Banks are winning consumer trust in disputes, but easy chargebacks are hurting merchants and fuelling a cycle of rising refund claims
Trust. It’s what commerce relationships are built on. Sure, we have iron-clad contracts full of clauses and legal terms, but at the end of the day, we do business with those we can count on.
So it’s not really surprising to find that consumers are trusting their banks more than ever these days. Data from the recently released 2025 Cardholder Dispute Index showed that cardholders overwhelmingly feel their banks have their back, particularly in the case of fraud and customer disputes. Nearly 90% of respondents said they trusted their bank to correct any reported fraud issues.
For their part, financial institutions are working hard to earn and keep that trust. That’s great for banks and consumers, but there’s a third party involved here: retailers.
Merchants are the odd man out in this triangle of trust. And, they’re the ones getting kicked in the head as a result.
Customers are increasingly satisfied with the dispute process
No merchant likes returns and refunds, but they’re a natural part of retail. The rise in e-commerce has exacerbated things; not being able to touch or try out merchandise before buying has led to an organic rise in items being shipped back.
For the most part, merchants are okay with that. If a buyer is unhappy, of course, you want them to talk to you and allow you to resolve the issue. The problem is, unsatisfied customers aren’t taking their problems to merchants. Instead, they’re going straight to their issuing bank.
Chargebacks were designed to be a last resort in cases of criminal fraud or merchant misbehaviour. If possible, cardholders should always try to work things out with the retailer before disputing a charge with the bank.
An increasing number of disputers aren’t doing that, though. When they want to return merchandise for a refund, they’re bypassing the merchant altogether and filing a chargeback with the bank. Why? According to the report, more than three-quarters of respondents feel that banks offer faster, easier, and more satisfying resolutions.
That perception is not necessarily backed by reality. In most circumstances, a merchant refund will happen days or weeks before a dispute is settled. But, if cardholders strongly believe a chargeback is an easy, no-hassle solution… then facts probably aren’t part of the equation.
The trust/satisfaction paradox
While it’s not the proper procedure, the report shows that 48.28% of survey participants admitted disputing a transaction with their bank without first contacting the merchant. And, in fact, 75% said they believed filing a dispute was just an alternative way of getting a refund.
Of course, it isn’t; with fees, lost merchandise, and other outlays, direct chargeback costs to the merchant are more than double that of a refund. Indirect costs push the numbers even higher.
The bulk of disputers probably don’t know the difference, though. They likely have nothing against the merchant; they just see contacting the bank as a more logical option. And financial institutions, who understandably want to keep those customers happy, do all the legwork to get transactions refunded.
The cardholder makes one call, and everything is handled, leaving the customer happy. But here’s where things get interesting.
A cardholder files a dispute instead of requesting a merchant refund. Their bank strives to keep the customer happy. Those efforts pay off; among participants who recently filed a claim with their bank, 87% reported being “satisfied” or “very satisfied” with their dispute experience.
What happens next is inevitable. The cardholders are going to return to what made them happy. A harrowing 90% of respondents said successfully disputing a transaction would make them more likely to try it again. At that point, the bank aims to deliver a positive customer experience, making the customer happy. Wash, rinse, repeat.
Therein lies the paradox: by providing good service, banks are actually incentivising bad customer behaviour. Cardholder actions are causing a problem, but by trying to help their customers, banks are actually making the situation worse.
Can We Break the Cycle?
Consumers demand that banks—and merchants—provide the best experience possible. It’s ridiculous to think that anyone should offer less. But financial institutions are working with a set of established parameters that might need to be re-examined.
The chargeback process was instituted nearly a half-century ago, long before e-commerce was even dreamed of. Banks were given a lot of latitude in protecting their customers, which was fine, because there wasn’t a way to game the system easily. With e-commerce, that’s no longer true.
So, maybe now is the time to start tightening the standards for allowing disputes. Or, to find ways of introducing some healthy friction into the process.
This won’t be easy. A mandatory 30-day hold on funds, for example, could make customers reconsider filing a dispute. But we don’t want to punish cardholders who are using the system as intended, just to create roadblocks for illegitimate chargebacks. The tricky part will be finding that balance.
Another possible solution is a fee or penalty for using the bank (instead of the retailer) to process a refund. Even then, however, 36.68% of the participants in the report felt that the retailer—not the bank or the consumer—should still bear financial responsibility, even when the dispute is proven invalid.
There probably isn’t a silver bullet to fight this problem, but ignoring it won’t help either. Card networks, issuers, merchants, and other stakeholders need to come together and review—perhaps even reimagine—the role of chargebacks in the internet age.
The need for a consumer safety net still exists, but cardholders (and everyone else) need a clearer understanding of how chargebacks work, and what they’re really for. All parties share responsibility for education.
Banks should be offering customers the best experience; everyone agrees on that. But it shouldn’t be at the expense of merchants. We need to find ways to keep that from happening.
