Opinion: Card Issuers Must Lead on Chargeback Reform Before Costs Spiral

Credit card issuers must be proactive in finding ways to flip chargebacks from a looming danger into a strategic advantage. 

Data show that the problem of chargeback abuse is expected to grow by 24% by 2028, reaching 324 million transactions annually, according to Mastercard’s 2025 state of chargebacks report. 

Every time someone disputes a charge, it costs financial institutions as much as $10.32 to process. The cost is largely driven by the growing popularity of e-commerce and the fact that it is very easy to dispute a charge at the click of a button. 

Payments are having a moment: Consumers simply point their phone, or click one button and like magic, the transaction is complete. 

But chargebacks are the dark side to this frictionless payment utopia. They threaten to poison the well for both cardholders and the companies behind these magical credit cards. 

Chargebacks are nothing new. If a consumer is wrongfully charged, they can dispute that charge, and after an often consumer-friendly investigation, get their money back. 

There are good and valid reasons for chargebacks. For example, there may be fraud involved or unauthorized charges. Sometimes there is a billing error. At times a consumer may have ordered something online and it never arrived. 

Or maybe that item was not as advertised and the merchant isn’t giving the consumer the refund that they are entitled to receive. 

All of these scenarios are valid and a real part of the consumer experience. One reason consumers choose to use credit cards is this protective layer between the consumer and the companies that provide goods and services. 

The ability to dispute a charge remains an important part of the value and positive experience credit card issuers offer to consumers. 

Just as retailers deal with ‘shrinkage’ and accept it as the reality of running a business, we could make the argument that chargebacks are just the cost of doing business. But there comes a point when it simply becomes too expensive to accept. 

While actual fraud can be factored in and is inevitable, there is now growing evidence of so-called friendly fraud. That’s when legitimate cardholders falsely dispute charges. Friendly fraud accounts for more than 70% of chargebacks. 

The number of disputed transactions where the card is not present is also increasing. For example, if a consumer buys something through an app, they may not recognize the charge, and unintentionally dispute it. 

Not only do chargebacks cost card issuers the price of that transaction, creating processes like transaction verification systems and machine learning tools and deeper merchant monitoring also incur card issuer expenses. 

And while consumers may assume that cost is borne by the card issuers, in the end it is passed on to the merchants who accept the cards, who then have to factor it into their business model. Translation: Chargebacks eventually make whatever the consumer is buying that much more expensive. 

Transactions get more expensive for merchants hit by chargebacks, and they may decide this payment utopia isn’t in their best interest. At a certain point, if making it so easy for consumers to pay leads to problematic chargebacks, merchants will have no choice but to push back. 

Protecting the consumer with more regulation has many benefits, but for merchants and credit card issuers it also creates expensive compliance burdens. They face a delicate balance of maintaining a strong customer experience and also protecting their bottom line. 

Card issuers need to rein in chargebacks to control the cost of rising disputes.

They must start by educating consumers. Fifty-two percent of consumers don’t contact the seller before filing chargebacks, when that is usually a simple way to resolve a dispute. In fact, 72% of shoppers don’t know the difference between a chargeback and a refund. 

Card issuers can also create incentives for merchants to resolve disputes before they become chargebacks by making tools available and more inviting than going through the administration headaches involved. 

Machine learning is also ready to be weaponized in the fight. Data shows that fraud can be substantially reduced by using sophisticated authentication systems like 3DS as the transaction is taking place. 

The challenge is to create these speed bumps for consumers in a way that doesn’t create friction and disrupt the transaction.