When disputes become a fraud strategy
First-party fraud is quietly reshaping the risk landscape for merchants. Unlike third-party fraud, it originates from the consumer, often through a dispute that triggers a chargeback. Mastercard’s research highlights a shift in consumer dispute behavior: when consumers dispute a transaction and later realize it was a mistake, many do not rectify their error and reverse the dispute. Across 4,500 surveyed consumers, 775 admitted to disputing a transaction, and up to 37% admitted to not correcting a mistaken dispute (consumer fraud originates with).
Convenience remains the driving force for consumers, who increasingly turn to their bank first when a transaction looks questionable rather than contacting the merchant. In fact, 76% of consumers prefer resolving disputes through their bank rather than the merchant. This removes the merchant’s ability to resolve the issue and avoid costly chargebacks, creating higher operational costs and risk exposure. This is especially problematic considering ClearSale estimates that 40% of consumers who request a chargeback will do so again within 90 days.
What could be causing more consumers to use the dispute process?
Mastercard’s consumer research sheds light into the shift of behavior. Among Gen Z, 26% admitted they did not contact the merchant or app to return funds after realizing the dispute was wrong, compared with 22% of Millennials and 18% of Gen X.
What’s driving this trend?
Globally, chargebacks are on the rise, projected to reach 324 million transactions by 2028, a 24% increase over 2025 estimates, according to Mastercard. So, what is driving this trend?
Economic pressure
U.S. household debt reached $18.39 trillion in Q2 2025, with credit card balances at $1.21 trillion (up $27 billion in a quarter). At the same time, 39% of households report declining income, and 70% expect a recession within 12 months. These pressures make short-term financial relief, even through disputes — tempting.
BNPL and buyer’s remorse
Buy now,pay later (BNPL) usage is surging 52% of U.S. consumers have used BNPL in 2025, and Gen Z leads the trend, with 59% opting for BNPL. The average BNPL borrower originated 9.5 loans in a year, often stacking multiple loans across providers. This creates a cycle of deferred pain and buyer remorse, which can lead to disputes.
Lack of transparency and complex subscription models
One of the most significant accelerators of first-party fraud is the ease with which consumers can file disputes today. According to Mastercard's 2025 State of Chargeback Report, mobile banking apps and digital wallets have transformed dispute initiation from a multistep process into something that can be completed in seconds. If the consumer doesn’t recognize a transaction or the name of the merchant, they are able to raise a dispute in a couple of taps. Recurring billing models and complex subscription models also amplifies the problem. If a consumer forgets about a subscription service or doesn’t recognize a billing descriptor, this can lead to a dispute that could have been avoided with better transparency.
“Disputes are no longer just a backend operational issue — they’re becoming a frontline fraud vector. When consumers default to their bank instead of the merchant, context is lost, resolution slows, and chargebacks escalate. The opportunity now is to reintroduce transparency and collaboration earlier in the journey, so issues are resolved before they turn into costly disputes.” Gaurav Mittal, Executive Vice President of Ethoca at Mastercard
Dispute systems designed for consumer protection can sometimes be misused, increasing the frequency of disputes. As card-not-present transactions grow, protecting against both third-party fraud and first-party fraud is essential.
The solution: tools consumers want — and merchants need
Consumers aren’t opposed to security. In fact, 85% prioritize security over convenience, and 83% expect businesses to address their security and privacy concerns. They want visible and invisible protections that make them feel safe without slowing them down.
Merchants can meet this expectation, and reduce fraud, by adding intelligent safeguards at checkout:
Behavioral biometrics: In Experian’s consumer survey, consumers ranked behavioral biometrics among the most trusted methods (72% feel it’s secure). These tools analyze typing speed, mouse movement, and hesitation patterns to distinguish genuine users from bots or fraudsters, invisibly and in real time.
Physical biometrics: 76% of consumers trust physical biometrics (fingerprint, facial recognition) more than passwords. Offering biometric login or checkout options gives consumers confidence while reducing reliance on vulnerable credentials.
Passive identity verification: Experian’s patented account ownership verification matches payment card numbers to identity attributes without requiring extra input. This protects merchants from stolen card fraud while keeping checkout friction low.
Device and network intelligence: Secondary device checks and network analysis can silently validate identity during guest checkout or BNPL flows, reducing risk without slowing conversion.
Enhancing transaction clarity: Consumers are open to sharing more data for security: 77% would share more when shopping online, and 76% with financial institutions. Secure, real-time data exchange between merchants and issuers, such as through Mastercard’s First-Party Trust program, can strengthen fraud detection and reduce false declines.
Better purchase recognition: Improving purchase recognition in digital banking apps can help reduce disputes caused by consumers confusing their own transactions. Providing clear purchase descriptors, itemized receipts and better subscription management gives users the details they need to understand their purchase history and prevent first-party fraud.
“Reducing first-party fraud isn’t about adding friction; it’s about adding clarity. When merchants can surface the right information at the right moment, they not only prevent disputes, but they also strengthen trust and protect long-term customer relationships.” Gaurav Mittal, Executive Vice President of Ethoca at Mastercard
Closing thought
First-party fraud’s impact extends beyond operations, affecting profitability, customer trust and brand reputation. Merchants that act now to strengthen checkout security with visible and invisible protections will reduce losses, protect trust and deliver the seamless experiences consumers expect.
Learn more
Read part 1
