The transaction dispute problem is not slowing down. In fact, industry experts predict that chargebacks and transaction disputes will get worse before they get better.
This is exactly why issuers must be proactive to avoid the costs, resource drain, and the possible increase in customer attrition caused by unnecessary and fraudulent chargeback disputes.
Due to the increasing adoption of m-commerce and e-commerce purchasing, connection between merchants and consumers is dwindling, which becomes problematic when a consumer has an issue with a purchase. As a result, consumers typically contact the issuer first, either by clicking the Dispute Transaction link on their digital credit card statement or by calling the 1-800 number on the back of their credit card.
Issuers feel pressured to keep their customers happy by helping them as quickly as possible, but the fact is merchants are better equipped to resolve a disputed transaction. However, without a way to connect the merchant and the consumer, the issuer frequently has no recourse but to initiate a chargeback and give the consumer a provisional refund.
The Costs of Chargebacks for Issuers
Up to 76% of the time, consumers bypass the merchant and initiate a dispute with the issuer. In 2017, issuers absorbed $7.1B in liability costs, and this trending figure will increase if the dispute process remains unchanged.
Compounding the costs is the pressure issuers face to meet the requirements placed by regulators to protect consumers. The chargeback process was created over 40 years ago to shield consumers from fraudulent credit card charges, and that process remains in force today. Unfortunately, the dispute process has not kept pace with advancements in the payments industry, which has resulted in a system that can be crippling to merchants’ and issuers’ revenue and customer retention.
Contributing to the costs they shoulder, issuers face several factors that add to the damages caused by chargebacks:
- Missing Data: Issuers lacks easy access to crucial data pertaining to the queried transaction. Without detailed transaction information, it’s extremely difficult to discern a confused customer from one who is committing fraud. This results in increased losses from fraud and mounting frustration for honest customers subjected to a time-consuming dispute resolution process. Consequently, customers reduce or abandon card usage completely.
- Resource Drain: Issuers must dedicate added resources – such as personnel, training, new technology – to manage a mounting pend queue of chargebacks. Now, more than ever, it is important to optimize dispute management time, given the new Visa Claims Resolution requirements.
- Compliance Costs: Issuers face elevated compliance risks, fines or legal actions, increased regulatory scrutiny, and reputational damage when they are not able to resolve a consumer dispute quickly.
Unfortunately, the current chargeback system forces issuers to absorb significant operational costs and revenue loss because they lack the data required to resolve consumer disputes. This creates an unhealthy ecosystem of dissatisfied customers, time-consuming arbitration processes, brand damage, and an increase in small balance write-offs that grow to large losses over time.
How to Change the Chargeback Process
Optimally, the principal players in transaction disputes should work in collaboration to change the current chargeback system. Issuers, merchants, and consumers must be willing to share vital transaction information to help resolve disputes before they become chargebacks. By using a payment solution that fosters true collaboration and data sharing, issuers can reduce chargebacks and avoid the associated resource drain and revenue loss.