Chargebacks are becoming an increasing challenge for retailers and financial institutions as digital transactions grow in popularity.
But what exactly is a chargeback?
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A chargeback is a process that allows consumers to dispute a transaction and request a refund from their bank or card issuer. This system is designed to protect shoppers from fraud or billing errors, giving them the confidence to make purchases online or in-store.
However, as digital payments become more common, chargebacks are also rising, creating challenges for businesses trying to manage disputes and prevent financial losses.
A new report from Datos Insights predicts that global chargeback volume will reach 324 million transactions by 2028, representing a 24% increase from 2025. The surge is largely attributed to the rise in online and card-not-present (CNP) transactions, the growing subscription economy, and changes in consumer behaviour.
E-commerce and mobile banking fuel chargeback growth
The rise of e-commerce and the widespread use of mobile banking apps have made it easier for consumers to dispute transactions.
Many banks now allow customers to initiate disputes directly through their online or mobile platforms, making the process more accessible. While this fosters consumer confidence in digital payments, it also increases the volume of chargebacks businesses must manage.
According to the report, 63% of merchants’ transactions are now digital purchases, meaning CNP fraud plays a significant role in chargeback trends.
For consumers, the ability to dispute transactions easily means they can quickly recover funds in cases of fraud or billing errors.
However, some consumers misuse the system by requesting chargebacks for valid purchases, either due to buyer’s remorse or an attempt to receive a product or service without paying for it.
This practice, known as ‘friendly fraud’ or first-party fraud, is a growing concern for businesses.
Fraudulent chargebacks remain a major concern
Fraudulent chargebacks, often referred to as ‘friendly fraud’ or first-party fraud, continue to be a significant issue.
The report found that both merchants and financial institutions saw an annual increase in fraudulent chargebacks, with first-party and third-party fraud together accounting for around 45% of merchant chargeback volume.
This trend puts additional financial strain on businesses, who not only lose revenue but also face operational costs linked to dispute management.
For businesses, dealing with chargebacks means spending time and resources on proving that a transaction was legitimate. If they fail to provide sufficient evidence, they may be forced to issue a refund and lose both the product and the payment.
Over time, frequent chargebacks can impact a retailer’s reputation and result in higher processing fees from payment providers.
Legacy dispute management systems struggle to keep up
Many businesses and financial institutions still rely on outdated dispute management systems, which are proving inadequate in handling the rising number of chargebacks. Traditional methods are time-consuming and costly, often requiring significant manual intervention.
The report highlights that businesses are increasingly looking at automated solutions, such as artificial intelligence-based fraud detection and dispute resolution tools, to streamline processes and reduce operational burdens.
As chargeback volumes continue to grow, retailers and financial institutions will need to rethink their strategies. Investing in advanced technology and improving fraud prevention measures will be essential to managing disputes more effectively and maintaining customer trust in digital transactions.
Consumers, on the other hand, should be aware of how chargebacks work and use them responsibly to avoid unintended consequences for businesses and the broader economy.
