300 Merchants Share Best Practices on Resolving Costly Credit Card Disputes

Credit card transaction volume during the past two years has presented something of a model of the rest of the economy since the pandemic began — a sharp drop-off, followed by a rebound. Credit card transaction volume jumped 26% in 2021, and accompanying this increased volume of card transactions is a steady flow of transaction disputes and chargebacks initiated by customers who have experienced fraud or who are confused or frustrated about their transactions. Disputed transactions are part of a new reality in digital payments that is forcing merchants to be more proactive.

But too many merchants hobble their efforts to resolve transaction disputes by relying primarily — and in some cases, solely — upon dispute-resolution tools they have developed internally. These merchants are acting on the flawed presumption that their in-house tools are more effective than external ones at flagging and resolving disputed transactions, including those that may be fraudulent. Data from PYMNTS, however, shows that merchants that use only third-party tools limit their losses to 0.32% of annual revenues, whereas merchants that rely strictly upon in-house systems have lost 0.46% of revenues.

These are a few of the findings in “Dispute-Prevention Solutions: Protecting Profits and Customer Relationships With Third-Party Tools,” a PYMNTS and Verifi collaboration that provides actionable insights for merchants in search of effective solutions for managing and resolving cardholder disputes. We surveyed 301 merchants that generated revenue from web-based and mobile apps in four business categories — retail, entertainment and gaming, travel and leisure and digital subscription services — from Dec. 7, 2021, to Jan. 7, 2022, about the tools they use to resolve disputed credit card transactions.

Some key findings include:

76% of merchants use third-party tools for alerts or notifications about disputed credit card transactions. This reliance on external tools indicates that merchants are aware that vendors specializing in these solutions offer the most effective tools for resolving cardholder disputes.

66% of merchants say they use third-party tools to cut their operating costs, illustrating the tools’ power to improve merchants’ financial performance. Merchants also use third-party tools to improve their customers’ experiences after purchasing, indicating that these tools are effective for resolving disputes without harming customer relationships.

97% of businesses experienced both false positives about fraudulent card purchases and declined authorizations last year. Cardholder disputes cost money to resolve and can result in reversing completed sales to resolve the dispute. Disputed card transaction costs are one of the worst recurring problems that merchants face.

Merchants understand that the best way to address the problem of disputed credit card transactions is with effective tools that first alert them to disputes and then help resolve them cleanly without revenue loss or damage to customer ties. Many merchants may not fully understand which tools are best suited for these tasks, however, and instead rely on ones developed in-house instead of the more effective tools available from third parties.

To learn more about merchants’ strategies for using third-party tools to resolve disputed credit card transactions, download the report.