Chargeback costs are rising as friendly fraud grows, with merchants increasingly passing the financial impact of disputes on to consumers.
- 38% of merchants across the US, UK and global markets say chargeback-related costs are now influencing the prices of their goods and services, up from 32.5% in the previous report
- On average, merchants lose more than four dollars for every dollar disputed once fees, lost inventory, prevention costs and operational overhead are accounted for
- Nearly 62% of merchants say dispute volumes have increased over the past three years, while 73.7% of those observed an increase in friendly fraud
Few people would argue against the fundamental purpose of chargebacks. They remain one of the most important consumer protections ever introduced into electronic payments, giving cardholders a means of recovering funds when fraud occurs or when a merchant genuinely fails to deliver what was promised. The problem is not that chargebacks exist. The problem is that the system surrounding them has evolved in a way that increasingly rewards behaviour it was never intended to encourage.
Over the past two decades, the payments industry has worked tirelessly to remove friction from the cardholder experience. Purchasing became faster. Digital wallets eliminated manual data entry. Authentication became increasingly invisible. The dispute process followed the same trajectory. Today, many consumers can initiate a chargeback through their banking app in less than a minute, often with fewer steps than were required to complete the original purchase.
The hidden cost of easier disputes
Our latest Chargeback Field Report suggests that this increased ease comes at a growing cost. Thirty-eight percent of merchants across the UK, US and other global markets now say chargeback-related costs are directly influencing the prices they charge consumers, up from 32.5% in our previous study. Once interchange reversals, operational costs, chargeback fees, lost merchandise and fraud prevention expenses are considered, merchants estimate they lose more than four dollars for every dollar disputed. Those costs do not simply disappear from company balance sheets. Increasingly, they are being passed back into the wider economy through higher prices for everyone.
This should concern every participant in the payments ecosystem because it represents a market failure that has been hiding in plain sight. The overwhelming majority of consumers use chargebacks exactly as intended, yet they ultimately bear the cost created by a relatively small group of individuals who, whether knowingly or unknowingly, exploit a system built on trust. What was designed as a safeguard against genuine fraud is, in many instances, becoming an inflationary pressure that affects every consumer, regardless of whether they have ever filed a dispute.
The uncomfortable reality is that we have become exceptionally good at managing chargebacks after they occur, while almost every solution on the market still addresses the consequences of illegitimate disputes rather than the behaviour that creates them.
Yet our research suggests that the problem continues to grow. Nearly 62% of merchants report that dispute volumes have increased over the past three years, while 73.7% of those observing a change say friendly fraud has increased during that period. At the same time, refund abuse now accounts for an estimated 27.1% of all merchant returns, creating a parallel form of first-party misuse that places additional pressure on already narrow margins.
This is where the industry’s approach deserves greater scrutiny.
Friendly fraud is a behavioural problem
Some disputes arise from genuine confusion. Others stem from buyer’s remorse, dissatisfaction with a merchant’s returns policy or subscription charges that consumers had forgotten about. Increasingly, some are influenced by social media content encouraging consumers to bypass merchants altogether and go directly to their bank.
These are behavioural issues, not technology failures.
Unfortunately, the dispute process has not evolved to distinguish between the two with sufficient precision. The threshold for initiating a chargeback has steadily decreased, while the accountability associated with filing one has remained largely unchanged. Consumers are rarely reminded that chargebacks should represent a remedy of last resort after attempting to resolve an issue with the merchant. Nor is there widespread awareness that filing an invalid dispute imposes real financial costs that extend far beyond the transaction itself.
When filing a chargeback becomes faster than contacting customer support, when banks resolve disputes with minimal consumer effort, and when invalid claims carry little practical consequence, some level of first-party misuse becomes entirely predictable.
The irony is difficult to ignore. Consumers who misuse the dispute process in an attempt to recover the cost of a single purchase ultimately contribute to higher prices across thousands or even millions of future transactions. In trying to avoid paying for one purchase, they increase the cost of purchasing for everyone else.
Making illegitimate disputes less attractive
This is no longer simply a merchant problem. Nor is it solely an issuer or card network problem. It has become an ecosystem challenge requiring greater collaboration between every participant involved in the transaction lifecycle.
That does not mean weakening consumer protections. Quite the opposite. Strong chargeback rights remain essential to maintaining confidence in digital commerce, particularly as new payment methods and increasingly sophisticated fraud techniques continue to emerge. The objective should never be to make legitimate disputes harder. The objective should be making illegitimate disputes less attractive.
The industry needs greater transparency throughout the dispute lifecycle, improved data sharing between ecosystem participants, better consumer education around when chargebacks are appropriate, and stronger mechanisms for identifying patterns of repeated misuse without discouraging genuine victims of fraud from seeking help.
Perhaps most importantly, we need to stop accepting first-party misuse as an inevitable cost of doing business. It isn’t inevitable. It is the product of incentives, behaviours and policies that have evolved over time. Like any systemic problem, it can be addressed if the industry is willing to acknowledge its underlying causes rather than continuing to treat only its symptoms.
We’ve spent decades building one of the safest and most trusted payment ecosystems in the world. The next stage of that evolution should not be choosing between merchants and consumers. It should be protecting both by ensuring that the dispute process remains what it was always intended to be: a safety net for genuine problems, not a mechanism that quietly shifts billions in avoidable costs onto honest businesses and, ultimately, honest consumers.
