Why could a dispute cost a merchant more than the initial purchase?

A dispute could cost a merchant more than the initial purchase due to the presence of additional fees associated with handling the dispute, such as chargeback fees imposed by the payment processor. When a customer disputes a charge, the merchant not only needs to manage the dispute process itself but may also incur costs related to representing their case, potential loss of merchandise if it is returned, and the operational costs related to customer service efforts to resolve the issue.

Furthermore, if disputes become frequent and a merchant reaches a certain threshold of chargebacks, they may face higher transaction fees, penalties, or even the risk of losing their merchant account with the payment processor, affecting their business operations more significantly. Customer satisfaction is also a crucial aspect, as the effort put into resolving customer grievances directly influences long-term relationships and future sales, making it financially impactful. Thus, the overall costs can go beyond just the price of the original sale.