The Data Point: 92% of Merchants Using Only Third-Party Tech Keep Chargebacks Under 0.5%

Fraud detection is constantly improving, but so are the capabilities of fraud rings and hackers, making choice of fraud detection and dispute resolution technology critically important in 2022.

For Dispute-Prevention Solutions: Third-Party Tools Limit Dispute Related Losses, a PYMNTS and Verifi collaboration, PYMNTS surveyed over 300 merchants in four business categories — retail, entertainment and gaming, travel and leisure and digital subscription services — to gauge the effectiveness of in-house dispute resolution compared to use of third-party tools.

As these data points from in-depth study show, the ongoing and costly problem of disputed card payments can lead to high levels of customer dissatisfaction while increasing the incidence of refunds, whereas data shows purpose-built systems to be more effective across the board.

• 92% of Merchants Using Only Third-Party Tech Keep Chargebacks Under 0.5% of revenue

A perceptual disconnect exists between the effectiveness of proprietary in-house systems and that of third-party fraud detection and chargeback resolution specialist FinTechs.

While 45% of merchants using only in-house dispute-management systems call these systems highly effective in managing customer disputes and detecting fraudulent transactions, the study “shows that third-party systems are more effective at fighting fraud, as 92% of the merchants that use only third-party systems for detecting fraud can keep their losses below 0.5% of total revenue.”

• Only 50% of merchants say they accurately track disputed transactions

Somewhere between digital whack-a-mole and cat-and-mouse, only half the firms surveyed by PYMNTS confidently believe their systems accurately identify disputes and chargebacks, while over 23% acknowledge overidentifying these incidents, and almost 27% overidentify them.

• 59% of merchants that say their systems are ineffective issue customer refunds

One measure of the cost of investing in better systems can be found in the spread in refunds between companies using in-house fraud and chargeback dispute systems versus those using purpose-built third-party platforms and applications.

Per the study, “Merchants with systems that are not effective or just slightly effective are more likely than other merchants to issue refunds and notify customers with an alert from the issuing bank. Fifty-nine percent of merchants that say their systems are ineffective issue customer refunds, while 48% with highly effective systems issue refunds.”

See the study: Dispute-Prevention Solutions: Third-Party Tools Limit Dispute Related Losses