Ease of chargebacks crippling small businesses as banks fail to take responsibility

If it walks like a duck and quacks like a duck, the famous proverb states the wild bird is, in fact, most likely a duck.Taking the duck at face value seems to be enough evidence for the majority that it has become a well-known idiom.What about a financial dispute? Most would agree that face value wouldn't suffice when it comes to evidence.Instead, written proof, documentation, or even photos create a much stronger case.But what happens when even this isn't enough?Small businesses across the country have fallen victim to a modern type of fraud known as chargebacks, leaving them frustrated at the lack of support from bank and financially stressed as they lose the product, the money, and are then hit with a fine.To give you an example of what a fraudulent chargeback looks like, it's where a customer purchases a product online, but once it arrives, they claim it never did or that it wasn't them who bought it, lodging a chargeback with their bank to get the money back.The business owner then has an opportunity to dispute.For some, the evidence is poor — the customer's word against the small business owners, with the customer almost always coming out on top.But some business owners are providing serious evidence that a customer did receive their product, and still, it isn't enough.Take Alex, for example, who runs a small homeware business. In February this year, one of his customers admitted in writing the chargeback dispute he lodged was a mistake."The card that this was charged to was the cause of the error. It is a debit card that belongs to my son," the customer said in an email.Alex then sent this email correspondence to NAB, as evidence for the chargeback dispute.A month later, NAB denied Alex's dispute on the grounds it had "reviewed compelling evidence" and that "the customer continues to dispute the transaction", leaving him out of pocket, without the product, and paying a fine.In the end, the customer sent him the money via bank transfer.No protections under frameworkThis kind of admission would likely stack up in a court of law, so why didn't it when presented to a bank?Nina Kutzner talks chargebacks at the recent Online Retailer Conference in Sydney. (ABC News: Adelaide Miller)At an Online Retailer Conference in Sydney last week, Nina Kutzner, founder of the Payment Dispute Institute, said under the current regulatory framework, there were virtually no protections granted to business owners when it came to how a dispute was investigated."None of these documents are talking about this needs to be fair to retailers," she said."In order to achieve fairer outcomes, we need to uplift frameworks given the tone has changed."Ms Kutzner worked across several major banks as well as payment schemes before creating the Payment Dispute Institute (PDI).Nina Kutzner says more protections are needed for small businesses. (Supplied: Nina Kutzner)PDI is an independent research, analysis, and advocacy organisation dedicated to payment disputes and chargeback frameworks, where Ms Kutzner is paid through private consultation work with merchants.Despite online payments advancing rapidly, the chargeback dispute mechanism hasn't been updated for decades.Instead, those looking for answers about who holds responsibility in this space waste time as they are handballed over to the next institution.It's a hot potatoThe financial regulator ASIC does not legislate card schemes, which include chargeback frameworks and responsibilities.The recent Online Retailer Conference at the ICC in Sydney. (ABC News: Adelaide Miller)That responsibility lies with the international card schemes, which include Visa and Mastercard.But both say they only provide "infrastructure and rules that underpin chargebacks" and it's the responsibility of the issuing banks to decide outcomes.As for a bank ignoring compelling evidence, Ms Kutzner said it came down to two reasons: loyalty to their customer, and the risk of a financial penalty."If a customer is not satisfied with the disputes process, they can go to AFCA [Australian Financial Complaints Authority] … however, a merchant doesn't have the same pathway, it can't go to AFCA," she said.AFCA can then hit the bank with a fine if it sees fit."It's one-sided policing only. Naturally, it's cheaper to side with a consumer over a business," Ms Kutzner said.According to the Australian Bureau of Statistics, chargeback decisions favour the customer, with 72 per cent who claim card fraud fully reimbursed by their card issuer in 2023–24, totalling $477 million.Worldwide, chargebacks are predicted to reach 324 million transactions in 2028, up from 261 million in 2025.Ms Kutzner said this, paired with the ease of lodging a chargeback dispute, left businesses vulnerable."As a customer, I might as well click that button, that friendly button, and get my money back," she said.Banks admit change is neededThe chief executive of the Australian Banking Association (ABA), Simon Birmingham acknowledges under current rules, small businesses are often let down."The ABA supports a comprehensive review of the scheme rules and fee settings so the system fairly balances the interests of both buyers and sellers."Simon Birmingham supports a review of chargeback legislation. (Supplied: ABA)That would need to be done by the Reserve Bank of Australia (RBA), which acknowledges chargebacks have become a concern for a number of businesses.The RBA regulates the Payment Systems (Regulation) Act 1998, and as it stands, does not include much detail about chargeback processes.The RBA had an opportunity to change this during its recent Retail Payments Regulation review, where changes to credit and debit surcharging were announced.But little attention was given to the topic of chargebacks.Payment experts like Ms Kutzner are waiting to see if the topic will be prioritised over the coming months after the RBA announced its next Payments System Regulation review last month.A chargeback from AIAs artificial intelligence continues to accelerate, Ms Kutzner said it was only a matter of time before it formed part of our online research and shopping processes.Earlier this year, the trial of a new payment product was launched, known as agentic commerce.It involves AI agents researching, comparing, booking and buying products on your behalf online.While that may allow for efficiency for a household or business, Ms Kutzner warns it's unclear what will happen when a chargeback dispute is lodged. "It comes with multiple issues, for example, what if it got you the wrong category tickets or purchased on the wrong date," she said."The current process doesn't allow for a third party to be wrong."If the chargeback dispute process is already proving difficult between two people, what happens when new tech is the one actually at fault?Who takes responsibility then?And as AI becomes more entwined with the everyday, Ms Kutzner warns reviewing chargeback dispute processes and protections needs to be a matter of urgency, before the shiny technology becomes the new normal."The system is broken and it needs to be fixed," she said.