Merchants Lose Revenue Due to Disputed Payments

We could call disputed card transactions the challenge of leveling the playing field for merchants large and small.

And there is a disconnect between the idea that using local solutions for these disputes is more efficient than using a vendor and the reality.

To that end, Dispute-Prevention Solutions: The Bottom-Line Benefits Of Third-Party Solutions, a PYMNTS and Check collaboration, found that merchants with annual sales over $1 billion lose an average of 0.51% of their revenue due to disputed transactions. The problem also affects merchants with relatively lower sales, with 0.4% of those with sales between $20 million and $100 million.

And 23% of merchants say they consistently under-identify fraudulent disputes for intentional purchases, giving an idea of ​​the seriousness of the problem.

And things are getting worse: 24% of merchants with over $1 billion in annual sales have seen lost revenue due to disputed transactions increase in the past year; a third saw the number of disputed transactions increase.

Among smaller merchants, 12% reported an increase in lost sales due to disputed transactions over the past year compared to the previous year, while 26% experienced an increase in the number of disputed transactions.

This highlights the value of deploying dispute resolution tools, whether proprietary or in-house. Data shows that 34% of merchants with over $1 billion in annual sales use third-party tools. By comparison, 93% of merchants with $20 million to $100 million in annual sales use third-party solutions.

There is some correlation between using third-party tools as a more effective line of defense in litigation than in-house solutions. Merchants who do not use third-party tools have 0.61% of their transactions disputed, a rate significantly higher than the 0.39% of transactions disputed among merchants relying strictly on third-party tools. Additionally, 45% of companies using their own systems say these tools are very or very effective, despite third-party tools performing better.

In fact, 83% of merchants rely solely on third-party tools to manage cardholder disputes, keeping lost revenue between 0.1% and 0.5% of annual sales. That’s way better than the averages, indicating that some of the conventional wisdom needs to be reset.

Get the report: Dispute Prevention Solutions: The Essential Benefits of Third-Party Solutions

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