Banks Turn to Automation as False Card Disputes Surge

Banks are struggling with a wave of card disputes where the cardholder, not a thief, is the one bending the truth. Cardholders filed 160 million disputes last year. Some studies suggest as many as half may involve first-party fraud. That means a customer disputes a charge they actually made. Banks are now turning to automation to sort real complaints from false ones.

What changed

Two things made disputes easy. Many people have learned that a dispute can get a refund. Banks also built simple banking portals where a dispute takes a few clicks. The pandemic added to it. Some retailers stopped requiring returns, and some shoppers came to see keeping the item and getting a refund as normal.

The numbers are striking. Roughly 40% of people admit to committing first-party fraud. Among cardholders who win a dispute, 50% may try it again.

Why banks are struggling

Suzanne Sando, a fraud analyst at Javelin Strategy & Research, said many people see this as a victimless crime. They assume big retailers will not feel the loss. Others do not realize that filing a chargeback can be fraud.

Handling disputes by hand is slow and costly. Pallavi Kuppa-Apte, CEO of dispute software company Decisionly, said one manual dispute can cost a bank about $50. When volume spikes, such as around the holidays, deadlines do not move and hiring cannot keep up. Some banks write off the loss, which can teach cardholders that disputing works.

What automation does

Decisionly says its system can automate 90% or more of disputes with no human involved. It says it can process 250,000 disputes a minute, for pennies each. These are the company's own claims. Its founders earlier built Chargehound, a dispute tool for merchants, which PayPal acquired.

The goal is to check signals about the cardholder and the transaction right when a dispute is filed. That helps flag cases that need more questions. It is not easy. Sando noted that a person can honestly fail to recognize a charge. A card may be shared by a family, or the merchant name on the statement may look unfamiliar.

What to do

• Before disputing, check family members and authorized users who share your card.
• Look up the merchant name on your statement, since it may differ from the store name.
• If you took the item or used the service, ask for a refund through the seller first.
• If you take cards, expect more false chargebacks and keep clear records of each sale.