Small and Large Merchants Alike Lose Significant Revenues to Disputed Payments

We might term disputed card transactions the equal opportunity challenge for merchants large and small.

And there’s a disconnect between the thought that using homegrown solutions for those disputes is more effective than using a provider and the reality.

To that end, the report Dispute-Prevention Solutions: The Bottom-Line Benefits Of Third-Party Solutions, a PYMNTS and Verifi collaboration, found that merchants with annual sales greater than $1 billion lose on average 0.51% of their revenue to disputed transactions. The problem hits merchants with the relatively lowest top lines, too, with 0.4% of those with $20 million to $100 million in sales.

And 23% of merchants say they systematically under-identify fraudulent disputes for intentional purchases — which gives a sense of just how serious the problem can be.

And things are worsening: Twenty-four percent of merchants with more than $1 billion in annual sales saw the revenue lost to disputed transactions increase during the past year; a third saw the number of disputed transactions increase.

Among the smallest merchants, 12% reported an increase in sales lost to disputed transactions in the last year than the year before, while 26% suffered an increase in the number of disputed transactions.

That spotlights the value of deploying dispute resolution tools — either proprietary or in-house. The data show that 34% of merchants with more than $1 billion in annual sales use third-party tools. By comparison, 93% of merchants with between $20 million and $100 million in annual sales use third-party solutions.

There’s some correlation between using third-party tools as a more effective line of defense for disputes than in-house solutions. Merchants that do not use third-party tools have 0.61% of their transactions disputed, a rate significantly higher than the 0.39% of disputed transactions among merchants relying strictly upon third-party tools.  In addition, 45% of the firms using their own systems state that these tools are very or highly effective — despite the fact that third-party tools perform better.

In fact, 83% of merchants solely rely upon third-party tools for managing cardholder disputes keep lost revenue to between 0.1% and 0.5% of annual sales. That’s far better than the averages, indicating some of the conventional wisdom needs to be reset.

Get the Report: Dispute-Prevention Solutions: The Bottom-Line Benefits Of Third-Party Solutions