A recent Javelin Research study on payment card chargebacks in the USA - The Chargeback Triangle, by: Al Pascual, Sean Sposito, Kyle Marchini -  showed that it was a $31 billion problem in 2017 of which $19bn was born by merchants and $11bn by issuers.

Structural problem and challenges

The research found that the burden extends far beyond the liability for disputed transactions: 

• Complying with complex and arcane rules that vary across networks and transaction types shoulders merchants with a tremendous financial burden
• Short deadlines challenge merchants’ ability to gather documentation and assess the best disputes to fight.  

Issuers face pressure to give credence to all cardholder disputes or risk running afoul of regulators. For both parties, alienating customers by making them jump through hoops or saddling them with the cost of a disputed transaction can jeopardize future business. 

On top of these challenges, merchants and issuers must balance the need to please their customers with minimizing the risk of “friendly fraud”: disputes fraudulently filed by the individual who made the purchase. 

The study found that the cost of managing the chargeback process frequently exceeds the value of the product or service being disputed. For every dollar in disputed transactions the can spend $1.50 in fighting/managing the chargeback.

Solving the chargeback problem

The report describes the 11 steps in the chargeback lifecycle and where the problems occur. The report argues that to address the challenge of chargebacks requires coordinated effort among the three primary parties in the dispute: the merchant, the issuer, and the customer, creating the chargeback triangle. 

Greater collaboration is required between issuers and merchants can help preempt chargebacks and eliminate the burden of a formal dispute process. Victory is measured not only by avoiding financial liability for the transaction but also by securing the relationship with the customer who is disputing the transaction. 

This study covers the many ways to reduce costs and bolster customer satisfaction during a dispute and any chargeback attempt that might follow.

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CTMfile take: The issuers’ $11bn cost of chargebacks will ensure that banks and other issuers will fight any reduction in their card fees.