Trade-offs in Optimization

As shown in the graph above, fraud continues to run rampant with the total value lost to fraud having a CAGR of 23% from 2019 to 2025. For merchants, the crossover between fraud and chargebacks is where optimization can become complex. Reducing fraud too aggressively is not always economically rational. Excessive declines, blanket authentication requirements, or rigid rules may suppress legitimate approvals and affect revenue. The objective is not to drive fraud or disputes to zero at any cost, but rather to balance risk mitigation, authorization performance, and monitor exposure intelligently. Therefore, it would not be advised for merchants to rely solely on fraud detection tools or third-party solutions. Effective dispute management requires coordination across fraud, payments, and operations teams.

The challenge arises when these functions are siloed. Fraud teams focus on loss rates, payments teams focus on cost and approvals, and operations teams focus on dispute recovery. Without unified visibility, merchants may not be able to visualize how upstream decisions shape downstream performance.

The situation becomes even more complicated when merchants attempt to reduce non-fraud related chargebacks. Reason codes like “Goods Not Received” or “Goods Defective” can lead merchants to seek resolution with logistics or product teams, when it could be a misclassification of the chargeback. Bulk misclassifications of chargebacks separate effective product enhancements that would traditionally be lifted through customers service channels if customers contacted the merchant instead of their bank. Given the number of chargebacks consumers request, there is a growing need for better transparency from the banks and card holders’ chargeback claims.

As illustrated in the charts below, CMSPI sees uneven breakdowns of chargebacks by reason code by some issuers, with some reason codes remaining absent from reporting. This creates confusion for merchants when trying to address the chargebacks and how they can make strategic changes for their process.

The Structural Approach

Addressing card-present chargeback behavior requires transaction-level data visibility across reason codes, authorization flows, environment (card-present vs. card-not-present), and billing model, not just blended dispute ratios. Such analysis must also be compared against market-level patterns to distinguish portfolio-specific weaknesses from ecosystem shifts. Applying this dual lens through a consolidated data approach makes it possible to identify where dispute pressure is structurally concentrated.

Collaboration further strengthens this insight, particularly where individual merchants struggle to gain traction with the supply chain. At CMSPI, we have spoken to many merchants that have attempted to resolve misalignment in chargeback reporting directly with the card issuers involved and often have been told that the issue is isolated to their own set-up or simply unfixable. To bridge this gap, through our Insights Advisory Council, we have established a Card-Present Chargeback Working Group bringing together merchant payments leaders representing over $1tn in payments volume – and growing with new members joining every month – to:

1. Analyze emerging patterns in these categories, and share best practices for compelling evidence submission.
2. Identify practical improvements and solutions that would bring greater transparency.
3. Drive positive change in the industry directly through the power of a unified voice and unified data.

In a tightening monitoring environment, access to shared intelligence and consolidated data is a meaningful strategic advantage.

For more information on the Chargeback Working Group please submit the form below.

Conclusion

More than a loss metric to suppress, chargeback levels reflect performance where fraud controls, billing design, authorization strategy, and customer experience intersect. Merchants interpreting chargebacks holistically rather than reactively will be best positioned to protect revenue while managing risk in an increasingly complex payments landscape.