Half of Merchants Say Managing the Cost of Chargebacks Is Their Biggest Problem

When half of merchants report wrestling with their most costly and contentious problem, it demands attention. Chargebacks are just such an issue and one that merchants, and their payment partners, want and need to bring under control.

The study “Dispute-Prevention Solutions: Protecting Profits and Customer Relationships With Third-Party Tools,” a PYMNTS and Verifi collaboration, surveyed more than 300 merchants about the pernicious chargeback problem and where it tends to have the most harmful impacts on receipts and customer relationships.

 This issue goes beyond the fact that 50% of merchants said dealing with the costs they incur from chargebacks is their biggest problem.

“Merchants also ranked false positives as problematic, as they can lead to a rejection of a sale for several reasons, including lowering the risks of fraud and disputes, yet cost the merchant revenue,” with 20% of survey respondents saying false positives are their biggest problem, while 18% said they are their second biggest problem, the study found.

Riding along with chargebacks are fees and fines imposed by banks and card processors, with 16% of merchants saying the fees and fines are the worst problems chargebacks cause, “while 4% said the higher fees they face because of chargebacks are their worst problem. In addition, 9% of merchants said customer attrition is the biggest problem chargebacks cause, and 21% called customer attrition their second biggest problem.”

Ongoing issues in resolving cardholder disputes are being lessened using third-party tools. For 66% of merchants, these tools help cut their operating costs, and 54% said these tools help reduce the ill effects of disputed transactions.

“Merchants also said the tools help them comply with a card network’s requirements, such as controlling the dispute ratio, which 31% said is important,” the study found. “Twenty-eight percent of merchants said the tools help them avoid fees from acquiring banks and merchant processors. At the same time, 56% of merchants said third-party tools improve their customers’ shopping experiences, while 51% said the tools improve merchants’ relationships with customers.”