The True Cost of Consumer Disputes

For merchants and issuers, the all-mighty consumer is the center of their universe. But knowing what consumers want, when they want it, and how much they’re willing to pay are the elusive aspects of a complex equation. Managing consumer chargebacks and understanding why consumers file them can be a particular challenge unto itself – but paramount to success.
Follow the trail of consumer chargebacks and you’ll invariably discover a tangled web of misunderstanding, poor communication, mistrust, and anger. This leads not only to losing the individual transaction but to long-term revenue damage, as consumers abandon merchants and issuers for other options.
To manage consumer disputes, merchants and issuers must collaborate with each other. With better communication, sharing of information, and a commitment to reducing disputes, everyone wins – including the consumer. To understand the importance of collaboration, merchants and issuers must acknowledge the true cost of consumer disputes, as chargeback costs pose a significant threat to their business.
The Facts on Chargebacks
Chargebacks have become a $31 billion problem which merchants, issuers, and consumers faced in 2017. The recent Javelin Strategy & Research report, The Chargeback Triangle, examines the impact chargebacks have on all affected parties. Merchants suffer revenue loss and consumer attrition. Issuers incur liability costs, consumer loss, and uneasy relationships with merchants. Consumers face rising prices as a result of the mounting costs of chargebacks, the loss of long-term merchant relationships, and increasing concerns over credit and debit card fraud.
The Chargeback Triangle provides a clear picture of what everyone involved in consumer sales and disputes faces.

  • Chargeback costs are not evenly split. Chargebacks cost merchants $19 billion and issuers $12 billion.
  • Liability costs add up for issuers. 60% of total chargeback costs is in combined liability for credit, debit, and prepaid chargebacks.
  • Chargeback management costs drain merchants. 60% of merchant chargeback-related costs are in management expenditures.
  • One dollar translates to $1.50. For every dollar disputed, merchants and issuers spend an additional $1.50 on fees and management expenses.
  • Cardholders bypass merchants. In 76% of fraud-related disputes, consumers bypassed the merchant and contacted the issuer directly.

The Chargeback Tightrope
Consumer disputes and chargebacks are touchy subjects for merchants and issuers. While both agree that the chargeback and dispute process is broken, neither group has been willing to take steps into new territory to change this process.
In many dispute scenarios, a consumer addresses their problem by clicking the dispute transaction link in their online credit card statement. This can be viewed as fairly blameless behavior, since they don’t know what else to do and assume this is the correct, if not only, course of action.
The unfortunate fact is that because consumers do not know they can contact the merchant, they assume the merchant is to blame, or worse, doesn’t care about their concerns. This costs merchants on multiple levels, including lost revenue, consumer attrition, damage to brand reputation, and an increase in true fraud and friendly fraud.
Merchants know that in most non-fraud consumer disputes they can address the dispute and resolve it more effectively than the issuer. Whereas the issuer has no knowledge of the charge in question, the merchant typically has this information readily available. With the right customer service approach, merchants can solve consumer problems and prevent the chargeback from occurring.
The Value of Collaboration
In today’s payments climate, the best option to chip away at the industry’s $31 billion problem is to facilitate an open-door policy that allows merchants and issuers to communicate with each other directly on disputed transactions and consumer queries.
With a solution readily available, communication and information-sharing can be valuable tools for merchants and issuers. It’s time to put an end to the broken chargeback process. Contact the Verifi team to learn more about how our collaboration solutions can help protect your revenue and improve customer experience.