Half of Merchants Say Sunk Cost of Dealing With Chargebacks Is Their Worst Problem

Credit card chargebacks and the resulting revenue loss are major headaches for merchants, according to “Dispute-Prevention Solutions,” a PYMNTS and Verifi collaboration based on a survey of 301 merchants whose annual revenues from web-based or mobile app sales ranged from $20 million to more than $1 billion.

Get the report: Dispute-Prevention Solutions

Chargebacks are transaction disputes initiated by cardholders. These may be initiated by cardholders who have experienced true fraud, who are confused or frustrated about their transactions or who are simply using the chargeback process to avoid paying for goods and services.

In the survey, PYMNTS found that some of the most pressing problems that chargebacks create for merchants are the operating costs required to deal with chargebacks, false positives and chargeback fees, fines, etc.

Those are cited as the worst problems caused by chargebacks by 50%, 20% and 16%, respectively, of merchants.

Overall, 77% of merchants said the cost of fraud, disputes and chargebacks contributes to the damage to their business arising from cardholder disputes.

Other ways that chargebacks impact merchants’ bottom lines are lost sales due to declining good transactions, internal management of these issues, and communication between fraud prevention and customer service departments.

These are cited as financial fallout from cardholder disputes by 56%, 46% and 35%, respectively, of merchants.

Nearly all firms — 97% — reported experiencing both false positives and declined authorizations during the last year. In addition, 30% experienced authorization-related dispute challenges in which the payment amount was above the transaction limits.

Merchants understand the best way to address disputed cardholder transactions is with effective tools that first alert them to disputes and then help resolve them cleanly without revenue loss or damage to customer ties.

PYMNTS data shows that merchants that deploy specialized third-party solutions for these tasks enjoy demonstrable operational and financial benefits.