Handling disputes and chargebacks has long been a clerical back-office function, but in recent years there has been a shift to making disputes management more customer friendly. That was the key takeaway from Key Trends Driving Disputes and Chargebacks – 2020 and Beyond, a PULSE® webinar featuring Julie Conroy, Research Director with Aite Group, and Jeff Ward, Product Manager with PULSE.
Much of the discussion focused on findings from Aite Group research, conducted in the first half of 2020, to understand the degree of frustration that dispute resolution causes for issuers and merchants alike relative to other card experiences. To better understand the industry’s challenges and form the basis for their report, Improving the Dispute Experience: Transparency Is Power, Aite Group surveyed 1,004 U.S. consumers in January 2020, and interviewed 10 large North American debit issuers as well as a number of large e-commerce merchants from November 2019 to February 2020.
Nobody Likes Disputes and Chargebacks
Chargebacks are expensive, reaching $585 million in 2019 for U.S. issuers to intake and manage disputes, according to Aite Group. That number is even more significant when you look at the overall costs for U.S. issuers. According to Aite, it’s expected that the cost to intake, manage and provide settlements on disputes will increase to 67% by 2023, reaching $177.6 million.
An informal poll of webinar participants found that 89% have experienced an increase in call-center volumes during the pandemic. Nearly 40% have seen call-center volumes jump 25 to 50%, while another 14% have experienced increases of 50% or more.
“That is painful,” said Conroy, although she added that the feedback aligned with what Aite Group’s research has found.
Considering the average call takes about 13 minutes and costs $5 to handle, and non-fraud service dispute calls are often 50% longer, there’s a lot of motivation among issuers and merchants alike to reduce the number of chargebacks in the system.
“Collaboration has to be one of the key pillars of a robust digital dispute strategy,” said Conroy. “We need to continue to find ways to break down the walls between issuers and merchants, to share data better and to help cardholders resolve disputes without ever creating a chargeback by helping them understand that a transaction may not have actually been fraud. Or if it progresses to a chargeback, at least give merchants the ability to see that chargeback coming before it hits them 40 days later so they can engage with the customer and attempt to resolve it.”
PULSE’s first step down this road is to launch allocation and pre-chargeback capabilities. Allocation is a network based arbitration of a dispute that is an option prior to it ever being sent to the merchant. Pre-chargeback will likewise reduce the number of overall chargebacks by giving merchants the ability to credit a cardholder before the dispute becomes a chargeback from the issuer. Both of these options reduce chargeback processing times and costs, but won’t go so far as to get merchant data to the issuer in order to stop a dispute when the cardholder reaches out. That ability is being planned in phase two.
Pandemic Increased Disputes
The pandemic has emphasized the importance of an effective disputes operation. As the pandemic gripped the U.S. in March, Aite Group observed a 40% increase in non-fraud disputes – mostly due to an avalanche of travel cancellations – and a doubling of card-not-present volume. A complicating factor was that many issuers had moved disputes operations offshore to locations such as India and the Philippines, which caused serious disruptions due to COVID-related shutdowns throughout Asia.
“As U.S. issuers were experiencing a significant increase in disputes volume, their offshore contact centers were offline, and it took a number of weeks to stand up those employees in a work-from-home environment,” said Conroy. “With that pain fresh in issuers’ minds, many are looking at how to better mitigate their risks by relying more on onshore disputes operations or by spreading them more equally throughout the globe.”
Consumers Look to their Financial Institution
More than 80% of consumers who reported having a problem transaction on their debit card told Aite Group that it’s either extremely important or very important to have digital choices in how they resolve disputes. Just 5% said they are satisfied resolving disputes through a phone call.
Even though consumers are encouraged to attempt to resolve disputes with the merchant before elevating the matter to their issuer, Aite Group found that about three out of four disputes are first reported to the issuer or card company. Only 22% of debit card disputes are reported first to the merchant.
This is especially unfortunate because one in four disputes results from simple statement confusion that could be quickly resolved. The transaction on a statement might have a merchant name they don’t recognize or a city they have never visited.
“This points to the opportunity to provide more detail, better clarity to consumers so we can get the dispute out of the system before it even starts,” said Conroy.
Consumers Want the Details
Of the respondents who reported a problem transaction on their debit or credit card, 62% said they would be very interested in seeing more details about transactions. For frequent online shoppers, that number increases to 77% who were very interested in greater detail.
Specifically, the details consumers rated highest include:
- Date and location of delivery (61% very helpful)
- A full list of products purchased (60% very helpful)
- An image of a printed receipt (59% very helpful)
Conroy said collaboration between the merchant and the financial intuition is an important mechanism to reduce operating expenses while also enhancing the cardholder experience.
PULSE Dispute Product Roadmap
Jeff Ward, Product Manager with PULSE, spoke about the PULSE Disputes Product Roadmap, which began rollout at the end of 2020 of a dispute processing API.
“Our suite of APIs will make interactions with our platform easier, and will enable issuers to process disputes faster and more accurately,” said Ward. “Issuers and merchants can pull dispute processing into their own systems and they don’t have to interact with our system if they use the APIs.”
In 2021, PULSE will release pre-chargeback and system edits that will block certain chargebacks from occurring if they are invalid. Both are important for reducing processing time and the overall number of chargebacks. They also will contribute to improvements in response times, updates to reason codes and improved monitoring.
“The end goal is to use what we know as a network to handle disputes better for issuers and merchants,” said Ward. “By doing all we can to make everything flow more smoothly through the system, we’re making it easier for our clients to manage.”