By: Money Navigator Research Team
Last Reviewed: 25/01/2026

FACT CHECKED
Quick Summary
When card settlements land in an EMI (e-money) business account, chargebacks and disputes can still lead to money being withheld – but the withholding often happens before funds reach the EMI, via the acquirer or payment processor netting off disputes, fees, or reserves.
Where settlement has already reached the EMI account, withholding is more likely to show up as payout pauses, negative balances elsewhere in the stack, or contractual deductions depending on the provider relationships.
The key point is that “where the payout lands” (an EMI account) does not remove the card-scheme dispute pathway. It changes where friction appears: sometimes at the card processor, sometimes at the EMI, sometimes at both.
This article is educational and not financial advice.
The settlement chain when payouts go to an EMI account
A useful way to think about this is as two linked systems:
The card dispute system (issuer > scheme > acquirer > merchant/processor)
The payout destination (where net settlement is credited — here, an EMI account)
In most setups, the EMI is not the party deciding whether a chargeback exists. The card dispute mechanism is governed by scheme processes and the acquiring/processing contracts, and the acquirer (or processor acting for the acquirer) is the party that typically debits the merchant side when a chargeback is raised.
Visa’s merchant dispute guidance frames this as processing transactions that are “charged back to the merchant by their acquirer”.
Where payouts land still matters operationally. If you receive settlements into an EMI account, you may see:
Net settlement behaviour (payouts already reduced by fees, refunds, disputes, reserves)
Separate “reserve” ledgers held away from the EMI balance
Payout holds where future settlements are paused while risk is assessed
For background on how non-bank business accounts typically connect to rails, see our explainer on EMI payment rails (Faster Payments, Bacs, CHAPS).
Chargebacks vs “card disputes”: what is being reversed?
In everyday language, “chargeback”, “card dispute”, “refund” and “reversal” get mixed up. In scheme terms, a chargeback is a defined dispute process that can reverse a card payment in specific circumstances.
The Financial Ombudsman Service describes chargeback as a process that lets a consumer challenge and “claw back” a card payment in certain circumstances, with evidence usually required.
For merchants, the operational consequence is that liability can be reallocated after settlement – and the acquiring side is designed to ensure the disputed amount can be recovered from the merchant side, whether by debiting current funds, netting future settlement, or drawing on reserves (depending on the merchant agreement and processing structure).
Who can withhold funds (and what “withhold” usually means)
“Withholding” can mean different things depending on where you are in the chain:
Not paying out future settlement (a payout pause)
Netting off disputes before the money is credited to your EMI account
Holding a reserve (fixed, rolling, or event-driven)
Debiting a linked ledger or account used in the acquiring relationship
Restricting outgoing payments from the EMI account while checks run
Below are the main parties that may be involved.
1) The card issuer (customer’s bank) and the scheme: who initiates the dispute path
The issuer receives the cardholder dispute and uses scheme processes to raise it through the scheme toward the acquiring side. This is not usually “withholding your payout” directly; it is the trigger that can create a downstream debit/hold.
Both Visa and Mastercard publish merchant-facing dispute/chargeback guidance that describes dispute cycles and requirements (for example, evidence expectations, stages and escalation).
2) The acquirer: who typically debits the merchant side
In many structures, the acquirer is the entity that ultimately “stands behind” the merchant’s acceptance of card payments and is the party that passes chargebacks through to the merchant side.
Mastercard’s chargeback guidance explicitly addresses third-party processed transactions and notes that, in the UK/EEA context it discusses, chargeback rules apply regardless of processor (which is relevant where merchants assume a processor layer changes the fundamentals).
Practical effect: even if settlement lands in an EMI account, the acquirer can still require that the merchant side remains able to meet chargeback liabilities (often via net settlement, reserves, or contractual debits).
3) The payment processor / payment facilitator: who controls payout mechanics
Many SMEs are not “direct merchants” of an acquiring bank. They contract with a processor (sometimes a payment facilitator) who provides onboarding, processing, and payout. In these models, the processor often controls:
settlement schedules
reserve configuration
deductions and netting logic
payout holds and release criteria
That is why a dispute spike can lead to money being held before it is sent to your EMI account – because the processor controls settlement output.
This overlaps with the themes in our guides on why payment processors hold payouts during restrictions and rolling reserves explained.
4) The EMI account provider: where restrictions show up after payout
An EMI generally isn’t the party “running chargebacks” (that sits in card/acquiring rails), but an EMI can still withhold access to funds that have landed, usually by:
pausing outgoing payments while checks run
restricting the account following risk triggers
applying contractual deductions where the terms allow (for example, fees)
This is where it becomes important to know whether the account is truly an e-money institution or a bank. Our guide to checking the FCA register for app-based business accounts covers the practical identification step.
If the issue is deductions or contractual netting from an EMI balance (rather than a processor reserve upstream), see set-off and deductions in EMI accounts.
5) Safeguarding / regulatory overlays: what they do (and don’t) change
E-money has a safeguarding regime for relevant funds, which is conceptually different from FSCS deposit cover. The Electronic Money Regulations 2011 set the legal framework for e-money institutions.
Safeguarding does not remove the commercial reality of card disputes and reserves. In practice, dispute exposure often sits upstream at the acquirer/processor, while the EMI’s safeguarding relates to how relevant customer funds are held on the EMI side. For related reading, see safeguarding explained for e-money institutions and safeguarding vs deposit cover (including FSCS cover distinctions).
What happens to supplier payments and trade settlement
Supplier settlement often uses a mix of transfers, card payments and Direct Debit collections. A pause does not necessarily affect all of them equally.
Supplier bank transfers
If suppliers are paid by bank transfer, outcomes often mirror payroll:
Queued/pending: the payment instruction sits inside the provider awaiting release.
Rejected/failed: the provider blocks initiation and returns an error.
Partially processed: a batch payment can show mixed statuses if some instructions were created before the pause and others after.
Where suppliers are paid using different rails (for example Faster Payments for day-to-day suppliers, and CHAPS for time-critical payments), a rail-level pause can create uneven disruption.
Card payments to suppliers (if the account has cards)
Some e-money products allow card spending from the same balance. A pause on outbound bank transfers does not automatically mean card spending is also paused. That said, if a provider applies a broad account restriction, cards may also stop authorising.
If supplier settlement relies on card payment (for example online ad platforms, SaaS subscriptions, courier accounts), the operational question is whether card authorisations are affected independently from bank transfers.
Direct Debits and Standing Orders
Direct Debits and Standing Orders can be affected in two ways during a pause:
Collections may be returned unpaid if the account cannot honour settlement at the time of collection.
New mandates or changes may not take effect if the provider’s controls restrict the relevant processing path.
If you are comparing behaviour across banks and non-bank payment accounts, our guide to Direct Debits and Standing Orders when a business account is frozen sets out typical “what happens next” outcomes (even though the trigger in that guide is a bank restriction rather than an e-money pause).
Common withholding points when payouts go to an EMI
| Scenario | Outcome | Practical impact |
|---|---|---|
| Chargeback raised shortly after sale | Processor nets disputes from future settlement | Lower payouts land in the EMI account for days/weeks |
| Chargeback raised after money already paid out | Reserve is increased / payout is paused to rebuild cover | Cashflow volatility; settlement timing becomes uncertain |
| Dispute spike (fraud or service issues) | Rolling reserve percentage increases | More funds withheld upstream; EMI balance grows more slowly |
| Processor cannot recover via net settlement | Processor seeks recovery via contractual debit/negative balance | Payouts may stop until exposure is covered |
| EMI flags risk activity during dispute period | Outgoing payments paused by EMI | Funds visible but harder to use (suppliers/payroll/tax runs may be affected) |
Scenario table
| Scenario-level signal | Process-level constraint | Outcome-level pattern |
|---|---|---|
| Payouts shrink but card sales remain steady | Net settlement deductions (disputes/fees/reserves) | EMI receives smaller credits; no single “freeze” message |
| Payouts stop entirely | Settlement hold at processor/acquirer layer | No credits land in EMI despite ongoing card sales |
| EMI balance visible but payments fail | EMI outbound restriction (separate from card settlement) | Funds “stuck” in-app; transfers/cards may be impacted |
| Reserve ledger appears or grows | Risk cover requirement imposed upstream | Increased holdback until dispute window stabilises |
| Dispute losses posted days/weeks later | Chargeback lifecycle timing | Profit/cashflow mismatch between sales date and dispute date |
Why funds are withheld: the main rationales
Dispute liability and lifecycle timing
Card disputes are not instantaneous. A transaction can settle, be paid out, and only later become disputed. That is why reserves exist: they bridge the gap between when money is paid out and when dispute exposure is finally cleared.
Visa and Mastercard guidance documents describe dispute cycles, evidential expectations, and escalation stages for merchants (which helps explain why exposure can remain “live” beyond settlement day).
Risk cover: reserves, rolling reserves, and event-driven holds
Reserves are a common mechanism for covering chargeback risk, especially where the merchant has rapid settlement, higher-risk sectors, spikes in refunds, or high dispute ratios.
This intersects with our operational guides on bank restrictions triggering higher processor reserves and chargebacks during account restrictions, even though the trigger here is disputes rather than an account freeze.
Contract structure: direct merchant vs facilitator models
If the processing contract is with a payment facilitator, the facilitator often controls settlement and can apply withholding mechanisms without touching the EMI balance directly (because the money never reaches the EMI until net settlement is released).
This is one reason businesses sometimes assume “the EMI is withholding” when the withholding is actually upstream.
Compliance overlays and restricted communication
Sometimes disputes coincide with compliance review triggers (for example, unusual volumes, location mismatches, sanctions screening, or source-of-funds questions). Where a firm is restricted in what it can say, it may not give detailed explanations in real time.
This is conceptually related to the dynamics discussed in why banks can’t explain restrictions (“tipping off”) and bank compliance reviews explained, though the parties and legal bases can differ between banks, processors, and EMIs.
Compare Business Bank Accounts
Dispute exposure is not unique to EMIs. What changes is where cashflow friction appears (processor netting vs EMI access restrictions) and how quickly funds can be re-routed if settlement arrangements change.
Our comparison hub at Business bank accounts lays out neutral criteria for comparing account types and features. This is not a recommendation of any provider.
For a related operational scenario, see switching card-processor payouts to a new bank account during closure.
Frequently Asked Questions
Yes – but it often happens by changing future settlement rather than pulling money from the EMI balance. If the acquirer/processor controls the settlement stream, it can net off disputes and reserve amounts before anything reaches your payout destination.
Where settlement has already been paid out, recovery may appear as a withheld future payout, an increased reserve requirement, or a request to cover a negative position in the processing relationship (depending on the contract structure).
A refund is typically merchant-initiated (the merchant sends money back). A reversal may be an immediate transaction correction (for example, where authorisation is cancelled or a duplicate is voided, depending on the flow).
A chargeback is a formal dispute pathway within the card ecosystem. The FOS description captures the essential idea: it is a process that can “claw back” a card payment in certain circumstances, usually requiring evidence.
The cardholder’s issuer initiates a dispute, but the decision pathway depends on scheme rules and the evidence exchanged through the acquiring side. In practice, the merchant submits evidence via the processor/acquirer, and outcomes follow defined dispute stages.
That is why withholding is often framed as “risk cover”: money can be held while the dispute remains unresolved, because liability can move after the original payout.
Because withholding often happens upstream as net settlement. If disputes, refunds, fees, or reserve top-ups are applied before settlement is released, the EMI receives a smaller credit and the EMI account itself may show no restriction.
This pattern is common where a processor controls settlement schedules and deductions. It aligns with the general mechanics discussed in why payment processors hold payouts during restrictions, even when the trigger is disputes rather than a bank event.
An EMI is not usually the entity running the chargeback process, but it can restrict access to the balance for separate reasons (for example, internal risk checks, compliance reviews, or operational pauses).
Where the EMI contract allows deductions (for example, certain fees), deductions can be applied to the stored balance. The distinction between contractual deduction and upstream settlement netting is covered in set-off and deductions in EMI accounts.
A rolling reserve is a mechanism where a percentage of settlement is held back for a defined period to cover future dispute exposure. If dispute levels rise, the reserve requirement can increase, meaning less money is released in the near term.
The operational effect (cashflow delay rather than a single “freeze”) is explained in rolling reserves explained. Disputes can trigger similar behaviour even without a bank restriction.
Often not directly from the EMI balance, unless the processor has a contractual right and technical ability to debit an account you control (which varies by arrangement). More commonly, the processor recovers by adjusting future settlement flows or increasing reserves.
This is why some businesses experience a sudden settlement hold after a dispute wave: it is a mechanism to rebuild cover when earlier payouts have already been released.
Safeguarding relates to how relevant customer funds are held by the e-money institution, and it is distinct from card dispute liability at the acquiring layer. The legal framework for e-money institutions sits in the Electronic Money Regulations 2011.
In practical terms, safeguarding does not prevent a processor from netting disputes or holding reserves before settlement reaches the EMI. It also does not guarantee that card dispute exposure disappears; it remains part of the card acceptance model.
Disputes can continue to progress within the card system even if your payout account is restricted. The main operational issue is whether you can still access portals, evidence submission routes, and communications with the processor/acquirer.
Related operational outcomes are explored in can a bank close an account while disputes/chargebacks are open? and card disputes in administration or liquidation, noting that those scenarios focus on account state and insolvency, not specifically EMI payouts.
Complaints routes depend on who the complainant is (consumer vs business), who the complaint is against (issuer vs acquirer/processor), and eligibility criteria. The FCA Handbook sets out eligibility concepts for complaints handled via the Financial Ombudsman Service in DISP.
The FOS also publishes how it approaches disputed-transactions complaints and includes chargeback-related examples (primarily from the consumer perspective).
When settlement lands in an EMI account, it is tempting to treat the EMI as the “bank” in the story – but the dispute mechanics sit mainly in the card acceptance stack: issuer and scheme initiate a dispute, and the acquiring side ensures recovery from the merchant side via settlement controls. That is why withholding is frequently a settlement-output phenomenon (netting/reserves/holds) rather than a simple “account freeze”.
The practical constraint is that businesses can experience two separate bottlenecks at once:
- Upstream settlement withheld to cover chargeback exposure
- EMI-side access restrictions triggered by risk signals or operational controls
Understanding which layer is applying friction is often the difference between “a smaller payout” and “a visible balance you can’t move”.
Sources & References
Payment Services and Electronic Money – Our Approach (November 2024, version 6)
Dispute Management Guidelines for Visa Merchants (June 2024)
Financial Ombudsman Service: Problems with goods and services (chargeback overview)
Financial Ombudsman Service: Disputed transactions (business guidance)
The Electronic Money Regulations 2011 (UKSI 2011/99) – official PDF
The Payment Services Regulations 2017 (UKSI 2017/752) – official PDF
FCA: Key publications – electronic money and payment services



