Introduction: Refunds Can Look Good While Customer Harm Is Rising
When a merchant reports stable or improving refund rates, risk teams assume customer satisfaction is holding steady. This assumption is incorrect.
Refunds are a lagging indicator controlled by merchant policy and internal processing decisions. Disputes are a leading indicator of customer harm, frustration, and friction. A merchant can report "good" refund metrics while systematically creating conditions that drive customers to disputes.
This guide provides the complete assessment framework we use to detect customer friction before it manifests as dispute spikes. We examine refund timing patterns, support responsiveness, shipping performance, cancellation friction, and product quality signals to identify when customers are encountering obstacles that precede disputes.
Payment processors, acquiring banks, and marketplaces face financial exposure and regulatory scrutiny when merchants create friction that escalates into dispute volume. Early detection prevents these outcomes.
Understanding the Core Problem
Why Refunds and Disputes Diverge
According to Visa and Mastercard dispute reporting guidelines, refund rates and dispute rates should move in correlation. When customer dissatisfaction rises, both metrics typically increase. When they diverge (stable refunds, rising disputes), it indicates friction in the refund process itself.
The three friction patterns we observe:
Proactive friction: Merchants make refunds difficult to obtain (complex policies, delayed processing, unresponsive support), forcing customers to dispute instead.
Reactive-only processing: Merchants only issue refunds after disputes are filed, treating disputes as the refund request mechanism.
Policy-enforcement friction: Merchants enforce restrictive refund policies (restocking fees, short windows, condition requirements) that push legitimate customer issues into disputes.
Each pattern creates dispute exposure that refund metrics alone will not reveal.
Refund Timing and Processing Speed
Why it matters: How quickly and consistently merchants process refunds determines whether customers escalate to disputes. Delayed refunds create the perception of merchant avoidance, prompting dispute filings even when refunds are eventually issued.
Refund processing patterns reveal whether the merchant prioritizes customer resolution or dispute avoidance through delay.
High-Risk Refund Timing Patterns
Refund-after-dispute pattern:
- Disputes are filed, then refunds are issued immediately
- Refund rate is stable, but dispute rate rises
- Time from refund request to refund processing exceeds dispute filing timeline
- Customers file disputes because waiting for refunds takes longer than dispute resolution
Why this is critical risk: This pattern indicates the merchant uses dispute filing as the trigger for refund processing. It creates unnecessary dispute volume and card scheme penalties.
Example: A subscription service receives a cancellation and refund request on January 5. The merchant's policy states refunds take "10 to 15 business days to process". On January 12 (7 business days later), the customer has not received communication about the refund and files a dispute. On January 13, the merchant issues the refund, but the dispute has already been filed and will count against their dispute metrics. In our analysis of this merchant's dispute log, 47% of disputes followed this pattern (refunds issued after disputes but would have been issued eventually regardless). The merchant's 15-day processing window exceeded customer patience thresholds.
Inconsistent refund processing speed:
- Some refunds process in 1 to 2 days, others take 10+ days
- No clear policy explaining variation
- High-value refunds are delayed longer than low-value refunds
Why this is high risk: Inconsistent processing suggests manual intervention or selective delays, both of which create customer frustration and dispute risk.
Excessive refund processing windows:
- Refund policy states 14+ business days
- Industry standard for the merchant category is 5 to 7 business days
- No operational justification for extended timelines
- Customers file disputes before refund window expires
Why this is medium to high risk: Extended processing windows exceed customer expectations and dispute filing timelines (typically 10 to 15 days after refund request).
Refund delays for specific scenarios:
- Refunds for canceled services are delayed until after the subscription period ends
- Refunds for non-delivered goods are delayed until after carrier investigation completes (30+ days)
- Refunds require return receipt before processing, adding 10+ days
- Delays are policy-driven, not operational
Why this is high risk: Scenario-specific delays create friction points that drive disputes, particularly when customers perceive the delay as avoidance.
Acceptable Refund Timing Patterns
Fast, consistent processing:
- Refunds processed within 3 to 5 business days
- Processing time is consistent across refund types
- Clear policy communicated to customers
- Processing speed matches or exceeds category norms
Proactive communication during delays:
- If refunds are delayed (returns in transit, investigations), customers are notified
- Expected timeframe is provided
- Status updates are sent if delays extend
- Customers are not left without information
Policy-aligned execution:
- Refund processing speed matches stated policy
- Policy is clear and reasonable for the category
- No unexplained delays or selective processing
- High-value refunds are not treated differently than low-value refunds
What to Request from Merchant
Category
Documentation Needed
Refund processing data
- Average time from refund request to refund processed (in business days)
- Distribution of refund processing times (median, 90th percentile)
- Refund policy as stated to customers
- Comparison of refund processing time to dispute filing time
Refund-dispute timing analysis
- Percentage of disputes where refund was issued within 7 days of dispute
- Percentage of disputes where refund request preceded dispute
- Average days between refund request and dispute filing
- Evidence that refunds are processed before customers escalate to disputes
Policy documentation
- Refund policy as communicated to customers
- Operational refund processing SLA (internal target)
- Exceptions to standard processing (categories requiring longer timelines)
- How refund status is communicated to customers
Refund approval process
- Who approves refunds and at what thresholds
- Whether refunds are automated, semi-automated, or manual
- Criteria for refund approval or denial
- Appeal process if refunds are denied
Testing Protocol:
- Timing analysis: Compare refund request timestamps to refund processing timestamps to calculate actual processing time
- Dispute correlation: Identify disputes where refunds were issued within 7 days after dispute filing, indicating refund-after-dispute pattern
- Policy verification: Mystery shop the refund request process to verify stated policy matches execution
- Communication review: Assess whether customers receive status updates during refund processing
Merchant Assessment Checklist
- Refund processing time is under 7 business days for standard requests
- Processing time is consistent across transaction values
- Policy matches execution
- Customers are notified of refund status proactively
- Less than 5% of refunds occur after disputes are filed
- No evidence of using disputes as refund triggers
- Processing speed is competitive for the merchant category
Red flag threshold:
- Refund processing exceeds 10 business days = HIGH RISK
- More than 10% of refunds occur after disputes = CRITICAL RISK
- Inconsistent processing (some fast, some slow) with no policy = HIGH RISK
- No communication during processing = MEDIUM RISK
- Customers regularly dispute before refund window expires = CRITICAL RISK
Customer Support Responsiveness
Why it matters: Unresponsive or difficult-to-reach support creates friction that drives disputes. Customers file disputes when they cannot resolve issues through merchant channels. Support responsiveness is a direct predictor of dispute volume.
According to research from the Merchant Risk Council, merchants with support response times under 24 hours experience dispute rates 40% to 60% lower than merchants with response times exceeding 48 hours. Support friction directly converts to dispute volume.
High-Risk Support Patterns
No live support channels:
- Support is email-only or contact form-only
- No phone number provided
- No chat support during business hours
- Customers cannot reach a person for urgent issues
Why this is high risk: Time-sensitive issues (canceled orders, billing errors, non-delivery) escalate to disputes when customers cannot reach support immediately.
Slow response times:
- Email support responses take 48+ hours
- No acknowledgment of support requests
- Requests are closed without resolution
- Customers must follow up multiple times
Why this is high risk: Delayed responses exceed customer patience, particularly for billing or delivery issues. Customers file disputes when support is unresponsive.
Example: A merchant selling event tickets receives a support inquiry on Monday morning: "I purchased two tickets for the wrong date. Can I exchange them or get a refund?" The event is Saturday (5 days away). The merchant's support responds on Thursday afternoon (3.5 days later) with a templated message: "We'll look into this and get back to you within 5 to 7 business days." By Friday, the customer has filed a dispute. The merchant claims "we were processing the refund", but the customer had no indication this was happening and could not wait for a resolution that might not arrive before the event.
Support channel mismatch:
- Refund policy says "contact support for refunds"
- Support email is unmonitored or auto-replies only
- Phone support does not handle refunds
- No clear path to resolution
Why this is critical risk: When refund processes require support contact but support is non-functional, customers have no resolution path except disputes.
Support quality issues:
- Support provides incorrect information about refunds or policies
- Support cannot resolve issues within their stated authority
- Escalations to supervisors are required but unavailable
- Customers are transferred multiple times without resolution
Why this is medium to high risk: Poor support quality extends resolution time and frustrates customers, increasing dispute likelihood.
Acceptable Support Patterns
Multi-channel availability:
- Phone, email, and chat support available
- Live support during business hours
- Clear contact information on website and receipts
- Urgent issues can be escalated immediately
Fast response times:
- Email support responds within 24 hours
- Chat and phone support available during business hours
- Acknowledgment sent immediately even if resolution takes longer
- Target response times are published and met
Functional resolution process:
- Support can resolve issues within their authority
- Refunds, cancellations, and exchanges processed by frontline support
- Escalation paths are clear and fast
- Issues are resolved in one or two interactions
Proactive support:
- Support reaches out to customers with issues (delayed shipments, stock problems)
- Refunds are offered before customers request them for clear failures
- Communication is clear and sets accurate expectations
What to Request from Merchant
Category
Documentation Needed
Support channels
- All available support channels (phone, email, chat)
- Support hours of operation
- Contact information as shown to customers
- Average wait times for each channel
Response time metrics
- Average email response time (first response and resolution)
- Average phone wait time
- Chat response time
- Percentage of inquiries resolved in first interaction
Support capacity
- Number of support staff
- Support volume (inquiries per day or month)
- Support-to-transaction ratio
- Peak time handling capacity
Resolution authority
- What issues frontline support can resolve
- Escalation process and timeframe
- Who can authorize refunds, exchanges, cancellations
- Appeal process for denied requests
Testing Protocol:
- Mystery shop support: Contact support through each channel with sample issues and measure response time and resolution quality
- Response time audit: Review sample support tickets to verify stated response times match actual performance
- Authority verification: Confirm support can resolve refunds, cancellations, and common issues without escalation
- Customer review analysis: Analyze customer reviews and dispute reason codes for support friction complaints
Merchant Assessment Checklist
- At least two support channels available (email/phone or email/chat)
- Email response time under 24 hours
- Live support available during business hours
- Contact information clearly displayed on website and receipts
- Support can resolve common issues (refunds, cancellations) without escalation
- Less than 10% of disputes cite inability to reach support
- Customer reviews do not show patterns of unresponsive support
Red flag threshold:
- Email-only support with 48+ hour response time = HIGH RISK
- No phone number or live support for time-sensitive category (travel, events, services) = CRITICAL RISK
- Support cannot process refunds (must escalate) = HIGH RISK
- More than 15% of disputes cite support unresponsiveness = CRITICAL RISK
- Mystery shop reveals support is non-functional or unresponsive = CRITICAL RISK
Shipping Delays and Delivery Friction
Why it matters: Shipping and delivery problems are among the most common drivers of disputes. Merchants who fail to ship on time, provide tracking, or address delivery failures create friction that escalates into "item not received" disputes.
According to Chargebacks911 data, "item not received" disputes account for approximately 20% to 30% of all e-commerce chargebacks. Delivery friction is a measurable and preventable dispute driver.
High-Risk Shipping Patterns
Delayed shipment without notification:
- Products ship days or weeks after stated timelines
- Customers are not notified of delays
- Tracking is not provided or is invalid
- Customers file disputes assuming non-delivery
Why this is high risk: Unannounced shipping delays exceed customer expectations and trigger "item not received" disputes.
Example: A merchant states "ships within 3 to 5 business days". A customer orders on January 10. On January 20 (10 business days later), the customer has received no tracking information and no communication. The customer emails support and receives no response.
On January 23, the customer files an "item not received" dispute. On January 24, the product ships. In reviewing the merchant's order fulfillment data, 23% of orders ship outside the stated 3 to 5 business day window, but no proactive delay notifications are sent. Dispute rates for delayed orders are 8x higher than on-time orders.
No tracking or invalid tracking:
- Tracking numbers are not provided
- Tracking numbers provided are invalid or do not update
- Tracking shows label created but no movement for 7+ days
- Customers cannot verify shipment occurred
Why this is high risk: Without tracking verification, customers assume non-delivery and file disputes. Invalid tracking increases dispute win rates for customers.
Delivery failures without resolution:
- Packages are marked delivered but customer did not receive
- Merchant does not investigate or offer resolution
- Customer must file dispute to recover funds
- No process for addressing carrier delivery failures
Why this is critical risk: Delivery failures without merchant resolution force disputes and create customer harm.
Dropshipping delays:
- Merchant is dropshipping but does not disclose long lead times
- Products ship from international locations with 3 to 6 week delivery
- Stated delivery times (5 to 7 days) do not match actual delivery (30+ days)
- Customers file disputes when products do not arrive within expected timeframe
Why this is high risk: Dropshipping with undisclosed timelines creates expectation mismatches that drive disputes.
Acceptable Shipping Patterns
On-time shipment:
- Products ship within stated timelines
- Shipment timelines are realistic for merchant's fulfillment model
- If delays occur, customers are notified proactively
- Delay communication includes updated expected delivery
Tracking provided:
- Valid tracking numbers provided for all shipments
- Tracking updates regularly and shows movement
- Customers can verify delivery status
- Merchant monitors tracking for delivery failures
Delivery failure resolution:
- Merchant investigates delivery failures
- Replacement shipments or refunds offered without requiring disputes
- Clear policy for undelivered packages
- Customers are not left without resolution
Transparent delivery timelines:
- Delivery estimates are accurate for merchant's model (dropshipping, international, etc.)
- Long delivery times are disclosed upfront
- Customers can make informed decisions about expected wait times
What to Request from Merchant
Category
Documentation Needed
Shipping performance
- Percentage of orders shipped within stated timeline
- Average time from order to shipment
- Stated shipping timeline as communicated to customers
- Tracking provision rate (percentage of orders with tracking)
Delivery metrics
- Average delivery time from order date
- Percentage of on-time deliveries
- Delivery failure rate
- How delivery failures are identified and handled
Carrier and fulfillment
- Carriers used
- Fulfillment model (in-house, 3PL, dropshipping)
- International shipping timelines if applicable
- How tracking is provided to customers
Delay handling
- Process for notifying customers of shipping delays
- Delay notification triggers
- Compensation policy for late deliveries
- Examples of delay communications sent to customers
Testing Protocol:
- Shipping timeline audit: Compare stated shipping timelines to actual order-to-shipment data for sample of recent orders
- Tracking verification: Verify tracking numbers are valid and update properly by checking sample shipments
- Delay notification review: Identify orders that shipped late and verify whether customers were notified proactively
- Delivery failure process test: Review how delivery failure disputes are handled and whether refunds are offered proactively
Merchant Assessment Checklist
- Over 90% of orders ship within stated timeline
- Tracking provided for all orders
- Tracking is valid and updates regularly
- Customers are notified proactively of delays
- Delivery failures are investigated and resolved without disputes
- Shipping timelines are accurate for fulfillment model
- "Item not received" dispute rate is under 5% of transactions
Red flag threshold:
- More than 15% of orders ship late without notification = HIGH RISK
- No tracking provided or invalid tracking on significant portion of orders = CRITICAL RISK
- Delivery failures are not resolved (customers must dispute) = CRITICAL RISK
- "Item not received" disputes exceed 8% of transactions = CRITICAL RISK
- Stated timelines are consistently missed = HIGH RISK
Cancellation Friction
Why it matters: Difficulty canceling subscriptions or orders creates friction that drives disputes. Customers who cannot cancel through normal channels file disputes to force cancellation. Cancellation friction is a regulatory focus area and a direct dispute driver.
The Federal Trade Commission's "click to cancel" rule requires sellers to make canceling a subscription as easy as signing up. Merchants with complex cancellation processes face both regulatory risk and dispute exposure.
High-Risk Cancellation Patterns
Difficult cancellation process:
- Cancellation requires calling during limited hours
- Cancellation requires multiple steps or confirmations
- Cancellation is not available through the same channel as sign-up
- Customers must speak to retention specialists
Why this is high risk: Complex cancellation processes frustrate customers and drive disputes as a faster cancellation method.
Example: A subscription service allows sign-up through the website in under 60 seconds. Cancellation requires calling a phone number that is only available Monday to Friday, 9 AM to 5 PM EST. When customers call, they are placed on hold for an average of 18 minutes, then must speak to a retention specialist who offers discounts and requires multiple confirmations.
Customers who call outside business hours cannot cancel. In reviewing dispute reasons, 31% cite "tried to cancel, couldn't reach anyone, had to dispute". This friction is intentional, but it converts directly into dispute volume and potential FTC enforcement.
Cancellation delays:
- Cancellation requests take days to process
- Customers are charged again while cancellation is pending
- No immediate confirmation of cancellation
- Customers must follow up to verify cancellation occurred
Why this is high risk: Processing delays create billing after cancellation, driving disputes.
"Forgot to cancel" exploitation:
- Free trials convert to paid subscriptions with no reminder
- Subscription renewal notifications are not sent
- Cancellation windows are narrow (must cancel 7+ days before renewal)
- Business model relies on customers forgetting
Why this is medium to high risk: While not explicitly fraud, "forgot to cancel" business models create high dispute rates and regulator scrutiny.
No self-service cancellation:
- Customers must contact support to cancel
- Support email is slow or unresponsive
- No cancellation button in account settings
- Cancellation process is intentionally hidden
Why this is critical risk: Requiring support contact for cancellation when support is unresponsive creates a hostage situation that drives disputes and regulatory complaints.
Acceptable Cancellation Patterns
Easy self-service cancellation:
- Cancellation available through account settings
- One-click or simple multi-step process
- Immediate cancellation confirmation
- Same channel as sign-up (if signed up online, can cancel online)
Clear cancellation policy:
- Cancellation terms are disclosed upfront
- Cancellation deadlines are communicated clearly
- Reminders sent before renewals
- Customers have adequate time to cancel before being charged
Proactive renewal notifications:
- Email sent before trial ends or subscription renews
- Clear instructions for canceling if customer does not want to continue
- Adequate notice period (7+ days)
- Option to cancel directly from email
Fast processing:
- Cancellations process immediately or within 24 hours
- Confirmation sent to customer
- No additional charges after cancellation request
- Clear effective date communicated
What to Request from Merchant
Category
Documentation Needed
Cancellation process
- Step-by-step cancellation process
- Whether self-service cancellation is available
- Cancellation channels (website, phone, email)
- Time required to cancel
Processing metrics
- Average time from cancellation request to processing
- Percentage of cancellations processed within 24 hours
- Rate of billing after cancellation request
- Cancellation confirmation process
Renewal notifications
- Whether renewal reminders are sent
- Timing of renewal reminders
- Trial-to-paid conversion notification process
- Whether cancellation link is included in reminders
Cancellation disputes
- Percentage of disputes citing inability to cancel
- Percentage of disputes for charges after cancellation
- How cancellation disputes are handled
- Evidence of FTC complaints or investigations
Testing Protocol:
- Cancellation process test: Sign up for a trial or subscription and attempt to cancel to measure difficulty and time
- Notification audit: Verify that renewal reminders are sent and contain clear cancellation instructions
- Processing time analysis: Review sample cancellation requests to measure time from request to confirmation
- Dispute reason analysis: Identify what percentage of disputes cite cancellation friction
Merchant Assessment Checklist
- Self-service cancellation available
- Cancellation is as easy as sign-up (same channel and effort)
- Cancellations process within 24 hours
- Confirmation sent immediately
- Renewal reminders sent 7+ days before billing
- No charges occur after cancellation request
- Less than 5% of disputes cite cancellation issues
Red flag threshold:
- No self-service cancellation available = HIGH RISK (CRITICAL RISK if support is unresponsive)
- Cancellation requires phone call during limited hours = MEDIUM to HIGH RISK
- Customers must speak to retention specialists = MEDIUM RISK (HIGH RISK if wait times exceed 10 minutes)
- More than 10% of disputes cite cancellation friction = CRITICAL RISK
- No renewal reminders sent = MEDIUM RISK
- Charges occur after cancellation requests = HIGH RISK
Product Quality Indicators
Why it matters: Product quality issues drive disputes when customers receive defective, misrepresented, or counterfeit goods. While quality problems are not always preventable, how merchants handle them determines whether they escalate to disputes.
Product quality patterns reveal whether the merchant prioritizes customer satisfaction or disputes as the resolution mechanism.
High-Risk Quality Patterns
High defect rates without proactive resolution:
- Customers report receiving defective products
- Merchant does not offer replacements or refunds without disputes
- No quality control process to reduce defect rates
- Customers must dispute to recover funds for defective goods
Why this is high risk: High defect rates combined with poor resolution processes convert quality issues directly into disputes.
Product misrepresentation:
- Products do not match descriptions or images
- Key features or specifications are inaccurate
- Conditions (new, refurbished, used) are misrepresented
- Customers receive different products than ordered
Why this is critical risk: Misrepresentation is fraud and creates dispute volume, customer harm, and regulatory exposure.
Example: A merchant sells "new, factory-sealed" electronics. Customers report receiving opened boxes, missing accessories, and signs of prior use. In disputes, customers provide photos showing products were not factory-sealed.
The merchant denies all refund requests, stating "all sales final on opened products". In this case, the merchant is selling refurbished or returned goods as new, creating disputes when customers realize they were misled. This is fraud.
No resolution for quality issues:
- Customers report quality problems but merchant denies responsibility
- Merchant blames shipping, manufacturer, or customer
- No return or replacement offered
- Disputes are only resolution path
Why this is critical risk: Forcing customers to dispute for legitimate quality issues indicates merchant is avoiding refund obligations.
Pattern of counterfeit indicators:
- Customers report products appear counterfeit
- Manufacturer denies warranty coverage
- Products lack authentication features
- Packaging or labeling inconsistencies reported
Why this is critical risk: Counterfeit products create disputes, regulatory action, and brand enforcement. See Ballerine's guide on detecting counterfeit operations for detailed assessment frameworks.
Acceptable Quality Patterns
Low defect rates with proactive resolution:
- Defect rates are within category norms
- Customers reporting defects are offered immediate replacement or refund
- Quality control processes are in place to reduce defects
- Merchant takes responsibility for quality issues
Accurate product representation:
- Product descriptions and images are accurate
- Specifications match actual products
- Condition (new, refurbished) is disclosed accurately
- Customers receive what they ordered
Responsive quality issue handling:
- Quality complaints are investigated promptly
- Resolutions offered without requiring disputes
- Patterns are analyzed and corrected
- Merchant demonstrates continuous improvement
Transparent sourcing and authentication:
- Merchant can verify product authenticity
- Sourcing is documented and legitimate
- Authentication processes in place for luxury or high-risk goods
- Customers have confidence they are receiving genuine products
What to Request from Merchant
Category
Documentation Needed
Quality metrics
- Defect rate (percentage of products reported defective)
- Return rate for quality issues
- Dispute rate for "not as described" or "defective item"
- Customer reviews mentioning quality issues
Quality control
- Incoming inspection process
- Quality standards and verification methods
- Rejection rate from QC
- How quality failures are handled with suppliers
Resolution process
- How customer quality complaints are handled
- Replacement or refund policy for defects
- Time to resolve quality issues
- Examples of recent quality issue resolutions
Sourcing verification
- Product sourcing documentation
- Authentication process for branded or luxury goods
- Supplier quality agreements
- How merchant ensures products are genuine and new (if claimed)
Testing Protocol:
- Quality metrics review: Analyze defect rates, quality-related return rates, and dispute reasons to identify patterns
- Customer review analysis: Review customer feedback for quality complaints and how merchant responds
- Mystery shop: Order sample products to verify quality, condition, and accuracy of descriptions
- Resolution verification: Test quality complaint process to confirm merchant offers proactive resolution
Merchant Assessment Checklist
- Defect rate is under 3% (category-dependent)
- Quality issues are resolved proactively with refunds or replacements
- Product descriptions and images are accurate
- Condition disclosures match actual products
- Quality control processes documented and functional
- Less than 5% of disputes cite quality or misrepresentation
- Customer reviews show merchant takes responsibility for quality issues
Red flag threshold:
- Defect rate exceeds 5% without proactive resolution = HIGH RISK
- Product misrepresentation evident in reviews or disputes = CRITICAL RISK
- Customers must dispute to get refunds for defective products = CRITICAL RISK
- More than 10% of disputes cite quality or misrepresentation = CRITICAL RISK
- Pattern of counterfeit indicators = CRITICAL RISK (immediate decline)
Customer Effort Metrics: The Friction Indicators Risk Teams Miss
Why it matters: Measuring refunds alone does not capture the effort customers must expend to obtain resolution. Customer effort is the friction metric that predicts disputes. High-effort resolution processes drive customers to disputes as a lower-effort alternative.
We recommend measuring three customer effort indicators alongside refunds to detect friction early:
Refund request to refund processed time: How long customers wait for refunds after requesting them. Target: under 5 business days.
Support interactions to resolution: How many times customers must contact support to resolve an issue. Target: one to two interactions.
Dispute-to-refund ratio: What percentage of refunds occur after disputes are filed. Target: under 5%.
These metrics reveal friction that refund rates alone will not show.
Calculating Customer Effort Metrics
Metric 1: Average Refund Processing Time
Formula: (Sum of [Refund Processed Date minus Refund Requested Date] for all refunds) / Total Refunds
Example: If 100 refunds averaged 8 days from request to processing, this exceeds the 5-day target and indicates friction.
Metric 2: Support Interactions Per Resolution
Formula: (Total Support Interactions) / (Total Issues Resolved)
Example: If 200 resolved issues required 450 support interactions (emails, calls, chats), the average is 2.25 interactions per resolution. This is borderline acceptable. Over 3 indicates significant friction.
Metric 3: Dispute-to-Refund Ratio
Formula: (Refunds Issued Within 7 Days After Dispute Filed) / (Total Refunds) × 100
Example: If a merchant issued 1,000 refunds in a month and 120 occurred within 7 days of a dispute being filed, the dispute-to-refund ratio is 12%. This is critical risk, indicating the merchant uses disputes as the refund trigger.
What to Request from Merchant
Refund processing time
- Refund request timestamp
- Refund processed timestamp
- Distribution (median, 90th percentile)
- Breakdown by refund type if applicable
Support interactions
- Number of support contacts per issue
- Resolution rate (percentage of issues resolved)
- Escalation rate
- Average interactions to resolution
Dispute-to-refund ratio
- Dispute filing timestamps
- Refund processing timestamps
- Percentage of refunds within 7 days of disputes
- Trend over time
Testing Protocol:
- Data analysis: Request raw data for refunds and disputes to calculate metrics independently
- Trend monitoring: Track metrics over time to identify increasing friction before disputes spike
- Comparison to category benchmarks: Assess whether merchant's metrics are aligned with low-friction operators in the category
- Mystery shopping: Test the customer experience to verify metrics reflect actual friction levels
Merchant Assessment Checklist
- Average refund processing time under 5 business days
- 90% of refunds processed within 7 business days
- Support interactions per resolution under 2.5
- Dispute-to-refund ratio under 5%
- Metrics are tracked and monitored by merchant
- Merchant demonstrates continuous improvement in reducing customer effort
- No increasing trends in friction metrics
Red flag threshold:
- Average refund processing time exceeds 7 business days = HIGH RISK
- Support interactions per resolution exceed 3 = HIGH RISK
- Dispute-to-refund ratio exceeds 10% = CRITICAL RISK
- Merchant does not track these metrics = MEDIUM RISK (indicates low prioritization of friction reduction)
- Metrics show increasing friction trends = HIGH RISK
What Good Looks Like: Low-Friction Merchant Characteristics
Low-friction merchants exhibit these characteristics:
Proactive refunds: Refunds are issued before customers request them when failures are clear (non-delivery, canceled orders, out of stock).
Fast support: Support responds within 24 hours. Live channels available. Issues resolved in one to two interactions.
Clear communication: Customers are updated proactively about order status, delays, and resolutions. No information gaps that drive disputes.
Easy cancellation: Self-service cancellation available. Processing is immediate. No retention friction.
Transparent policies: Refund, return, and cancellation policies are clear, fair, and enforced as stated. No surprise fees or obstacles.
Quality accountability: Merchants take responsibility for defects, shipping failures, and errors. Resolution is offered proactively.
Customer effort tracking: Merchants measure and optimize for low customer effort. Disputes are treated as friction signals, not inevitable costs.
Example: Low-Friction Merchant Profile
Merchant: Online electronics retailer, $5M monthly volume, 8,000 transactions/month
Friction metrics:
- Average refund processing: 3.2 business days
- Support interactions per resolution: 1.4
- Dispute-to-refund ratio: 2.1%
- "Item not received" disputes: 1.8% of transactions
- Cancellation disputes: 0.3% of transactions
Practices:
- Self-service refund requests through account portal
- Automated refund approval for orders under $500
- Live chat support 12 hours/day, email response under 12 hours
- Proactive shipping delay notifications with revised delivery estimates
- One-click cancellation for subscriptions, immediate confirmation
- Defective products receive instant replacement authorizations
Result: Dispute rate 0.42% (well below 1% threshold), minimal friction complaints in reviews, stable customer satisfaction scores
Common Assessment Mistakes Risk Teams Make
Measuring refunds without measuring effort:
Risk teams track refund rates but not the time, interactions, or effort required to obtain refunds. This creates a blind spot where refunds look stable while customer harm is rising.
Assuming dispute rates reflect fraud only:
Disputes include friendly fraud, but they also include friction-driven disputes where customers could not resolve issues through merchant channels. Treating all disputes as fraud misses the friction signal.
Ignoring support responsiveness:
Many underwriting frameworks do not assess support infrastructure or responsiveness. This omission misses a primary driver of dispute escalation.
Not connecting shipping data to disputes:
Merchants with poor shipping performance create "item not received" disputes, but underwriting often does not connect these metrics.
Accepting "industry standard" timelines:
Some merchant categories have poor average performance (slow refunds, bad support). Risk teams should set absolute standards, not relative ones. A merchant being "better than average" in a high-friction category is still high-risk.
Failing to test the customer experience:
Document review alone does not reveal friction. Mystery shopping, support testing, and reviewing actual customer complaints expose friction that policies do not show.
Not tracking friction trends:
Single-point-in-time assessments miss deteriorating customer experience. Continuous monitoring of friction metrics is required to detect when merchants shift from low-friction to high-friction operations.
Ballerine's Role: Infrastructure for Friction Detection
Ballerine provides the infrastructure to make this friction detection process manageable at scale. Our platform enables risk teams to assess customer friction at merchant onboarding and monitor it continuously through automated workflows.
Automated support testing: Monitor merchant support response times, availability, and resolution quality through continuous testing that mimics customer interactions.
Refund-dispute correlation analysis: Track the relationship between refund requests, processing times, and dispute filings to identify friction patterns and refund-after-dispute behavior automatically.
Shipping performance monitoring: Integrate carrier tracking data to detect delays, delivery failures, and customer notification gaps before they convert into dispute spikes.
Customer effort scoring: Calculate friction metrics (time-to-resolution, interaction counts, dispute-to-refund ratios) automatically from merchant operational data without manual analysis.
Policy compliance verification: Verify that merchant practices match stated policies through automated checks, mystery shopping protocols, and ongoing monitoring to detect policy drift.
Early warning alerts: Get notified when friction indicators rise before they convert into dispute rate increases, financial exposure, and scheme penalties.
Continuous monitoring: Track friction metrics over time to identify deteriorating customer experience patterns, seasonal friction spikes, and operational changes that create dispute risk through transaction monitoring capabilities.
Risk teams can implement friction detection without building internal infrastructure, hiring additional analysts, or creating manual review processes. Ballerine handles data integration, metric calculation, testing protocols, and alert generation.
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