From Deposits to Disputes, Banking Runs on Trust
Arguably the most important currency in any line of business is trust. This is doubly true in the payments industry, where financial institutions, cardholders, and businesses rely on each other to spend, custody, and transfer billions of dollars every day.
In the case of banks, customer trust is strong. In fact, it might even be a bit too strong.
The 2025 Cardholder Dispute Index reveals that customer confidence in their financial institution is remarkably high, with a full 90% of surveyed cardholders saying that they trust their banks to correct any fraudulent issues on their behalf.
Unfortunately, this trust is so profound that more than three-quarters of these consumers would rather take a transaction issue to their bank than contact the merchant directly. And nearly half of all survey respondents admitted to disputing a charge directly with their bank without even trying to contact the seller within the last year. That's despite card network rules stipulating that an attempt to resolve issues should always be made before filing a bank dispute.
Convenient for Cardholders, But Damaging for Merchants
Established in the 1970s, chargebacks were only ever meant to serve as a last resort cardholder protection against fraud or unauthorized activity. That's a good thing.
The dispute process, however, has since morphed into a first step for many unsatisfied buyers. The chargeback process is being misused – if often unwittingly – to a dangerous degree. Data from Visa suggests that as many as 75% of all disputes filed are invalid instances of cardholder-initiated "friendly fraud."
How did we get here?
As stated above, cardholders trust their issuers to deal with fraud. One reason? Banks make it so easy for cardholders to file chargebacks.
Just a few years back, a dispute involved calling a bank's customer service line, waiting on hold, and explaining the situation. That was followed by the submission of a refund request, and then several business days of waiting for a refund to go through. It was a hassle for cardholders, but it was their only option.
Now, however, the customer can dispute a charge with a few clicks, without even leaving their banking app. After conducting a brief (and often inadequate) investigation, the bank forcibly reverses the transaction and provides the customer with a provisional credit. Bing, bang, boom.
Needless to say, cardholders are very happy with the current state of affairs. Among cardholders who recently filed a dispute, 87% say they are either "satisfied" or "very satisfied" with their experience. Merchants, though? Not so much.
As it turns out, that satisfaction comes at the direct expense of the seller. Every time a merchant receives a chargeback, they stand to lose revenue from the sale. But that's not all.
Because the cardholder typically isn't required to return the items they purchased, the business also loses any shipped merchandise, plus associated costs. To top it all off, the seller is assessed a chargeback administration fee — even if the chargeback is bogus, and even if the seller successfully challenges the case.
A "Vicious Cycle" for Merchants
Of course, chargebacks don't happen in isolation; cardholders who get what they want out of the dispute process are more likely to become chargeback-happy. There's hard evidence for this claim: an overwhelming 90% of consumers polled admit that winning a dispute would make them more likely to file one again in the future.
This permissive and carefree attitude that cardholders and banks display about chargebacks is especially damaging for merchants, since it creates a vicious cycle that feeds on itself: cardholders file illegitimate disputes, banks fix the problem, cardholders are satisfied and thus repeat the process. Merchants, meanwhile, end up paying the full price.
Obviously, this is not sustainable. So, what needs to change?
Addressing the root cause of the issue would be ideal, but that would shift the financial burden to banks, in the form of more comprehensive claims investigations. It would also introduce friction to the chargeback process, potentially jeopardizing customer trust and loyalty. Waiting on financial institutions or card networks to level the playing field is probably wasted effort.
A Proactive Focus on Prevention
What merchants can do, however, is take matters into their own hands. A proactive approach would focus on positioning themselves as the most attractive option for resolving issues:
- Educate customers on the proper use of disputes. Cardholders can file disputes for legitimate reasons, like defective goods or a double charge. But buyers need to understand that disputes are only warranted if they've failed to resolve the issue with the merchant first.
- Create a fair and transparent return policy. An accessible, easy-to-understand return policy can be an effective way for merchants to fend off chargebacks. If customers know they can secure hassle-free refunds directly, they're more apt to work with the merchant before turning to their issuers.
- Communicate often. Many disputes stem from miscommunications. Merchants need to keep their buyers in the loop through every step of the buying journey. This could include post-purchase confirmations, timely shipping and delivery updates, and alerts on any fulfilment issues that may arise.
- Clarify billing descriptors. If a customer can't decipher the billing descriptors on their credit card statements, they'll take their questions straight to the bank. Descriptors should clearly show the merchant's brand or store name; including a customer service phone number is even better.
- Provide best-in-class customer service. Cardholders admit they file bank disputes because it's convenient; to counter this, merchants must establish themselves as the path of least resistance. That means being easier to reach, offering multi-channel support (phone, live chat, email), and responding to requests as quickly as possible. If possible, offering free returns is a great option.
The chargeback system is in danger of collapsing under its own weight. If that happens, the entire process will have to be reimagined. Until then, merchants need to take it upon themselves to protect both their customers and their revenue from chargeback abuse.
About Chargebacks911
Chargebacks911® is the global leader in chargeback prevention and remediation technology. As a platform provider to merchants and financial institutions, Chargebacks911 is the first global company fully dedicated to providing an end-to-end platform specifically designed to counter post-transactional fraud and chargeback misuse. Today, Chargebacks911 safeguards more than 2.4 billion transactions per year on behalf of clients in 87 countries around the world, supporting over 2.5 million merchants. For details on Chargebacks911's comprehensive dispute management solutions, visit https://chargebacks911.com.
