Disputes have quietly become a major cost center for banks. Frontline teams are overwhelmed. Legacy systems treat every claim the same. And without better tools, even well-intentioned processes are leading to unnecessary refunds.
In 2024, U.S. cardholders filed over 105 million disputes, totaling more than $11 billion. Many of those claims came from customers who authorized the charge but later changed their minds or used the bank as a shortcut to a refund. More than a third of surveyed American consumers admit to disputing a charge they knew was valid, according to a 2023 report from Socure. Some do it out of confusion. Others hope for a refund without first trying to work through the merchant. Regardless of intent, the result is the same: higher losses for banks and more pressure on internal teams. Friendly fraud is now part of the daily workflow for most financial institutions.
Most disputes come from one of three types of customers, including:
• The truth teller. These customers rarely file disputes. When they do, it is usually due to clear and verifiable fraud. They should receive fast, seamless service.
• The rule breaker. These customers dispute legitimate transactions. They file disputes frequently and follow recognizable patterns. Their behavior is intentional and calculated.
• The rule bender. These customers dispute charges for service or product dissatisfaction. They are not trying to commit fraud but overly rely on their bank to resolve merchant problems.
For every truth teller, banks typically encounters several rule breakers and rule benders. Treating all customers the same leads to slower resolutions, higher costs and misplaced resources for institutions. Its systems get bogged down, customers receive poorer service and the real threats are harder to catch.
But to manage the growing volume of disputes, many banks increase their write-off thresholds. Financial institutions automatically refund low-dollar disputes to clear queues and reduce strain on their staff. While this works temporarily, it rewards the wrong behavior. Customers quickly learn that small claims get through unchallenged, which can increase this behavior and subsequent losses. Auto-refunds also strip out important signals, removing visibility into patterns that could flag abuse or inform strategy.
Another way financial institutions manage this is through outsourcing. Outsourcing promises speed and structure, but it often delivers misalignment. Processors are focused on throughput, not on reducing fraud losses. They follow rules, not risk. And they don’t have skin in the game.
Banks still end up providing documents, making final decisions and managing the possible fallout if a customer decides to part ways with the institution over how the dispute was handled. The work doesn’t disappear, it just becomes harder to track. Outsourcing also weakens internal visibility for financial institutions that lose access to the dispute-level data needed to spot trends, adjust controls or improve workflows.
The best time for financial institutions to stop friendly fraud is at the beginning of the process. Modern banks are improving the intake experience by making it dynamic and context aware, meaning:
• Fast-tracking disputes from known truth tellers.
• Asking clarifying questions when patterns suggest rule breaker behavior.
• Coaching rule benders to contact the merchant first, often resolving the issue before escalation.
With the right data and logic, intake acts as a triage point that separates high-risk cases from straightforward ones. It keeps honest customers happy and discourages misuse early. These steps can also help financial institutions comply with Regulation E, which requires banks to investigate claims in good faith and in a timely manner.
By pairing intake logic with a customer’s dispute history and transaction context, banks can comply with Regulation E while also protecting themselves from unnecessary losses, improving consistency, supporting documentation and giving teams confidence in their decisions. Banks using intelligent intake and customer differentiation have seen outcomes such as:
• Significant reductions in first-party fraud losses.
• Shorter resolution cycles.
• Fewer escalations.
•Higher satisfaction from loyal customers and front-line teams.
When disputes are handled based on behavior and history, the process becomes faster, fairer and more sustainable. Ultimately, disputes are not going away, but the right tools can help manage them with far less risk and cost. Financial institutions can stop refunding the wrong claims and start protecting the right customers using smarter workflows and better data.
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