If you’re an online merchant, you’ve likely felt the surge of chargebacks. A new 2025 State of Chargebacks report confirms what you may already suspect: Chargebacks are exploding and causing more disputes, more lost revenue, and more operational headaches.
This comprehensive guide dives into why charging disputes are getting out of hand, what they truly cost you, and how you can fight back. Explore bold, proven strategies to cut chargeback costs and mitigate risk.
The Present & Future of Chargebacks
Chargebacks aren’t just rising, they’re skyrocketing worldwide. According to the report, global chargeback volume will jump by 24% from 2025 to 2028, reaching 324 million transactions. That’s a massive wave of disputes cresting on the horizon.
Many merchants are already underwater: Nearly 59% of merchants reported their chargebacks grew by over 10% in just the past year. In raw numbers, some large merchants now face over 1 million chargebacks a year, accounting for 2% or more of their total transactions — a staggering operational burden.
It’s not only the volume that’s surging; the value of those chargebacks is climbing, too. In dollar terms, global chargebacks are expected to swell from $33.8 billion in 2025 to $41.7 billion by 2028, about a 23% increase.
Over half of U.S. merchants say their average chargeback is above $100. Another report found the average chargeback in 2024 was $169.13. The message is clear: The chargeback problem is big, growing, and very expensive.
Why It’s Getting Worse: The Hidden Drivers of Disputes
Why this dramatic surge? In short, commerce has gone digital, and disputes have followed. Merchants and issuers alike are seeing double-digit spikes in disputes year over year.
The convenience of online shopping (and online banking) means consumers can file disputes with a few clicks, and they’re doing it in record numbers. Chargebacks are forecast to hit unprecedented levels by 2028, so merchants must prepare now or risk being overwhelmed.
Classic fraud is only one of several hidden drivers behind the worsening dispute epidemic:
- Card-Not-Present Boom: 63% of merchants’ transactions are now digital purchases, where CNP (card-not-present) fraud thrives. More online orders = more opportunities for fraudsters to use stolen cards, leading to more chargebacks.
- Subscription & Omnichannel Complexity: The subscription economy has grown rapidly, from streaming plans to monthly boxes, and along with it come disputes (think “I forgot to cancel that free trial”). Likewise, omnichannel commerce means customers shop via apps, websites, and stores interchangeably, which can lead to confusion or double charges.
- First-Party Fraud (Friendly Fraud): Not all “fraud” is committed by strangers. First-party fraud is when your own customer claims a legitimate purchase was unauthorized to get a refund, essentially abusing the chargeback process. This might stem from buyer’s remorse, a family member making an unagreed-upon purchase, or someone trying to game the system. Fraud now accounts for roughly 45% of merchant chargebacks, and that share is likely to grow.
- It’s Just Easier to Dispute: Perhaps the biggest under-the-radar factor is that disputing a charge has become as easy as tapping an app. Many banks let customers file disputes through online banking or mobile apps with zero friction. No need to call the merchant — just hit “dispute” and you’re done. This convenience has unintended consequences. Consumers are simply more likely to initiate chargebacks when it’s one click away. It’s no surprise that dispute rates rose 78% in 2024, according to the Sift Global Network.
- Customer Expectations & Confusion: Today’s shoppers are savvy and impatient. If they don’t recognize a charge or have an issue with an order, they often go straight to the bank. Sometimes it’s genuine confusion (unclear billing descriptors or forgotten purchases), other times it’s dissatisfaction (item arrived late or not as described). In either case, the customer might hit the dispute button instead of contacting the merchant.
All these drivers compound to create a perfect storm. More online transactions and subscription billings, more chances for fraud (both friendly and criminal), plus a dispute process that’s easier than ever for consumers.
The Real Cost of Chargebacks
It’s tempting to think a chargeback is just a refund, but its true cost far exceeds the transaction amount. Why are disputes so costly?
Lost revenue and goods: First, you lose the sale amount and the product or service. If you already shipped the item or delivered the service, that’s gone for good. You’re essentially giving the customer (or fraudster) a free ride.
Bank fees and penalties: On top of the refund, banks often charge merchants a fee for each chargeback (usually between $10 and $50). If your chargeback rate gets too high, you could face higher processing fees or be placed in a monitoring program, which carries additional fines. In extreme cases, a merchant can even lose their ability to process cards.
Operational & labor costs: Handling chargebacks is time-consuming and expensive. Merchants must pour resources into this: About half of merchants handle chargebacks in-house, and the other half outsource to specialist firms. By one estimate, merchants pay $240 for every $100 of chargebacks. Analyst salaries, case management systems, and training are a hefty overhead eating into your margins.
Customer loss and brand damage: Each chargeback often represents an unhappy customer (except in pure fraud cases). That customer might be gone for good, or worse, they might be a serial refunder learning they can get your product for free.
Simply put, a chargeback is much more than just a refund. By the time you account for fees, shipping costs, the lost item, labor hours, and potential future revenue loss, that chargeback might cost you 2-3 times the original transaction amount. If you’re hit with hundreds or thousands of them, the financial impact is brutal.
The true cost of chargebacks extends to your whole operation. It hits your bottom line, your team’s productivity, and your customer relationships. This is why savvy merchants treat chargeback management as not just a minor customer service issue but a critical area for cost reduction and process improvement.
How To Reduce Chargeback Costs
Faced with these high costs, the goal is clear: reduce the cost impact of each chargeback or, better yet, prevent as many as possible. Here are some smart, battle-tested moves to slash the cost per chargeback:
Automation
The chargeback process is labor-intensive and ripe for automation. Many banks and large merchants are investing in automated dispute systems and AI-driven tools to cut down on manual work. Automation can populate response documents, track deadlines, and even decide which cases are worth challenging, saving you countless hours and lowering processing costs per dispute.
Leverage Real-Time Alerts
One of the easiest ways to avoid the cost of a chargeback is to stop it from happening in the first place. Services now exist that alert merchants the moment a customer files a dispute with their bank. Armed with that knowledge, you can act immediately, for example, halt fulfillment on a shipped order or proactively issue a refund before the dispute formalizes. These chargeback alert systems let you resolve the issue directly with the customer and avoid an unnecessary charge dispute.
Empower Customers
This might sound counterintuitive: why focus on customers when talking cost reduction? But one of the most effective strategies is making sure customers don’t feel the need to dispute in the first place. That means giving them tools and info to resolve issues or answer questions easily. For example, providing digital receipts, clear transaction descriptions, and self-service portals for order history helps customers recognize charges instead of thinking of fraud. When cardholders can easily recognize purchases (say, through a banking app that shows the merchant’s name and logo or details), there are fewer disputes due to confusion.
Target First-Party Fraud with Data
Friendly fraud can be tough to detect, but new solutions are emerging to spot patterns and flag risky claims. Machine learning models can analyze a customer’s purchase and dispute history to predict if a chargeback is likely “friendly” fraud. Programs that use AI-driven transaction insights and risk modeling to significantly reduce first-party fraud. For example, if a customer has a habit of claiming nondelivery while shipment tracking shows otherwise, an AI system might catch that. These tools help you gather evidence to challenge false claims and proactively decline suspicious transactions that are likely to be charged back later.
Optimize Your Strategy
Not every chargeback should be fought. A savvy merchant knows when to fold and when to fight. Small dollar dispute? It might cost more to fight than to let it go. Clear-cut fraud with no chance of winning? Probably not worth your team’s time. But if you have compelling evidence (delivery confirmation, customer correspondence) on a high-value dispute, then fight it and recover that revenue. Streamline your internal process to quickly triage chargebacks: auto-refund or write off the trivial ones, and concentrate your resources on those worth contesting. This reduces wasted effort and increases your win rate on the ones you do tackle.
Consider Outsourcing (or Insourcing)
About half of companies handle chargebacks internally, and half outsource to specialized providers. There’s no one-size-fits-all answer here, the right choice depends on your volume, expertise, and cost structure. If you’re a mid-sized merchant spending a fortune on an in-house team, you might find a third-party service that charges per dispute is more cost-effective. Conversely, if you’re a large enterprise paying hefty fees to a vendor, building an in-house team with the right tools might lower your long-term costs. The key is not to assume but to evaluate.
Each of these moves can meaningfully lower the cost impact of chargebacks on your business. They attack the problem from different angles, operations, technology, and customer experience, but together they shrink the resource drain caused by disputes. And importantly, many of these also reduce the number of chargebacks you get, which is the ultimate cost saver.
Next, let’s zoom out and talk about overhauling your entire chargeback management approach for maximum savings.
Reducing Chargeback Fraud
Unfortunately, fraud prevention isn’t just a technology problem, it’s a people and process problem. If you rely solely on software, you’re likely missing the bigger picture. What’s needed is a combination of insight, process, and partnership to mitigate fraud-related chargebacks.
Insights
Data is power in the fight against chargebacks. The right information gives you deep insight into the issue at hand. Merchants that thoroughly analyze their chargebacks gain insights that tools alone can’t provide.
For example, do you know what percentage of your chargebacks are due to merchant errors (like shipping mistakes or billing confusion) versus true fraud versus friendly fraud? Many issuers don’t even track the difference; a whopping portion of banks simply label every dispute as “fraud” if it doesn’t neatly fit another category.
But merchants who dig into root causes can tailor their responses. In the State of Chargebacks report, issuers identified 72% of disputes as fraudulent, whereas merchants pegged only 45% as fraud. This gap shows that merchants often have better insight into what’s really happening (e.g., distinguishing first-party fraud from genuine fraud, or spotting a customer service issue masquerading as a chargeback).
You need to harness that insight. Track every dispute reason code, look for trends (such as a specific product or subscription plan generating lots of disputes), and calculate your true win rates when you fight back. This analytical approach will reveal where to focus your efforts. No AI tool can replace human analysis of these patterns. Use your data wisely, and you can preempt many chargebacks.
Processes
Even the best tools won’t help if your internal processes are broken or outdated. How your team handles fraud and disputes day to day matters enormously. Do you have clear procedures for responding to chargebacks? Are your customer-facing policies (returns, cancellations, support) designed to minimize disputes?
It’s critical to establish a tight process for the entire chargeback lifecycle, from the moment an order looks suspicious to the moment a dispute is either won or lost. This process includes:
- Ensuring your fraud team and customer support are in sync (so a customer who calls about an issue gets a refund before they feel the need to call the bank).
- Training your staff on chargeback representment evidence requirements and having a playbook for different scenarios.
- Standardizing charge alerts by sending friendly email reminders for recurring charges, or contacting customers who initiate a dispute to resolve it directly.
- Integrating fraud management throughout the company so that it is not operating in a silo. Companies that excel at chargeback management treat it as an ongoing process of refinement.
Reducing fraud isn’t about eliminating all risk (which could decline good orders and hurt sales). It’s about balance, maximizing good sales while minimizing fraud and disputes.
Your processes should reflect a balanced approach, using friction (like OTP verification) only when justified, and always aiming to “reduce friction and fraud” together in a seamless buying environment. A good process finds that equilibrium, resulting in fewer chargebacks and lower costs.
Partnerships
The third piece is partnership. Chargebacks have two sides: the merchant and the issuer (along with the card network governing the rules). To effectively tackle fraud and disputes, merchants can’t go it alone. Partnering with others in the payments ecosystem gives you capabilities and knowledge you wouldn’t have on your own.
For instance, working with your acquiring bank or payment processor can reveal patterns they see across merchants or get you into programs like Visa’s Rapid Dispute Resolution. Partnering directly with card issuers through collaboration platforms allows you to share data, and as mentioned, sending detailed transaction info to the bank can help resolve customer disputes faster.
Advanced collaborative tools that let merchants and issuers securely share data help businesses gain an edge in managing chargebacks while also improving the customer experience. Look into all partnership opportunities: join merchant advisory groups, collaborate on fraud intelligence sharing, and consider third-party services that act as a bridge between you and issuers. Several tech companies specialize in this space.
Don’t neglect internal collaboration. Break down walls between your fraud analysts, operations managers, and finance teams. Everyone should be aligned on chargeback reduction goals. A cross-functional approach ensures that insight from one team (say, a pattern noticed by customer support) is acted on by another team (fraud rules adjusted by the risk team).
And finally, partnership can mean working with an independent advisory partner. This could be a consulting firm or solution-agnostic expert that isn’t trying to sell you a one-size-fits-all software but rather will evaluate your unique situation. They can provide candid advice, help implement process changes, and even train your team on best practices. Think of it as bringing in a coach for your chargeback game. When tech and internal know-how aren’t enough, an outside partner can often pinpoint issues and opportunities that you missed.
Ultimately, fighting fraud-induced chargebacks requires more than a shiny new tool. It takes deep insight into why chargebacks happen, disciplined processes to address them efficiently, and strong partnerships to bolster your defenses.
The Grim Future of Chargebacks
If current trends are troublesome, the road ahead looks even more challenging. All signs indicate that the chargeback environment is going to get nastier in the coming years. Here’s why merchants need to brace themselves:
Volume
The sheer volume of chargebacks will continue to climb to record heights. Global disputes are projected to reach 324 million by 2028, but it might not stop there. As e-commerce penetrates every corner of the globe and digital payments become ubiquitous, even more consumers will exercise their dispute rights. Emerging markets are seeing spikes in card usage, and chargeback growth along with it. Research shows regions like the Middle East & Africa could see 50%+ increases in chargebacks over a few years.
Bolder Fraudsters
The underground economy that feeds criminal fraud is innovating as fast as the tech to stop it. Today’s merchants are dealing with organized fraud rings, identity theft on a massive scale, and even AI-driven scams. As merchants and banks close one loophole, fraudsters find another. The result: Third-party fraud chargebacks will keep coming. And if economic conditions get tough, we often see a fraud uptick as people get desperate.
Rise of Friendly Fraud
The younger consumers entering the market now are digital-native and arguably have fewer qualms about bypassing merchants. Combine that with social media “tutorials” that literally teach people how to get refunds via chargebacks (yes, those exist), and you have a recipe for friendly fraud growth. First-party fraud is likely to increase, especially in regions like the U.S. and Brazil, where it’s already a big share of disputes. If left unchecked, friendly fraud can normalize a culture of disputing purchases to get stuff for free. It sounds grim, but it’s a reality merchants must be prepared for. Policies and prevention strategies will need to evolve to counter this — from better purchase recognition to stricter consequences (such as blacklisting abusers).
Decreasing Customer Loyalty
Studies show that brand loyalty has been waning, especially among younger shoppers. If a customer has a bad experience, they’re more likely than ever to drop the brand and possibly file a chargeback out of frustration rather than seek a resolution. They know their bank will side with them, so why not? In the travel sector, for example, indirect bookings and third-party platforms lead to situations where a traveler disputes a charge because it’s easier than figuring out the refund policy between an airline, an online agency, and insurance for a canceled trip. As commerce ecosystems grow more complex, consumers often turn to the simplest remedy, the chargeback, to solve any problem.
Regulatory and Policy Changes
Card networks periodically update their chargeback rules (for instance, introducing new reason codes or evidence requirements). These changes often aim to streamline disputes, but they can also catch merchants off guard and lead to more losses if you’re not prepared. For example, stricter rules on how you must respond, or shorter timeframes, could up the challenge. Conversely, if consumer protections expand (say, new laws giving cardholders more rights to dispute certain digital goods or subscriptions), merchants might see an influx of chargebacks in categories that previously were lower risk. Keeping abreast of the changing dispute landscape will be crucial to avoid nasty surprises.
What does all this mean? Don’t count on the status quo. If you felt that chargebacks in 2024 were painful, 2025 and beyond could make the past look tame unless you evolve.
The forecast is a clear warning: Without improvements in managing and preventing disputes, merchants will face higher volumes, higher fraud, and higher costs year after year. It’s not a problem that magically goes away; in fact, it’s trending in the wrong direction.
Planning for the Future
Consider this your wake-up call. Chargebacks are no longer a minor inconvenience, they’re a significant and growing business risk. If you’ve been treating them as a back-burner issue, it’s time to bring them front and center.
The data is undeniable, and the trends are ominous: rising volumes, savvy fraud tactics, and mounting costs. The best thing you can do is take action now to reduce your cost and risk exposure.
This is the moment to recognize that you don’t have to tackle chargebacks alone. In fact, you shouldn’t. Bring in the experts, leverage partnerships, and get unbiased advice to supercharge your efforts.
VeriFee offers unbiased advisory services dedicated to helping merchants uncover cost reductions and risk mitigation and reduce chargeback-associated fees. Our team will roll up their sleeves and work with you to identify where you’re bleeding money, which chargebacks you can prevent, and how to streamline your operations for the battles ahead. The future of chargebacks may not look friendly, but with the right strategy and the right partner, you can turn a looming threat into a manageable, even optimized, aspect of your business.
