Failure Patterns, Disputes, Security and Official Sources
Chargebacks, refunds and failed payments: what Indian merchants need to know
How card and UPI disputes work for merchants in India, the RBI turnaround times for failed transactions, how to respond to a chargeback and what refunds cost.
A chargeback is when a customer's bank reverses a card or UPI payment after the customer disputes it, for example "goods not received", "not as described", "duplicate charge" or "I did not authorise this". The amount is taken back from your settlement, often with a chargeback fee, unless you respond in time with evidence. A refund is different: you choose to return money, usually to the original payment method. A failed transaction is a third case: the customer's account is debited but the payment did not complete; the RBI's harmonised turnaround time (TAT) framework of 20 September 2019 requires automatic reversal within set timelines, with compensation of ₹100 per day of delay payable to the customer by the entity at fault. Knowing which of the three you face tells you what to do. This guide belongs to the failure patterns overview.
Three situations compared
| Chargeback | Refund | Failed transaction | |
|---|---|---|---|
| Who starts it | Customer, through their bank | You | The system (or a complaint) |
| Money flow | Taken from your settlement | You return it | Reversed to customer automatically |
| Your action | Accept, or contest with evidence | Process through provider | Do not take a second payment until status is clear |
| Fee | Often a chargeback fee | Sometimes a refund fee; MDR may not be returned | None to you, usually |
| Rules | Card network and NPCI dispute rules, your agreement | Your agreement; RBI PA direction on refunds to original method | RBI TAT circular of 20 Sept 2019 |
Failed transactions: RBI turnaround times
The RBI circular "Harmonisation of Turn Around Time (TAT) and customer compensation for failed transactions using authorised Payment Systems" (20 September 2019) sets outer limits. Examples relevant to merchants:
| Situation | Reversal timeline | Compensation to customer |
|---|---|---|
| Card at terminal: account debited, charge slip not generated | Auto-reversal within T+5 days | ₹100 per day beyond T+5 |
| Card online: account debited, confirmation not received by merchant | Auto-reversal within T+5 days | ₹100 per day beyond T+5 |
| UPI to merchant: account debited, merchant did not receive confirmation | Auto-reversal within T+5 days | ₹100 per day beyond T+5 |
T is the transaction date. The circular says compensation must be credited without the customer having to complain. Check the full table on the RBI website for other cases.
What the merchant should do. If a customer says their account was debited but your terminal or soundbox shows nothing, do not ask them to pay again without checking the provider app or settlement report. If the payment did not reach you, tell the customer it will be reversed automatically and give the transaction reference. If it did reach you later, issue the goods or refund, not both.
How a card chargeback works
- Customer disputes with their issuing bank.
- Issuer raises a chargeback through the card network to your acquirer.
- Acquirer notifies you and debits the amount (or holds it), giving a deadline to respond.
- You accept or submit evidence (representment).
- Issuer decides; further stages (pre-arbitration, arbitration) exist under network rules.
The deadlines are set by card network rules and your acquirer; you may get only a few days. Ask your provider for its response window in writing.
UPI disputes
UPI disputes run through NPCI's dispute mechanisms and the customer's app or bank. For merchants, the practical steps are similar: watch for dispute notices from your acquirer, respond with proof, and keep transaction IDs (UTR or RRN) for every payment.
Evidence that wins
| Dispute reason | Evidence |
|---|---|
| Goods not received | Delivery proof with date, address, signature or OTP; courier tracking |
| Not as described | Product listing, photos, customer communication, return policy acceptance |
| Duplicate charge | Proof that two separate orders existed, or proof of refund already made |
| Not authorised (card not present) | Authentication record (OTP or other factor), device and IP data from gateway, delivery to cardholder's address |
| Service not provided | Booking confirmation, attendance or usage logs |
| Refund not processed | Refund reference and date |
Card-present transactions with chip and PIN are hard for a customer to dispute as unauthorised; keep terminal receipts for the period your agreement or network rules require.
What chargebacks cost (illustrative)
An online store with ₹10 lakh a month in card sales has a chargeback rate of 0.5% by value (₹5,000) across 5 cases, with a ₹300 fee each.
| Response | Lost sales | Fees | Total |
|---|---|---|---|
| Accept all | ₹5,000 | ₹1,500 | ₹6,500 |
| Contest all, win 3 | ₹2,000 | ₹1,500 | ₹3,500 |
Plus the goods shipped. High chargeback rates can also lead to reserves, higher rates or termination.
Refunds
- Under the RBI Master Direction on Payment Aggregators, refunds go to the original payment method unless the payer instructs otherwise, and are routed through the escrow unless the merchant manages them directly and the payer is informed.
- Ask your provider whether MDR is returned on refunds and whether there is a refund fee.
- Process refunds promptly; delays create disputes and chargebacks.
- Do not refund to a different account on request by phone; it is a common fraud pattern.
Prevent disputes
- Clear descriptor: the name on the customer's statement should match your shop name.
- Clear return and refund policy, accepted at checkout.
- Delivery with proof (OTP or signature) for high-value orders.
- Quick responses to customer complaints.
- Authentication at checkout under the RBI rules in force from 1 April 2026; see tokenisation and authentication.
- Do not split one sale into several card payments.
FAQ
Can I refuse a refund and let the customer raise a chargeback?
You can, if the claim is unfounded, but then you must defend the chargeback with evidence. Fees apply.
Who pays the ₹100 per day compensation for failed transactions?
The circular requires it to be credited to the customer by the entity at fault in the payment chain, usually a bank. It is not normally a merchant charge, but your agreement may allocate costs.
How long should I keep evidence?
At least as long as the dispute window in your agreement and network rules; many merchants keep it for over a year. Tax record rules may require longer.
Do UPI payments have chargebacks?
Yes, UPI has a dispute process. Respond to notices from your acquirer.
Sources
- Reserve Bank of India — Harmonisation of TAT and customer compensation for failed transactions (20 September 2019); Master Direction on Payment Aggregators
- NPCI — UPI dispute redressal
- RBI Complaint Management System — complaints against regulated entities
- National Consumer Helpline — consumer complaints that may reach merchants
