Transaction Disputes Rise as Supply Chain Disruptions Persist

Transaction Disputes Rise as Supply Chain Disruptions Persist

As the pandemic winds on into its third year, waves of new virus variants continue to wreak havoc with supply chains.

Firms responsible for taking goods through each step on the journey from manufacturing to customers’ doorsteps find themselves short-staffed as new restrictions take shape around the globe. Merchants are also feeling the ripple effects, as shipping delays and stockouts spur consumers to cancel orders and dispute transactions.

Using data provided by Visa, Verifi studied card not present (CNP) dispute trends in the equitably comparable years of 2019 and 2021. These trends revealed that CNP disputes rose by over 29%.*

To get a sense of how it can all disrupt merchants’ top lines, PYMNTS’ data late last year showed that 38% of shoppers — 55 million people — could not buy at least one of the purchases on their list because it was out of stock. 

Of that tally, 49% shifted from their initial retailer of choice to another merchant in order to get what they needed.  However, another 15% who did not find what they wanted at the first retailer they tried simply wound up not buying the item at all.

Stockouts over Black Friday alone cost retailers as much as $4.6 billion in lost sales.

Backlogs Lead to Disputes

Thus, amid supply chain disruptions, backlogs form for shipments of a range of goods, from electronics to furniture to clothes.

Most major card brands offer consumers a 120-day window to file a dispute. Supply chain disruptions in 2020 caused shipments to be delayed by several months, with home goods and appliances delayed up to 180 days — well beyond that window. It stands to reason, then, that the longer consumers must wait for what they’ve purchased, the more inclined they are to cancel orders and initiate disputes.

Merchants may have to gird for a series of challenges — and shocks to their margins — should that dispute scenario arise. Merchants must maintain low dispute-to-sales ratios to avoid limited acceptance rates and higher transaction fees. Higher transaction fees can take a hefty bite out of operating results.

Beyond the shipping delays — where consumers see charges on their card statements, dispute it and claim “goods not received” as the dispute condition code — we’re likely to see disputes rise in lockstep with what is known as “friendly” fraud.

Supply chain delivery image. Package delivery notification.

Friendly fraud occurs when consumers do not recognize a charge on their bank statement, forget the purchase, feel sudden buyer’s remorse, or are unaware of a purchase a family member made using their card. PYMNTS’ data shows that 39% of consumers surveyed admitted to taking part in friendly fraud.

Proactive Best Practices

To get ahead of these looming problems, merchants are trying to proactively minimize disputes using a variety of methods that are not pandemic-specific. Keeping consumers in the loop with detailed order confirmations and communications about delays is an important and obvious first step. Additionally, clearer billing descriptors make transactions instantly recognizable, especially if they include clarity that comes along with “doing business as” explanations and customer support numbers.

“Merchants should follow best practice guidelines; with so many supply chain uncertainties, it’s essential to make sure customers receive timely communication on the status of their order,” said Lisa Polter-Tennant, senior vice president of Verifi Global Client Relations.  “Those merchants, of course, want to avoid the unfortunate outcomes of delayed shipping, which [can] create customer frustration or transaction confusion that can lead to unnecessary disputes.”

Charging consumers’ cards only when the item has shipped – and giving consumers an option to cancel if an order is significantly delayed 24 hours before shipping – is also helpful, as is blacklisting consumers who habitually participate in friendly fraud.

It’s too early to tell, of course, whether 2022 will see an ease of supply chain pressures. However, a proactive approach on the part of merchants to keep customers informed at each step of the process, from the initial point of ordering all the way through to delivery, can help cement customer loyalty well after the current shipping hurdles are but a memory.

*Visa Internal Analytics, January 2022

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