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Chargebacks will cost merchants $33.79 billion in 2025 and are projected to hit $41.69 billion by 2028.1 Volume is tracking the same trajectory: 261 million disputes this year, rising to 324 million by 2028.1
The old model was reactive: merchants would respond to a chargeback and hope to recover the funds. The new model is more proactive. Merchants need to prevent disputes upstream, use data to decide how to handle them, and keep dispute ratios within card network limits.
Card network initiatives like Compelling Evidence 3.0 (CE 3.0) and the Visa Acquirer Monitoring Program (VAMP) have changed both the mechanics and the incentives of dispute management. Mastercard has made parallel moves with Ethoca and Consumer Clarity. Across networks, the direction is clear: merchants need to prevent disputes earlier and manage exposure before it creates broader portfolio risk.
At PayPal, we see this shift across merchants. Dispute management is becoming less about fighting every chargeback after it happens and more about intervening earlier. That shift depends on using better data to make more informed decisions across the dispute lifecycle.
Historically, dispute management was reactive. A cardholder initiated a chargeback through their issuing bank, which triggered a downstream process where the merchant assembled evidence and attempted to reverse the claim. Win rate, recovery value, and throughput efficiency were the metrics that mattered.
This model treated disputes as unavoidable. The goal was not to reduce their occurrence, but to limit financial damage after the fact. That worked well enough when dispute volumes were manageable and network consequences were limited. Neither condition holds today. Visa's own reporting shows chargebacks grew nearly 30% globally between 2019 and 2021, even as card-not-present sales grew 51% over the same span.2
Pre-dispute tools like VMPI/Order Insight and RDR, developed through Visa's partnership with Verifi, are now central to dispute strategy. These tools create an intervention point upstream of the traditional dispute process. Rather than defaulting to chargeback creation, issuers can resolve cardholder inquiries earlier by clarifying the transaction descriptor, confirming delivery, or facilitating a refund.
RDR has changed the economics of some disputes. Its automated decisioning engine allows merchants to set rules for automatic refunds on specified dispute types. According to Verifi, RDR launched with expected combined RDR/CDRN coverage of 57% of all card brand disputes, a 7-point increase over CDRN coverage alone.3 Disputes resolved through RDR are excluded from VAMP ratio calculations.4
On the Mastercard side, Ethoca Alerts and Consumer Clarity support similar goals by helping merchants and issuers address disputes earlier in the lifecycle. Merchants operating across both networks need a strategy that accounts for both.
The Visa Acquirer Monitoring Program (VAMP), launched in April 2025 and now in active enforcement since October 1, 2025,4 represents a significant structural change in dispute risk management. VAMP consolidated the legacy VDMP and VFMP into a single framework measuring a unified VAMP ratio: combined fraud (TC40) and disputes (TC15) as a share of settled transactions (TC05).4
The thresholds matter. Acquirers are flagged Above Standard at or above 50 basis points and Excessive at or above 70 basis points.4 For merchants, the Excessive threshold is a 2.2% combined fraud and dispute ratio, phasing down to 1.5% in many regions throughout 2026, with a minimum of 1,500 disputes per month to qualify.4 Exceeding these limits triggers escalation and consequences through mandated monitoring programs, financial penalties, and in severe cases, loss of card acceptance.
For merchants processing through PayPal, this dynamic is important to understand because dispute activity contributes to portfolio-level ratios. That gives PayPal and its merchants a shared interest in identifying dispute patterns early, strengthening operational controls, and managing dispute exposure more proactively.
Introduced by Visa in April 2023,5 CE 3.0 has become an increasingly important part of the disputes process, particularly for merchants with the data infrastructure needed to qualify more disputes in the first place.
CE 3.0 requires merchants to link the disputed transaction to at least two prior undisputed transactions from 120–365 days earlier, with consistent identity signals across all interactions.5 When the criteria are met, this evidence can help support a liability shift. Qualifying disputes stopped through pre-dispute channels also do not count against VAMP ratios.
The data requirements are meaningful. This is not just about assembling documents. It is about maintaining structured, historically complete transaction and identity data that can be surfaced quickly and formatted correctly. Merchants with that infrastructure in place may be better positioned to respond to eligible disputes. Those without it may miss opportunities to qualify for stronger dispute responses.
Perhaps the most important mindset shift in modern dispute management is moving away from blanket representment. Merchants contest just over half of the cases they receive, 54.2%,1 but the economics of fighting every dispute rarely hold up. All-in costs average $128 per dispute at the chargeback stage and climb past $150 in internal costs for large merchants processing $1 billion or more in annual revenue.6 Factor in pre-arbitration escalation fees, internal processing costs, and the ratio impact of disputes that count against VAMP thresholds, and selective concession may be the right choice in many cases.
Modern dispute management is grounded in expected value: likelihood of success, operational cost, potential escalation exposure, and network ratio impact. The goal is not simply maximizing wins. It is improving portfolio efficiency and managing compliance exposure.
Friendly fraud, also known as first-party misuse, deserves specific attention. According to Mastercard, fraudulent chargebacks account for around 45% of merchant chargeback volume globally,1 while a quarter of Mastercard chargebacks are linked to recurring transactions driven by customers trying to cancel a subscription or not recognizing a purchase.7 MRC survey data shows the issue is growing and costly: six in ten merchants reported increasing rates of first-party misuse,8 and merchants estimate that resolving a first-party misuse dispute now costs $82 on average. 9
CE 3.0 is an important tool for addressing eligible friendly fraud disputes, since its historical transaction matching is designed to help distinguish between genuine fraud and cardholder misuse. Merchants with subscription or recurring billing models are particularly exposed and need dispute strategies that account for the specific reason code distribution and customer behavior patterns in their portfolio.
As the disputes ecosystem has grown more complex, automation has moved from operational convenience to strategic necessity. Effective dispute automation operates across the full lifecycle: enabling earlier responses to pre-dispute inquiries, supporting CE 3.0 data requirements for representment, and facilitating more consistent, data-informed fight-or-concede decisioning. It also helps aggregate activity into portfolio-level visibility, so merchants can better understand where they stand against VAMP thresholds before they are in a monitoring program, not after.
At PayPal, we see scale, data, and automation playing a larger role in helping merchants manage dispute complexity. PayPal’s 12.8 billion digital identifiers10 can help inform data-driven decisioning across the payment lifecycle, including how merchants evaluate which disputes may be worth pursuing. Automation can then support more consistent outcomes without requiring manual intervention for every case. Without the right automation and data strategy, even well-designed policies can break down at volume. Disputes that should be addressed earlier move further into the chargeback process, CE 3.0 opportunities get missed, and VAMP exposure accumulates quietly.
The path forward requires a coordinated approach across four priority areas:
For PayPal merchants, this can mean using available dispute data, automation, and guidance from account teams to identify patterns earlier and manage exposure more proactively.
Finally, update your success metrics. Win rate alone does not capture the full picture. Dispute avoidance rate, cost per dispute managed, and VAMP ratio position provide a more complete view of program performance.
The disputes process has undergone a fundamental transformation. Network enforcement, particularly VAMP and CE 3.0, along with advances in pre-dispute tooling and automation, has moved dispute management from a reactive transaction-level function into a more proactive capability.
With chargebacks projected to cost merchants nearly $42 billion annually by 2028,1 and with network-level penalties compounding the direct financial impact, this is no longer just a back-office concern. It sits at the intersection of revenue, compliance, and customer experience, and the merchants that treat it that way are better positioned for what’s ahead.
The strongest approaches are not simply about fighting harder. They are about preventing disputes earlier, making more informed decisions, and treating disputes as an integrated part of risk, operations, and customer experience.
The true measure of performance is not only how many disputes are won. It is how effectively they are avoided in the first place.
For more on this topic, see PayPal’s perspective on fraud protection for evolving business needs and how fraud prevention decisions can affect revenue.
Explore PayPal’s risk and dispute management solutions or connect with your PayPal account manager to discuss how these shifts may affect your dispute strategy.