a Dispute from Becoming a Chargeback?

Proactive strategies can significantly lower the risk of disputes escalating into chargebacks:

• Clear Customer Communication
  Provide clear, accurate descriptions of products, services, and terms.
  
  
• Prompt Issue Resolution
  Address customer complaints or refund requests quickly before they escalate.
  
  
• Transparent Billing Descriptors
  Ensure that the transaction label appearing on customer bank statements matches your brand or service.
  
  
• Detailed Record-Keeping
  Maintain thorough transaction records, shipping confirmations, and customer communications to respond effectively to disputes.
  
  
• Strong Authentication Processes
  Implement two-factor authentication (2FA) and customer verification to prevent unauthorized transactions.
  
  
• Move Away from Card Payments
  Card payments inherently expose merchants to chargeback risks because of the network rules favoring cardholders.
  
  

This is where open banking and blockchain solutions come in.

Eliminating Chargebacks with Yugo

Yugo’s open banking-powered solutions and blockchain technology, featuring instant A2A payments and stablecoin transfers, directly address the root causes of chargeback issues and offer secure global transactions.

Here’s how:

• No Card Networks = No Traditional Chargebacks
  Payments move securely and instantly  between bank accounts, outside of the traditional card scheme dispute process.
  
  
• Real-Time Transaction Authorization
  Customers actively authorize each transaction through their banking app, drastically reducing fraud claims.
  
  
• Transparent Payment Flows
  Clear, instant confirmation of payment reduces "I didn't authorize this" disputes.
  
  
• Lower Fees, Higher Trust
  Without interchange fees and dispute fines, merchants save money and strengthen customer relationships through transparent, bank-level payments.
  
  
• Ideal for Recurring Models and Digital Goods
  Whether you’re running a subscription business, a Web3 project, iGaming or a trading platform, Yugo’s instant bank payments remove the barriers to scaling with confidence.
  
  

In a world where dispute and chargeback rates can cripple digital businesses, open banking and blockchain aren’t just better solutions, they represent a smarter future.

Managing disputes and chargebacks is more critical than ever. Traditional card-based systems expose businesses to financial risk, operational complexity, and reputational harm. Yugo’s instant A2A and blockchain technologies offer a proven path to minimize disputes, skip chargebacks, and future-proof your payment stack.

Switch to Yugo and build a payment experience that's instant, secure, and dispute-resistant,  because your business deserves better.