Transaction disputes and managing chargebacks are facts that will always be part of the world of business. Ever since the introduction of the Fair Credit Billing Act in 1974, regulations are set to prioritize protecting consumers from prejudicial or unfair billing practices.
At the time, the Fair Credit Billing Act was a logical response to the explosion of consumer credit in dire need of regulation. However, with the emergence of e-commerce, mobile commerce, and the Internet of Things (IoT), the pendulum has swung overwhelmingly to support the rights of the consumer even more, placing merchants and issuers at a disadvantage when it comes to managing chargebacks.
Consumers now shop by their computers, use their mobile devices, or make purchases simply by talking to Alexa or Google Home. The personal relationship between retailer and customer is fading away, giving shoppers more comfort in the belief that they are avoiding any friction if they dispute a transaction or engage in friendly fraud.
Dispute management has become so unwieldly that in April 2018, Visa revised their dispute process by implementing Visa Claims Resolution (VCR) in an effort to streamline and simplify the dispute workflow. To achieve this goal, VCR must rely on automated technology to some degree, which led to the development of Visa Merchant Purchase Inquiry (VMPI), a chargeback and dispute prevention mechanism designed to reduce dispute volume with merchant-issuer collaboration.
In turn, Mastercard is planning to introduce their new dispute resolution process, MasterCom (MCOM) Claims Manager, in late 2018 or early 2019.
The introduction of these solutions could result in a sea change for the payments industry, which will have a significant impact on merchants and issuers. Those who have the platforms and operational policies in place to meet Visa’s and Mastercard’s streamlined processes and shortened resolution time frames could successfully drive down their chargeback volume and corresponding costs. Those who remain stagnant and do not meet the compliance of these solutions will continue to pay a hefty price.
Collaboration is the new normal
Visa’s shift of the dispute process from litigation to liability has made merchants re-think their relationships with issuers – or lack thereof. Historically, merchants and issuers have addressed chargebacks fairly separately, but these new models are compelling merchants to embrace a more collaborative approach to reduce their losses due to fraud and chargebacks. Issuers have their own motivation – reducing the $12 billion in costs, which they absorbed from chargebacks in 2017, and maintaining strong customer relationships.
With less time to resolve disputes, merchants understand that the earlier in the process a customer’s issue is addressed, the less they will be subject to damaging liability costs. Since up to 76% of consumers bypass the merchant and contact the issuer first with a dispute, it is in the merchant’s best interest to provide transaction details to the issuer to help mitigate unnecessary chargebacks. That cannot happen without collaboration. In turn, issuers must adopt this collaborative approach and use the transaction information to expedite the dispute process and solve customer issues quickly, which will invariably help reduce their liability costs.
The necessity for a total solution to protect payments
With quickly evolving payment channels, there is a great challenge to equally accelerate technological development to address and prevent vulnerabilities to fraud and resulting chargebacks. Adding in the introduction of Visa’s and Mastercard’s solutions for a streamlined dispute process, merchants should consider adopting a comprehensive solution that protects their business on both the front and back-end of disputes. Just like merchants should adopt best practices that offer 360-degree protection against data breaches, they should employ comprehensive solutions for responding to transaction disputes and managing chargebacks.
Features of a comprehensive payments solution should include:
- The ability for an issuer to alert a merchant to a dispute, so the merchant can take action to provide a resolution quickly before it becomes a chargeback.
- Issuer access to key transactional data and order information to mitigate friendly fraud and validate legitimate sales at customer inquiry.
- Compelling evidence readily available for the dispute response process if a customer files a chargeback that a merchant elects to challenge.