How to Lessen the Chargeback Burden on Community Banks

Credit cards remain consumers’ preferred payment type. In fact, consumers make an average of 16 credit card payments per month, outpacing all other payment types, according to Federal Reserve Financial Services’ 2026 Findings form the Diary of Consumer Payment Choice report.

At the same time, global chargebacks continue to climb. Visa reports it processed 106 million disputes in 2025, up 35% since 2019.

First-party fraud’s role

Growth in first-party fraud, or friendly fraud, is contributing to this rise. In 2025, 19% of issuers reported instances of friendly fraud. And while many of these transactions are laced with malicious intent, Mastercard reports that 44% of consumers struggle to recognize their own purchases, with nearly half (48%) having disputed a charge they later realized was legitimate. 

“We’re seeing growth in ‘first-party’ or ‘friendly’ fraud, where a legitimate transaction is disputed, sometimes unintentionally and sometimes deliberately,” says Seckin Yilgoren, Mastercard’s senior vice president of security solutions for North America. 

That escalation adds to chargeback challenges, as data shows that most of the time, merchants could have resolved the cardholder’s issue by answering a question (44%) or issuing a refund or replacement product (31%).

Merchant-first contact

“[Community banks should remind cardholders that] the best way to avoid disputes is to be proactive and vigilant,” explains Jeri Scheel, vice president of product management for card services at Fiserv. “If an issue arises—such as duplicate charges, damaged goods or billing errors—contact the merchant first, as many situations can be resolved quickly without escalating into a dispute.”

But while contacting the merchant first might be the right course of action, consumers are increasingly seeking solutions from the issuer: A whopping 74% head directly to their bank to solve the problem. 

“This may be driven by convenience, as consumers increasingly turn to their bank first instead of contacting the merchant directly, which can remove key context and accelerate escalation into a chargeback,” explains Yilgoren.

The true cost of chargebacks

For community bank issuers, this escalation yields a corresponding increase in chargeback volume, which creates business challenges. With every dispute costing between $9 and $10 to remedy, every time one occurs, it serves as a blow to the bank’s bottom line. In addition, it takes an average of 2.5 phone calls per dispute to resolve the situation, draining staff resources. 

Yet, disputes affect more than internal operations, tainting the customer experience and the bank’s reputation. For instance, nearly two-thirds (66%) of consumers say they would be highly or extremely likely to switch banks if they faced a long and tedious dispute-resolution process, and 73% indicate that their loyalty is heavily affected by how their financial institution handles fraud. 

“Disputes are no longer just a back-office operational issue. They’re becoming a strategic challenge tied to fraud, customer experience and long-term trust,” says Yilgoren. “As digital commerce continues to grow, the focus needs to shift from managing disputes after the fact to preventing them altogether.”

Fortunately, there are now technology solutions that can help mitigate the impact of disputes. For instance, all ICBA member banks are eligible to enroll in ICBA Payments’ Fraud Loss Protection Program, which helps recover losses from chargebacks due to disputed legitimate purchases, among other potential sources of fraud losses.

Further, Mastercard Ethoca Alerts enable a digital connection between the issuing bank and the merchant to notify the merchant when a card dispute has been filed with the issuer. This gives the merchant the opportunity to remedy the situation before it scales to a full chargeback. 

For its part, Visa launched six new tools earlier this year to modernize the dispute-resolution process. For issuers, this includes solutions using predictive AI models to enable more informed decisions, AI summaries of merchant documents and data points, and a new digital dispute platform.

Emerging tech fixes

Other technological solutions are emerging to address first-party fraud. They give the merchant the opportunity to share transaction data with the issuer to prove the transaction was legitimate. In addition, card companies are using artificial intelligence tools and the scope of their networks to support merchants in evaluating the veracity of customer return requests. 

“It’s critical to address issues early,” Yilgoren says. “Real-time collaboration between issuers and merchants allows potential disputes to be identified and resolved before they escalate. Taking a proactive, data-driven approach, rather than reacting after a chargeback occurs, can significantly reduce both costs and friction across the ecosystem.”

New solutions are also emerging to enhance the full scale of the chargeback process. For instance, technologies are looking to support transaction enrichment, help improve recognition to reduce unnecessary disputes, and address operational needs. 

However, while technology provides support, the best approach to negating the impact of chargebacks is to stop them from occurring. Experts agree that to achieve that status, customer education remains a top priority.

“From an issuer’s perspective, mitigating this risk requires a combination of robust fraud controls and ongoing cardholder education,” says Scheel. “Even familiar, trusted brands can be impersonated, so helping cardholders recognize potential risks and practice safe online behaviors is critical to reducing disputes.”

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