Perceptions Of Credit Card Frictions Critical For Merchants

Card declines, disputes and chargebacks are sprouting like weeds in a commerce environment dominated by card-not-present (CNP) transactions that are more prone to fraud. Each rejected charge is harmful in its own way, so companies are partnering to get ahead of the problem.

The October Credit Card Frictions Report: How Transaction Disputes And Declines Impact The Consumer-Merchant Relationship, a PYMNTS and PAAY collaboration, finds that “The most common reasons triggering declines are associated with banks needing to verify the legitimacy of a transaction or consumers exceeding their credit limits, with more than half of consumers involved in transaction declines citing one of these two causes,” adding that “Transaction disputes, on the other hand, tend to negatively impact merchants’ reputations. Our research shows that roughly 27 percent of consumers who have disputed charges say that the disputes worsened their perceptions of the merchants involved.”

Either way, it’s bad for the customer, the merchant, the bank and the brand.

PYMNTS surveyed more than 2,000 U.S. consumers who engaged in non-grocery retail shopping within the last three months and examined how transaction disputes and declines impact their perception of merchants, issuing banks and card networks. What we found is surprising.

Declines, Disputes, And The Digital-First Customer

Key findings of the October Card Frictions Report revolve around revelations of recent months, as the purchases and pursuits of life moved quickly online, encountering friction along the way.

Noting that almost 49 percent are now turning to digital channels to make their day-to-day purchases, the new report finds that 90 percent of consumers who shifted to digital since the start of the pandemic plan to maintain some or all of their new shopping habits once the health crisis recedes.

“Consumers’ shift to digital channels has meant that a greater share is now using card-based payments to complete their purchases, with 72.3 percent using credit cards when they shop online,” per the report. However, “PYMNTS’ research shows that declines and disputes affect a significant share of credit card transactions, with 13.5 percent of consumers who engage in online shopping having had at least one of their transactions declined in the last three months.”

As to why, blame fraud. There’s an age component too, with the study finding that “only 4.7 percent of baby boomers and seniors have experienced a transaction decline, whereas 28.1 percent of Gen Z consumers have experienced one.”

Declines are bad but disputes are a more common. “Our findings show that 20.8 percent of consumers have disputed a charge within the past three months. Transaction disputes are especially common among young and high-income consumers,” per the new study.

Friction As ‘Frenemy’

Friction in finance is a “frenemy” in that it’s not particularly pleasant but we need it backing the card authentication process, especially at chaotic years like 2020 turned out to be.

Ironically, consumers understand friction and will tolerate it — up to a point.

“Verification prompts add an additional step to the payment process, but consumers largely value them,” the Card Frictions Report states, adding that “80.2 percent of consumers who did not get a prompt — 17.4 percent of whom experienced a transaction decline — would rather get one. Furthermore, 30.5 percent of baby boomers and seniors did not get prompts but would have preferred to receive one.”

Partly for this reason, declines aren’t fatal to customer relationships. They may even add value.

“Only 13.7 percent of consumers say that declined transactions worsen their perceptions of merchants, while 13.5 percent and 12.4 percent say so about issuing banks and card networks, respectively,” per the study. “This suggests that consumers perceive transaction declines as a positive friction that provides increased security against fraud.”

On the other hand, disputes are exactly that: disagreements. Not great for customer experience, although PYMNTS research found that merchants suffer too.

“Disputes tend to hurt merchants’ reputations in the eyes of nearly 30 percent of consumers involved, whether they are satisfied with the outcomes or not: 27.1 percent of all consumers who disputed charges say their perceptions of the merchants worsened following the disputes — 27.8 percent of consumers who are ‘very’ satisfied with their disputes’ outcomes say the same.”

The bottom line, the report tells us, is that “[Consumers] have opposite views regarding declines and disputes. They see declines as the result of improved security measures that help fight digital fraud, but they attribute disputes to mistakes for which the merchant is to blame. This results in merchants’ reputations taking hits following disputes.”