Disputes, trust, and the new economics of fraud prevention

Colin McCloskey, a payments expert specialising in fraud and the economics of trust in payments, discusses the new facets of fraud prevention.

Fraud used to be treated like shrinkage in retail: messy, irritating, but manageable. A known leakage you could price into the model. Today, fraud has become something closer to an economic force. It shapes how banks lend, how merchants price, how platforms grow, and how regulators tighten their grip.

At the centre of it all sit disputes. A chargeback might look like a simple operational loop. A customer challenges, a bank investigates, a merchant defends, and the scheme arbitrates. But beneath this choreography is a set of hidden costs that bend the economics of payments: chargeback fees, lost goods, wasted staff hours, reputational damage, and scheme penalties. Disputes no longer nibble at margins. They reshape trust itself, and in doing so, they alter the cost of doing business.

From disputes to distrust

One of the fastest-growing forms of dispute is ‘friendly fraud.’ Customers order, receive, and later deny a purchase – not because their card was stolen, but because disputing feels easier than phoning customer service. According to the Ethoca 2023 State of Chargebacks, this category is expanding faster than criminal fraud.

This matters because disputes are not just a lagging indicator of fraud, they are an accelerant of distrust. A merchant suddenly saddled with hundreds of disputes cannot price risk properly. Refunds become unpredictable. Rules grow blunter. Legitimate customers are declined more often or charged higher prices. Disputes are, in effect, inflation in the cost of trust.

Schemes have taken notice. Visa’s VAMP (Visa Acquirer Monitoring Programme) isn’t just about keeping ratios tidy. It reframes disputes as systemic signals. Acquirers are monitored at the portfolio level, meaning that one messy merchant can drag an entire BIN range into scrutiny. In this world, disputes don’t just affect merchant margins, they become market signals that define who gets access to the payment rails and on what terms.

Trust as currency

Strip away the jargon, and payments are just promises:

● The customer promises to pay

● The bank promises to settle

● The merchant promises to deliver.

A dispute is a broken promise. Fraud prevention, then, is less about walls and more about pricing promises correctly.

Economists call it ‘asymmetric information’, one side of a transaction knows more than the other. Fraudsters know their intent, merchants don’t. Disputes expose this imbalance. Trust reduces the asymmetry. It doesn’t eliminate risk, but it changes the economics. Merchants who can reliably identify high-trust customers don’t need to over-invest in blunt fraud rules. They can accept more revenue, lower decline rates, and still keep their scheme ratios clean. Trust, in this sense, isn’t soft. It’s hard economics.

The externalities of disputes

The ripple effects of disputes extend well beyond merchants. Acquirers risk fines and scheme sanctions. Issuers absorb investigative costs. Regulators deal with rising consumer complaints. It’s the payments equivalent of pollution: individual behaviour creating negative externalities for the entire ecosystem.

This is why schemes are reaching for aggregated controls like VAMP. By monitoring disputes at portfolio level, they internalise these costs. If acquirers can’t police their merchants, liability flows upstream. Trust ceases to be bilateral between buyer and seller. It becomes a systemic variable, actively managed by networks.

The new economics of fraud prevention

Fraud prevention used to be treated as a sunk cost. Build the rules, hire the analysts, and hope to stay below the threshold. That model is breaking down. Today’s economics require three new ways of thinking:

1. Disputes as demand signals

Not every dispute is fraud. Many highlight weak refunds, confusing billing, or subscription practices that border on entrapment. Treating every dispute as fraud prevention misses the chance to solve root-cause problems in the product or service.

2. Trust as an investment, not a byproduct

Building intelligence around who can be trusted is now central. This ranges from established dispute resolution platforms (Ethoca, Verifi) that reduce noise, to acquirer-led monitoring frameworks that shape merchant behaviour, to newer intelligence layers like Trudenty that focus on trust scoring and consumer context. What matters is the recognition that trust itself has compounding returns: fewer chargebacks, more approvals, stronger scheme standing.

3. System-level accountability

With portfolio-level monitoring, disputes are no longer a merchant-only issue. Acquirers, PSPs, and issuers are now entangled in the same ratios. Fraud prevention has become a collective-action problem, where incentives must align across the chain.

Where this leaves us

The disputes conversation is no longer about whether a merchant ‘wins’ a chargeback. It is about rebalancing the economics of trust.

Fraud prevention that ignores disputes is just firefighting. Dispute management that ignores trust simply pushes costs downstream. The future of payments will be defined by how well ecosystems price trust as deliberately as lenders price credit. Merchants with clean books will enjoy lower costs, better access, and broader reach. Those with messy dispute profiles will face higher costs and tighter constraints.

In this way, disputes are not noise. They are the balance sheet entries of trust. Mismanage them, and you inflate the cost of doing business not just for yourself, but for the system as a whole.

About the author

 

Colin McCloskey is Head of Risk Intelligence at Trudenty, specialising in fraud prevention and the economics of trust in payments. With close to two decades of experience across banking, insurance, acquiring, and payments technology, he has led teams tackling fraud and disputes at scale. His work focuses on aligning fraud strategy with business growth, regulatory compliance, and the new trust-based dynamics of global commerce.