As the pandemic winds on into its third year, waves of new virus variants continue to wreak havoc with supply chains.
Firms responsible for taking goods through each step on the journey from manufacturing to customers’ doorsteps find themselves short-staffed as new restrictions take shape around the globe. Merchants are also feeling the ripple effects, as shipping delays and stockouts spur consumers to cancel orders and dispute transactions.
Using data provided by Visa, Verifi studied card not present (CNP) dispute trends in the equitably comparable years of 2019 and 2021. These trends revealed that CNP disputes rose by over 29%.*
To get a sense of how it can all disrupt merchants’ top lines, PYMNTS’ data late last year showed that 38% of shoppers — 55 million people — could not buy at least one of the purchases on their list because it was out of stock.
Of that tally, 49% shifted from their initial retailer of choice to another merchant in order to get what they needed. However, another 15% who did not find what they wanted at the first retailer they tried simply wound up not buying the item at all.
Stockouts over Black Friday alone cost retailers as much as $4.6 billion in lost sales.
Backlogs Lead to Disputes
Thus, amid supply chain disruptions, backlogs form for shipments of a range of goods, from electronics to furniture to clothes.
Most major card brands offer consumers a 120-day window to file a dispute. Supply chain disruptions in 2020 caused shipments to be delayed by several months, with home goods and appliances delayed up to 180 days — well beyond that window. It stands to reason, then, that the longer consumers must wait for what they’ve purchased, the more inclined they are to cancel orders and initiate disputes.
Merchants may have to gird for a series of challenges — and shocks to their margins — should that dispute scenario arise. Merchants must maintain low dispute-to-sales ratios to avoid limited acceptance rates and higher transaction fees. Higher transaction fees can take a hefty bite out of operating results.
Beyond the shipping delays — where consumers see charges on their card statements, dispute it and claim “goods not received” as the dispute condition code — we’re likely to see disputes rise in lockstep with what is known as “friendly” fraud.
Friendly fraud occurs when consumers do not recognize a charge on their bank statement, forget the purchase, feel sudden buyer’s remorse, or are unaware of a purchase a family member made using their card. PYMNTS’ data shows that 39% of consumers surveyed admitted to taking part in friendly fraud.
Proactive Best Practices
To get ahead of these looming problems, merchants are trying to proactively minimize disputes using a variety of methods that are not pandemic-specific. Keeping consumers in the loop with detailed order confirmations and communications about delays is an important and obvious first step. Additionally, clearer billing descriptors make transactions instantly recognizable, especially if they include clarity that comes along with “doing business as” explanations and customer support numbers.
“Merchants should follow best practice guidelines; with so many supply chain uncertainties, it’s essential to make sure customers receive timely communication on the status of their order,” said Lisa Polter-Tennant, senior vice president of Verifi Global Client Relations. “Those merchants, of course, want to avoid the unfortunate outcomes of delayed shipping, which [can] create customer frustration or transaction confusion that can lead to unnecessary disputes.”
Charging consumers’ cards only when the item has shipped – and giving consumers an option to cancel if an order is significantly delayed 24 hours before shipping – is also helpful, as is blacklisting consumers who habitually participate in friendly fraud.
It’s too early to tell, of course, whether 2022 will see an ease of supply chain pressures. However, a proactive approach on the part of merchants to keep customers informed at each step of the process, from the initial point of ordering all the way through to delivery, can help cement customer loyalty well after the current shipping hurdles are but a memory.
Within any commerce ecosystem — especially in eCommerce — chargebacks seem a way of life.
For merchants especially, chargebacks are a drain on time and money. Better communication between merchants and issuers, Verifi CEO Matthew Katz told PYMNTS’ Karen Webster, resolves disputes early, prevents chargebacks and ultimately improves the customer experience.
The conversation came against a backdrop in which, as Katz told Webster, Verifi’s parent company, Visa, is expecting a 66% increase in digital payments by 2025, driven unsurprisingly by card-not-present (CNP) transactions, according to Juniper Research’s November 2020 study, “eCommerce Payments Deep Dive Data & Forecasting 2020-2025.” To combat these trends, Verifi has been expanding its Rapid Dispute Resolution (RDR) decision engine to automate dispute resolution.
Katz noted the expansion has been underpinned by the mandate announced by Visa this year that all issuers and issuer processors participate in the RDR service. Currently, 83% of the payment network’s North American issuers are participating. Katz indicated he expects this figure to ramp up to 100% in North America this month. Total global coverage in all markets currently sits at 71% for Visa issuers. Issuers and acquirers now have better visibility to provide necessary tracking and reporting before disputes start, the company said.
In the pre-dispute process, a customer can contact the card issuer — and the issue can be resolved with a refund from the merchant. RDR facilitates this early signal from customers through the issuer’s interaction with Visa Resolve Online (VROL) to the merchant to resolve inquiries before they escalate — saving all parties money and time.
Katz said the ecosystem benefits from a quicker resolution using fewer resources. When a dispute cannot be resolved through RDR, the transaction will simply proceed to the full dispute process.
‘A Bit of a Process’
Katz said getting to this point has been “a bit of a process.”
“Obviously, with a new solution, in a network that includes issuers, acquirers and merchants, there are several moving pieces at the same time.”
Getting 100% buy-in required every stakeholder to adopt a new mindset, he said, as embracing the pre-dispute process changes how much acquirers can bill merchants for the disputes (in terms of chargeback fees) and how merchants interact with customers. He pointed to FIS and Fiserv as two examples of larger companies that have become “incredibly supportive” of RDR, as they’ve adjusted their own systems to ensure that merchants are no longer charged chargeback fees for RDR cases.
There’s a positive ripple effect for the merchants too. Previously, they wouldn’t have challenged the disputes, choosing to pay incremental fees rather than dealing with any hassles. The pre-dispute process, he said, “reduces a significant portion of that unnecessary burden on the merchants and platforms that otherwise would have existed as a chargeback.”
For other merchants, resolving the disputes quickly — as in, simply agreeing to credit the amount in contention — is a way to avoid damaging their brands.
But with the richer data on hand, tied to the pre-dispute process, and with the enhanced dialogue between merchant, issuer and consumer, Katz said RDR enables “an opportunity for the merchant, for any variety of reasons, to improve the business, improve their margins — and ultimately create a better ‘brand experience’ with their customers.”
Sidestepping Confusion
It also allows merchants to sidestep the confusion surrounding provisional credits, which are essentially short-term credits that are issued from a financial institution (FI) into a merchant’s bank account (and extended to the consumer) while the dispute winds on.
Merchants also have a degree of autonomy in the process, said Katz. They can set rules for who gets refunds and who doesn’t — fine-tuning that can only be done across the card rails and network-of-network effect that Visa has been building out for several years.
“Merchants have the ability to configure multiple sets of rules to really ensure that they’re doing the best thing for their business,” he told Webster.
Beyond resolving customer inquiries, data gleaned from RDR yield insights into how well products and services are performing, Katz said. A rash of returns on shirts, for example, might uncover that a particular suppliers’ buttons are sub-par and don’t close properly.
There are also advantages that accrue to recurring subscription firms, said Katz. He offered up the scenario where there might be confusion over how many months a customer has been charged for a service.
“Even if you called the merchant and they refunded the fifth month’s transaction, let’s say, most issuer systems don’t match the refund or the credit to the correct transaction,” Katz said. “So, there’s still a very significant risk that things are not reflected correctly, and then you call the bank to charge it back, and it flows through the ecosystem.”
RDR can let issuers re-examine how they score authorizations — and chargebacks are a big component of this. He noted that if a merchant account is receiving chargebacks disproportionate to the sales volume of the issuers’ ecosystem, the issuer can “tune down” authorization with the aid of neural networks and artificial intelligence (AI).
“We want to be able to associate an increased authorization rate with a reduction in disputes because of RDR,” he said — and of course, cardholders themselves want higher authorization rates.
“Even if you can increase the authorization rate by five basis points, it’s significant,” he said.
Looking ahead, he said, Verifi will seek to roll out new feature functionality in 2022, in particular an application programming interface (API) that lets clients customize their own rules-based decisioning engines. Elsewhere, the firm will focus its efforts beyond North America and parts of Europe to include a truly global expansion. Ideally, a third of disputes could be solved through RDR.
“RDR just makes for a cleaner ecosystem,” he said.
Chargebacks and disputes may be top of mind for merchants, with Black Friday and, more recently, Cyber Monday in the rearview mirror.
To that end, Verifi, a Visa Solution, said in its RDR Expansion webinar in mid-November that its Rapid Dispute Resolution (RDR) decision engines, which automate dispute resolutions, could help cement better customer satisfaction with issuers and sellers.
In remarks from Jeff Sawitke, senior vice president, strategic alliances and business analytics at Verifi, statistics from the Visa Net platform show that transactions grew by 20% between 2019 to 2021. In a bit of granularity, the company said that Visa processed more than 87.8 million disputes overall between October of last year to September of 2021, up 24%.
“While that may sound like a big number, disputes are still far less than 1% of the overall transaction volume,” he said.
Despite that relatively low percentage, and despite the fact that disputes are part of payments processing in general, the dispute itself is expensive for merchants and negatively impacts operations, costing time and money.
The webinar came after Visa said in October that the payment network, in partnership with Verifi, is now enabling issuers in select markets to participate in its RDR service within Visa Resolve Online (VROL) to promptly resolve pre-disputes and avoid unnecessary chargebacks. This global expansion empowers merchants to use a single cross-border solution to take back control of their disputes.
As reported in October, the transaction is also identified for issuers and acquirers as being accepted by the seller with an indicator in the VROL system.
Verifi clients noted during the presentation that customers go “straight to the dispute process,” thinking that a resolution will be quick and easy — but the process winds up being longer and costlier than expected.
Rules-based, pre-dispute acceptance and resolution, powered by a decisioning engine, can lower the dispute ratios, according to the webinar. Decisioning engines allow sellers to define rules to determine if they want to accept or decline dispute liability for transactions. Those rules can be customized according to the transaction amount, the currency or the issuer from which the dispute emanated.
Against that backdrop, Sawitke said, the company’s RDR has allowed sellers to exercise that control. Panelists during the Verifi seminar said that benefits accrue to all stakeholders — acquirers have greater transparency, issuers and sellers enjoy reduced dispute volumes (and can prevent future fraud) and consumers enjoy a better customer experience.
In his presentation, Sawitke said that in the first quarter of next year, “we’re going to have some additional expansion coming from the Canadian market, and we’re continuing to look and work very closely with our issuer partners in other regions to secure that expansion and continue to offer that truly global solution for our customers.”
He noted that according to Verifi’s reporting, year to date, 500,000 disputes had been accepted using RDR, which has auto-accepted pre-dispute liability for transactions of $20 million. Sawitke noted that sellers accept 85% of eligible cases through RDR.
“We have a wide range of sellers across many different verticals using this solution,” he said, while Verifi’s client noted that with the aid of RDR, its dispute ratio fell by nearly 1% from the third quarter of 2020 to the third quarter of 2021.
By now, merchants realize that the consumer trend away from in-store shopping and toward e-commerce is not going to reverse any time soon. In fact, a recent study reported that 44% of global consumers now purchase physical goods online.1
With so much new online purchasing and so many businesses moving online, are CNP merchants developing the right dispute prevention strategies to manage this new payments landscape? Are they deploying the right technology? Do they have the right processes in place? And are they testing to make sure their chargeback mitigation strategy is effective? Knowing the answers to these questions is essential for any CNP business that wants to minimize the impact of disputes.
Analyze Your Dispute Threat and Secure Your Defenses
Whatever tactics you may have currently implemented to reduce the risk of disputes, it’s best to begin by examining them and their effectiveness. While you may have best-known tools to prevent and reduce the risk of fraud, no matter what efforts you make in the early part of the transaction life cycle, chargeback fraud, otherwise known as first-party misuse fraud or friendly fraud can be seen as a path that some bad actors take to game the system.
When a customer commits first-party fraud or friendly fraud, they are disputing a valid transaction they don’t recognize – or claim not to. In both cases, the purchases are legitimate. The difference with the latter case is that these customers are intentionally challenging legitimate purchases as fraudulent to regain funds.
In fact, in a recent survey report, 40% of consumers admitted to perpetrating friendly fraud2. This statistic sends a clear message that merchants need to apply chargeback management tactics in the post-purchase environment to reduce friendly fraud and the resulting fraudulent chargebacks.
Start by looking for gaps in your payment processes with vulnerabilities to fraud and disputes. Are you using authentication tools to stop fraud and defer liability? Are you identifying disputes stemming from dissatisfaction with products or services? Are you collecting the best evidence for dispute responses and revenue recovery? Find the holes and fill them before stress-testing your strategy.
Every dispute management strategy is unique, and each merchant has specific needs and goals.
Consider the following tactics to help test and strengthen your dispute strategy to better protect your business throughout the payments life cycle:
Pre-Authorization
At the pre-authorization stage, the merchant ‘s objective is to find the right balance between fraud prevention and authorizations to meet revenue targets. Different categories of merchants will have different business needs, so it’s important for each merchant to determine the mix of fraud prevention and authorizations that works best for their business and test against it. As an example, high-risk merchants with subscription-based businesses or that deal in intangible goods may experience larger dispute volume. These businesses may consider decreasing their fraud prevention measures to allow more authorizations, thereby spreading the cost of disputes over a larger revenue figure.
Post-Transaction
After the customer has made their purchase, merchants can sometimes feel powerless to prevent a dispute, should the customer choose to file one. Fortunately, there are actions merchants can take and solutions to reduce risk provided by the right partner.
The first tactic is post-purchase outreach and communication. Follow up any transaction with a confirmation email, tracking information, and/or delivery status. To ensure your communications are effective, check email open rates, click-through rates, and A/B test subject lines. Additionally, collaborate with your customer service to capture their findings on customer responses and success metrics.
As a best practice, merchants should be proactive about communicating service policies for returns/refunds and T&C to customers by including these policies in post-transaction communications or even during checkout as a condition for completing an order. However you choose to surface your policies, they should also be clearly displayed on your website and easy to find. Measuring the amount of traffic leading to your policy pages can indicate the potential for their visibility to your customers. If traffic to policy pages is low compared to the amount of customer service interaction on issues involving service policies, then merchants may need to increase visibility on their policy web pages to help reduce operational strain.
The goal is to convince your customer to work with you instead of their bank if there’s an issue with the customer’s transaction. When the customer does contact you, ensure to have processes in place to offer a refund or credit voucher to save the relationship. Another tactic is to take advantage of merchant-issuer collaboration technologies. These solutions can enable merchants to engage with quick responses to prevent the transaction dispute, provide a resolution, or accept liability to potentially fight the dispute later. Such collaboration solutions involve a level of automation to help identify transaction information to prevent a dispute at inquiry, as well as provide a quick resolution by refund, if warranted, stopping a chargeback from ever occurring.
Dispute Response & Recovery
When it comes to chargebacks, merchanta are simply leaving money on the table. Chargebacks don’t have to be accepted as just part of doing business. If you know that you’ve made a valid sale, then it’s worth the effort to recover revenue that you’ve rightfully earned. With the right resources and know-how, an in-house dispute management team can build effective dispute responses to recover funds. Third-party chargeback management services, however, can do the heavy lifting for you, employing expert tactics to aggregate dispute source data, assemble the best-case evidence, and prepare and deliver dispute responses in the proper time frame.
To decide whether to represent in-house or outsource, merchants must measure operational cost against the cost of a third-party service. Merchants must calculate human capital, benefits, and overhead operational costs – not just payroll – before making a decision.
Merchants should also consider their overall representment rate. For example, what is the percentage of chargebacks that are being represented out of the total number of chargebacks received? By reviewing the total number of chargebacks, there may be opportunities to increase revenue recovery by representing more cases. In addition, consider the net win rate of your chargebacks vs. your gross win rate. After all, customers can resubmit a dispute even after successful revenue recovery.
Whether your dispute management is performed in house or by a partner, these tips can help maximize your recovery wins:
A/B test response packages with multiple acquirers for insights on which formats work best for response wins.
Use reports from dispute case management tracking to understand fraud and reason codes that might cause most common dispute cases, then update operations to prevent them.
From your CRM and dispute source data, identify customers who are disputing transactions and why. If necessary, block from future transactions.
Refine Your Dispute Strategy, Test Again
Your dispute strategy will never be finished. As long as the payments landscape keeps shifting, your dispute strategy must be ready to accommodate those changes. That means constant review of your tactics. Are your security measures creating too much friction and causing missed sales opportunities? Are your measures too lax and allowing too much fraud through? How many representments are you acting on, and can you do more? Are there seasonal spikes in your chargebacks?
Answers to these questions and more will inform how you adjust for the best possible dispute strategy that works for you and your customers.
This clear-eyed analysis of your technology and processes in all stages of the transaction life cycle can help reduce fraud and disputes, improve your customers’ experience, and set your business up for continued success and growth.
1 Mobile & Online Remote Payments for Digital & Physical Goods – Juniper Research, 2019-2024 2 Ravelin
The Importance of Building a Strong Dispute Handling Process
Success and longevity in e-commerce are driven by a solid payments strategy and strong customer service standards. Yet, the payments landscape is changing rapidly, which can make it difficult to navigate without a strategy.
Today’s merchants need to maintain diversified payment channels – mobile sales, third-party facilitators, e-wallets, etc. – as well as work with multiple acquirers to deliver products and services to a broad and growing customer base. Great attention must also be placed on robust CRM systems and data security protocols to protect your business and your customers.
The evolution of card-present and card-not-present payments (CNP) continues to provide many conveniences for merchants and customers alike, but there is a downside. With the growth of e-commerce comes an increase in fraud and disputes, which can lead to revenue drain in many ways.
Establishing a viable payments strategy is essential to building your business. But how do you protect your revenue and brand equity from being sapped away by disputes? The writing is on the wall: It’s time to build a complete dispute handling process.
What Is a Dispute Strategy and Why Does Your Business Need One?
While many merchants consider disputes as “the cost of doing business,” they don’t have to be accepted as the unsolvable problem that you just have to live with. Payment disputes can be reduced and prevented, as well as fought and won.
E-commerce has become familiar with consumers throughout global markets, but this is just one side of the coin. For businesses transitioning from brick-and-mortar to click-and-order, there may be an unexpected learning curve. Such businesses might have had a handle on managing chargebacks in physical shops and enterprises, but the CNP landscape can present challenges throughout the digital payments cycle that require greater attention on managing fraud and disputes.
What does a chargeback mitigation strategy look like? It works in three active stages of the payment life cycle:
Authentication and pre-authorization
Post-authorization and pre-dispute
Disputes, chargebacks, analytics, and prevention
Featuring a dispute strategy in core business principles and operations fosters a healthier payments ecosystem – for merchants, acquirers, issuers, and all their customers. Inevitably, for the merchant, implementing a dispute strategy translates to revenue optimization, and a better customer experience and business growth.
How to Build an Effective Chargeback Mitigation Strategy
The foundation of an effective dispute strategy can be composed of three pillars: Technology, Operations, and Analytics & Policy.
Technology – Use of a sophisticated CRM system can track customer purchasing behavior and collect vital information to identify customer activity throughout the transaction life cycle. At the payment gateway, intelligent screening tools can protect merchants from fraudsters and bad actors. Such tools include fraud filters informed by real-time fraud scoring, confirmed fraud data, 3DSecure protocols to authenticate customers, and account updating solutions to ensure continued service for card-on-file.
Post-transaction proactive communication of billing and delivery information includes the customer in the transaction lifecycle after they have purchased. It can ensure customer satisfaction, lead to self-resolution, and serve as compelling evidence for revenue recovery, should a dispute occur. Merchants should retain all communications, including sales confirmation emails, proof of customer acknowledgement of return policy and terms & conditions.
Further, data-sharing solutions can be used in the post-authorization stage to mitigate chargeback fraud. Issuers that can review merchant data at the point of a customer transaction inquiry can prevent unwarranted disputes and ensure valid sales. In addition, providing digital receipts to customers through consumer banking apps can increase visibility and reduce instances of reported fraud and payment disputes.
Operations – merchants’ internal operations and customer service teams should be aware of and understand rules imposed by card brands, returns/refunds policies, and customer service best practices to ensure viable sales. Internal operations – such as financial, sales, and analytics teams – must review findings in sales and returns data to understand the cause of disputes, such as true fraud, family/friendly fraud, and customer dissatisfaction relating to product/service availability and delivery. Collaboration among internal teams can improve customer service practices to ensure valid authentications and authorizations, as well as reduce instances of fraud and disputes.
Analytics & Policy – Legal, finance, sales operations, logistics, risk & shrinkage, and payments teams must analyze activity in collaboration to identify use cases to be communicated and implemented as best practices that can help reduce fraud and disputes.
Use Case Examples:
Family/Friendly Fraud – disputes resulting from purchases not recognized on the cardholder’s account
Digital Downloads or Services – claims of non-receipt or non-use, defective performance
Product Returns – claims of defective items or non-receipt with no actual return (“digital shoplifting”)
Implementing an Effective Dispute Strategy
Successfully preventing and resolving disputes, as well as recovering revenue otherwise lost to unwarranted disputes, can make or break a business. By setting up and practicing a strong dispute strategy – including transaction pre-authorization, post-authorization, and well-maintained data analytics – merchants can reduce fraud and disputes and ensure healthy revenue streams.
In our next blog, Stress-Testing Your Dispute Strategy, readers can learn more about how to implement an effective dispute strategy to optimize their revenue, grow their customer base, and streamline business operations. To learn more about the state of digital payments today and building a complete dispute strategy, register for our upcoming webinar for insights from Verifi payments experts.
In October 2019, Visa acquired Verifi. Since day one, the companies have been exploring ways to prevent or resolve disputes quickly. Since then, we have made tremendous strides integrating our solutions with Visa’s infrastructure and have co-developed a revolutionary product, Rapid Dispute Resolution (RDR) – the first fully automated dispute management solution. This is significant because much of the cost of disputes is in the operational time it takes to manually process and resolve a dispute or represent a chargeback.
It was estimated that nearly $31b is lost every year to disputes4, which could be reduced through proactive management of a new dispute category we’re introducing called “pre-disputes”. Pre-disputes exist in the period before a simple cardholder inquiry escalates to a chargeback. We recognize the dispute system has been skewed towards the cardholder since inception, and today Visa and Verifi are working to change that.
Verifi initially leveraged opportunities with our original Chargeback Representment service and Cardholder Dispute Resolution Network™ (CDRN®). But when we combine our pre-dispute solutions, PREVENT and RESOLVE, with Visa’s risk and fraud management solutions, we create something greater. Our combined technologies foster brand-agnostic collaboration among all stakeholders, delivering dispute management solutions that are intelligent, data-driven, and customer-centric.
Visa has expertise in acquirer and issuer solutions, global payments coverage, and has made significant inroads with the deployment of the Visa Merchant Purchase Inquiry (VMPI), which has been renamed as Verifi’s Order Insight® (PREVENT).
Verifi has strong relationships with sellers and issuers, payments protection coverage in North America and Europe, and had already gained ground with dispute solutions CDRN and Order Insight.
Marrying these strengths, together we are reinventing the dispute space with a full suite of Total Dispute Management solutions, providing data transparency, automation, efficiency, and recovery of funds otherwise lost to disputes (chargebacks).
Introducing Pre-Dispute Management
Above is the conventional chargeback flow, from cardholder inquiry to representment from the seller. Our goal is to stop chargebacks at the pre-dispute stage, redefining the system.
Our focus going forward is to introduce, expand, and innovate pre-dispute management. Preventing or resolving disputes before they’re submitted to card brands as a traditional chargeback will save time, expenses, and protect the seller’s dispute ratio.
In the usual chargeback flow, after the dispute is submitted to Visa Resolve Online (VROL), a lengthy process begins by sending the dispute to the seller through the acquirer. This puts operational and financial burdens on all stakeholders involved, with constant communication between seller, acquirer, and issuing entities – all in a very compressed timeframe. Sellers must create compelling evidence cases. Acquirer teams must process paperwork for sellers to fight the dispute. All this work mounts up just to provide issuers with more information about a transaction. Then issuers must staff back-office teams to intake and review this compelling evidence and decide the outcome of the dispute. It’s quite apparent that simple, clear communication has been lacking in this process for some time.
With their improvements to the standard dispute process, Visa was able to successfully reduce the average time frame for dispute resolution from 55 days to 24 days. Since joining forces with Visa, Verifi has developed Rapid Dispute Resolution to resolve a pre-dispute even faster – in one second.
Visa & Verifi – Better Together
By combining Visa and Verifi’s expertise, we are rapidly innovating the dispute space, creating dispute management solutions that empower greater levels of transparency, efficiency, automation, cost savings, and revenue retention for partners worldwide.
PREVENT Is Proactive
The PREVENT solution is powered by Order Insight and enables sellers to share data with issuers in real time, while the cardholder is on the phone with an inquiry. For issuers, it reduces call center time, provides greater transparency for their cardholders, and delivers stickier solutions on all the main cardholder touch points.
RESOLVE Is Reactive
When a cardholder wants to initiate a dispute, RESOLVE provides sellers the opportunity to return funds to the cardholder to avoid escalation. This solution can lessen the impact of a negative customer experience with the seller’s brand, reduce seller dispute ratios, and keep countless disputes out of the payments ecosystem. Issuers can also reduce the time to close a case from weeks to seconds, while providing world-class customer service and reducing operational costs.
INFORM For Educated Decisions
INFORM provides sellers with near real-time data from all global Visa issuers to update their systems and fraud models and protect against future losses, while evolving the customer experience.
Pre-Dispute Flow – PREVENT
Now that we have identified what a pre-dispute is and what solutions Verifi and Visa provide to help the ecosystem – how do they interact?
When a cardholder has a transaction inquiry, they most often reach out to their bank instead of the seller. This is where the Total Dispute Management Suite comes into play.
PREVENT provides the means for sellers to send issuers enhanced transaction details or a digital receipt. This is detailed information that an issuer call center can review with the cardholder at that point of initial inquiry. This data presents compelling evidence to cardholders and can prevent loss due to forgetfulness or buyer’s remorse and can help identify intentional fraud.
Issuers can also deploy this same data into their mobile or digital banking applications to enable cardholders to self-validate sales. This cardholder access can lower operational strain on issuer call centers, and it enhances the customer experience for both seller and issuer.
However, if the pre-dispute cannot be prevented at the initial cardholder inquiry, then the issuer can then attempt to resolve the pre-dispute.
Pre-Dispute Flow – RESOLVE
RESOLVE facilitates a quick-and-easy automated resolution through a decision engine operating on rules set by the seller. For example, sellers can set a rule to refund pre-disputes under $10, or for a certain descriptor, for a certain reason code, or even a specific issuer. If the transaction details meet the rules set by the seller, then Visa’s network will resolve the inquiry. Funds are returned to the cardholder, an immediate and final resolution is made, and an improved cardholder experience is attained on behalf of the seller and issuer.
Pre-Dispute Management – The Sooner the Better
By adopting the PREVENT and RESOLVE pre-dispute solutions, sellers can experience immediate and lasting positive effects on their business. Seller accounts are protected against friendly fraud, buyer’s remorse, and lost merchandise. Additionally, both issuers and sellers protect revenue channels from reduced operating costs.
Pre-dispute solutions empower sellers, acquirers, and issuers to share data for quick and easy prevention and resolution at the point of customer inquiry. And an automated process means resources are freed up, enabling payments stakeholders to focus on business growth and innovation.
The Next Evolution
It’s evident, as the events of 2020 have proven, that nobody can predict the future. But one thing we are confident of is innovation and collaboration in our business is key to making the dispute and pre-dispute processes better for all involved.
Payments continue to change and are evolving faster all the time. Consumer behavior is also changing, as more consumers are shopping online and paying with digital wallets.
Disputes remain a key component of payments, and successful management of them requires trust and transparency when things go wrong. So, continuing to evolve the dispute process is vital – and Visa and Verifi are committed to doing just that.
If you missed Part 1 of this series, you can find it here.
1 Visa Claims Resolution Updates, 2018 2 Average resolution rate (hours) for CDRN (Jan – Dec 2019) 3 Average response time based on Beta testing data, July/Aug 2020 4 Visa Internal Reporting
When I founded Verifi in 2005, the term “FinTech” was just gaining traction. And suddenly the SaaS transaction dispute solution I was working on had a category. Our first launch in dispute management was Managed Dispute Representment. By 2017, we had worked our way up the dispute cycle to resolve and prevent pre-disputes before a dispute representment is necessary. Chargebacks may never go away altogether, but we have made strides in controlling them throughout the dispute life cycle. I am proud of the ever-evolving teams that helped build, market, and sell our Total Dispute Management Suite – and add value to the Verifi brand. And now, as a Visa company, I am awestruck by what our company’s collaborative efforts have made into reality.
There’s no doubt that 2020 was a character-building year. Most inhabitants of the planet had to adjust their daily lives, causing reverberations throughout global infrastructures. With supply chains interrupted, air travel grounded, and people unable to gather, nothing has been business as usual. With physical movement all but halted, e-commerce transactions skyrocketed, along with disputes, causing many business categories – especially brick and mortar businesses – to suffer. As the situation drags on, customers are developing new buying habits, providing some businesses huge windfalls, while others struggle just to remain solvent.
From a payments perspective, let’s examine why the system is set up the way it is, some of the challenges we’ve faced, the gains we’ve made, and what the future may hold.
Why Disputes Exist in the First Place
Disputes play a pivotal role in the payments life cycle. Disputes provide recourse for cardholders and provide a feeling of protection and security when completing a transaction with a seller. Together, these elements can help drive sales.
Disputes also help protect sellers against fraudulent activity. Disputes ensure the integrity of card brand networks by providing a consistent, fair, and equitable process to resolve exceptions for all parties in the ecosystem.
The Evolution of Dispute Management
Before delving into what the future of dispute management holds, it would help to get some perspective on how we got here.
The chargeback was created in 1974, primarily to enact consumer protection regulations. In response, the Visa network dispute process was born. Since then, there have been numerous advancements in payment technology, payment channels, and addressing security needs.
However, it is only in the last 20 years that the industry has made progress optimizing and automating dispute management. In 2001, Visa launched the first major effort to simplify the dispute process, Re-engineering Disputes, known as RED. This effort consolidated dispute reason codes from around 48 to 22 and removed an entire response cycle to improve resolution time frames.
This effort also included the move to electronic information and documentation exchange in 2005, with the implementation of Visa Resolve Online (VROL). Prior to this, all information and documentation were exchanged mainly via the postal service through different colored envelopes representing each card network for sorting purposes. For inquiring minds, Visa’s envelope was blue.
2005 was also the year Verifi was founded. Our humble beginnings started in an apartment in Los Angeles with our first solution: Chargeback Representment. Over the next couple of years, as our client list grew, we heard time and again that sellers would like a way to communicate with the issuer in real time as a dispute was starting to escalate.
This industry need led to Cardholder Dispute Resolution Network™ (CDRN®). Launched in 2007, it was the first dispute network outside the walls of the card brands. It was also the first solution to reduce operational strain for issuers and gave sellers the opportunity to resolve a pre-dispute before it escalated to a chargeback. This resolution service reduced the operational, financial, and processing risks associated with elevated dispute ratios.
Because we’ve worked with many sellers and issuers, Verifi is in a unique position to innovate and build solutions for our users and react to their needs. In 2016, we launched Order Insight®, enabling what no other solution had done before: Facilitate the sharing of enhanced transaction details between sellers and issuers.
Visa had also continued to evolve the dispute process and launched another major re-engineering of the process with Visa Claims Resolution (VCR) in 2018. With this effort came a reduction from 22 reason codes to 4 general reason categories, as well as improvements to block invalid disputes and the creation of new workflows for even quicker resolution time frames.
The Real Impact of Disputes
Data from Visa shows that sellers challenge only one in three disputes. But understanding this statistic requires a look at some underlying context. The truth is most sellers have experienced frustration with understanding – let alone representing – disputes, which has led to the “Discouraged Seller” effect. Why bother engaging with a system that doesn’t make sense or work for them?
Completely ignoring disputes is not an option. If not addressed, then disputes can have far-reaching and severe financial impacts on all payments stakeholders. The good news is the majority of transactions are successful, and disputes make up only a small percentage of sales.
But if disputes are challenged or responded to by sellers only 33% of the time, then that means the other 67% of the time sellers absorb disputes as a cost of business. In fact, 76% of Visa disputes in NA1 are related to fraud.
Verifi research has shown that card-not-present (CNP) sellers experience 34% more cases of friendly fraud2 than physical channel sellers. That means for some types of businesses this number is much higher. These disputes are mainly caused by cardholder confusion, family fraud, or buyer’s remorse. In speaking with sellers across the globe, that number can be as high as 75%. It depends on the seller’s industry and business model.
Each of these statistics has a real and lasting effect, and there is no doubt disputes cause significant losses for stakeholders in the payments ecosystem.
Shifting Consumer Behavior
Over the last two decades, airlines and travel agents have been among the industries leading the revolution in how people make transactions. From telephone purchasing and travel agents to online agencies, e-commerce, and mobile commerce, the travel industry has been at the forefront of transaction evolution.
2020, for so many reasons, had been an interesting year because we have seen more changes, more innovation, and a greater shift in consumer spending than we have in the past two decades.
A prime example of changing behavior is the difference in CNP spending trends this year compared to recent history. Sellers across the globe have been affected by the pandemic and the loss of consumer access to brick-and-mortar stores.
In May 2020, The New York Times reported United and American Airline sales were down 95% from April 2019. The same article quoted a report from Airlines for America that showed a $350 million daily loss. But all reports were not doom and gloom.
In the same period, home furnishing outlet Wayfair’s earnings showed a 20% surge in Q1 Sales, and Netflix added 15.8M new subscribers in Q1. Consumers were quickly adapting to the “new normal”.
2020 aside, consumer behavior has completely changed over the past two decades, and consumer expectations have evolved as well. In the past two years, this evolution has noticeably accelerated.
Visa research has shown that between 2017 and 2020, CNP spending increased nearly 30%. I believe that this is, in part, a result of increased convenience consumption, such as food and beverage delivery, the ease of home delivery for apparel and home purchases, and the increased adoption of digital wallets by consumers and sellers alike. These advances have benefited many, but they have also allowed new vulnerabilities for fraud and dispute abuse.
Visa has shown there has been a 27% increase in disputes between 2016 and 20193 – strikingly similar to the rise in CNP spending. Ideally, we would not see CNP spending and disputes rise in tandem.
The goal is to reduce disputes and ensure a positive experience for the consumer – the glue that bonds sellers and issuers together.
Unfortunately, the seller is often left out of the first customer inquiry that leads to a dispute: Up to 76% of the time3, customers contact their bank instead of the seller with a transaction inquiry. This reality has serious ramifications for sellers by not allowing them to provide best-in-class customer service, protect their brand value, and provide a direct resolution for their customer. In 63% of cases4, once a customer experiences fraud with a transaction, they won’t return to that seller.
Until recently, issuers did not have quick or easy access to additional transaction data. Typically, the only additional data they had was the merchant category code, which may be useful to help identify the transaction but not likely for most cases. Some issuers would pursue a simple internet search for additional data. But this took time and, in many cases, did not deliver any additional data to resolve the cardholder inquiry.
Toward the end of 2019, Visa acquired Verifi, and the leader in global card transactions was now in collaborative partnership with the global front-runner in post-transaction dispute services. In one short tumultuous year, the companies have made great strides together in CNP disputes solutions.
* Visa Internal Reporting 1 Visa Internal Reporting 2 The Chargeback Triangle, Javelin Strategy & Research 3 Visa Internal Reporting 4 The Chargeback Triangle, Javelin Strategy & Research
Remote Purchasing and Automation
The rapid growth of e-commerce has brought on technology that provides greater purchase transparency for customers. After all, the customer is the king – they have the right to know what’s happening in their accounts. Now, up to 73% of customers engage with their issuer’s mobile app or website at least once a month to review their transactions*. As a result, consumers have become more aware of possible payment fraud and are quicker to report as such to issuers. Unfortunately for merchants, this frequently means an increase in chargebacks, many of which may not be actually valid but rather chargeback fraud.
Furthermore, the trend for at-home purchasing has increased significantly in 2020. The more that people are working at home, the greater interest they take in improving their home environment. Remote payments are projected to grow more than 66% by 2025†, suggesting that at-home and mobile purchasing are setting new standards for e-commerce sales. One can only speculate what this means for a commensurate increase in chargebacks, valid or not.
There’s no question that e-commerce, remote purchasing in general, has expanded in availability to consumers in the past several years. Automated authentication and authorization have become the standard for today’s online merchants and buyers. Customers now have greater visibility of their purchases, when they want it and where they want it. And real-time fraud protection has also been set up by merchants and their payment facilitators to further ensure safe purchasing. Indeed, the payments landscape has risen to a new paradigm of convenience and protection by automation. But where is the advancement in real-time payment dispute resolution? How can merchants stop the inevitable increase in chargebacks, the other passenger in this automated flight to the future?
Stop Chargebacks with Rapid Dispute Resolution
Developed by Visa and Verifi, Rapid Dispute Resolution (RDR) provides automated, real-time dispute resolution and chargeback prevention for e-commerce buyers and merchants. Now, merchants can protect themselves – and their customers – from unwarranted disputes at the time customers present them to their payment card issuers.
What’s more, Verifi, a Visa solution could provide the real-time resolution of RDR on a global scale. Visa is the largest card network provider in the world with the largest issuer network. Verifi’s peerless payment protection technologies, combined with Visa’s array of purchasing capabilities throughout the world of payments, can now enable merchants and issuers to resolve transaction disputes automatically. A much-needed solution for all stakeholders in the payments industry, RDR will soon be live globally with general availability for all interested parties.
Seamless Control for Merchants
What does this new level of automation mean for merchants? Establishing their place and an even playing field that prevents unnecessary chargebacks.
By implementing RDR, merchants simply define terms of resolution eligibility by applying rules and attributes set up in Verifi’s decisioning engine. The process is simple. When an issuer submits a payment dispute into Visa’s dispute processing platform, disputes qualified by merchants’ pre-defined rules are immediately resolved by RDR at the pre-dispute stage. In other words, this automated action occurs prior to the case being fully processed as a payment dispute, stopping a chargeback from ever happening.
Verifi has made defining rules and attributes for automated dispute resolution a simple task for merchants. In fact, once completed, the automated system of RDR enables merchants to focus their attention and resources on business growth and customer service, instead of resources being diverted to manual dispute review and the laborious efforts of chargeback management and representment. Of course, rules and attributes can be adjusted at any time to address changing trends and suit the best needs of the individual business.
Real-time dispute resolution equates to hands-off automation that stops unwarranted chargebacks:
No manual review or extra operational demands
No impact on dispute ratio – all resolutions are complete and final
No drain on revenue from unwarranted chargebacks
Service reports can lead to increased authorizations
Extend and improve customer service in post-transaction
Absolutely no integration is required by the seller or their payment facilitator. Since RDR operates at the issuer level, once merchants have opted in and define their rules, Verifi’s real-time, automated decisioning engine does the rest, requiring no further action by merchants.
Perfect Partner to the New Purchasing Normal
In the new normal of predominant online purchasing, automated dispute resolution will be a fixture in post-authorization customer service.
Once merchants define their rules and attributes and submit them to Verifi for implementation in the world’s only automated, real-time decisioning engine, unwarranted chargebacks can be significantly reduced. Issuers only need to access RDR, already implemented in the Visa dispute processing platform, to take advantage of this great service. At the point of real-time decisioning, communication is immediately sent to acquirers, so they can provide a quick return of funds to the customer. In all, the seller maintains a hands-off role in this correction. Benefitting all payments stakeholders, RDR provides expanded global protective coverage against revenue-diminishing disputes and chargebacks.
All payments stakeholders will benefit:
Merchants maximize operational resources, revenue reliability, and customer loyalty, protecting their brand and payments viability
Issuers provide quick, efficient dispute resolution services for cardholders, reducing resource and operational drain
Acquirers maintain healthy dispute ratio on behalf of their seller clients, enabling portfolio stability and growth
Customers experience quick, simple, and complete dispute resolution for increased satisfaction with the level of automation they’ve come to expect
Step up to the next level in online payments protection with RDR. Contact Verifi today to learn more.
*”Improving the Dispute Experience” – Aité, May 2020
**”COVID-19 Impact on Global E-Commerce and Online Payments” – yStats.com Nov. 2020
†”Ecommerce Payments Deep Dive Data & Forecasting 2020-2025″ – Juniper Research, Nov. 2020
So much of life is routine. On most days, many of us wake up at a set time to go to a job; we work a planned schedule; we commute a predetermined route both ways. On top of that, we program our morning coffee to brew at a certain time, set thermostats to turn on when we’re close to home after work, and even push a button to get our car to drive itself when possible. We have achieved this level of automation because doing so takes care of marginal tasks that are part of our daily routine, and we don’t want to think about them. But what if we could apply this kind of automation to a level of business where it really mattered? Verifi has taken this concept and applied it to transaction dispute resolution and chargeback management in the form of Rapid Dispute Resolution (RDR).
The Demand for Automated Chargeback Protection
In recent years, there have been many technological innovations to ensure customer convenience in digital payments, such as fraudulent chargeback protection for merchants and issuers. Tap-to-pay and contactless options enable frictionless purchasing experiences. EMV chips ensure reduction of fraud, benefitting customers, merchants, and issuers. Card networks have updated processes to provide transparency and a quicker response for customer return requests. Now, blockchain technology provides even more resistance from attack on digital purchases and more for greater protection against fraud. Dispute resolution technology has been due for a leap in evolution.
Verifi has led the payments industry with Cardholder Dispute Resolution Network™ (CDRN®), and collaboration services became the standard for protecting merchants and issuers from the costs associated with disputes and chargebacks. This robust chargeback prevention solution enables issuers to collaborate with merchants to resolve transaction disputes within 72 hours. The result is both parties are protected, and the customer receives a timely resolution – and chargebacks are prevented.
Now, Rapid Dispute Resolution (RDR) takes the chargeback management experience to the next level. RDR is built on technology developed by Visa and Verifi for real-time dispute resolution. Driven by Verifi’s decisioning engine, RDR enables merchants to automate dispute resolution by defining rules on how to resolve transaction challenges at the pre-dispute stage. The result is a touchless experience for the merchant and seamless chargeback dispute resolution for the issuer with no demand on operations. Nearly all human error and manual effort is removed from the resolution process. As such, there is no other technology like RDR in the payments industry.
Resolution at the Pre-Dispute Stage
Resolving a dispute prior to the possibility of it becoming a chargeback is essential for the new age of automation. Only Verifi and Visa could provide the technological leap needed to ensure merchants and issuers can take the next step to automated dispute protection. We define this as resolving a transaction inquiry at the pre-dispute stage. As a function of the issuer dispute management platform, Visa Resolve Online (VROL), RDR will be activated for all Visa issuers on a global scale by April 19, 2021.
Establishing RDR rules and attributes for pre-dispute resolution is simple for merchants. For example, a merchant can set a rule to accept liability on disputed transactions of $25 or less. In addition, merchants can customize rules with attributes to accept liability on transactions with unique purchase identifiers, currency types, dispute categories, and more. With 10 rules available per merchant account and up to seven attributes that can be applied to each rule, merchants can maximize control over the real-time dispute resolution that is right for their business, in addition to providing a better customer experience. RDR allows merchants to set it and forget it; the decisioning engine does the work automatically.
RDR institutes a market-first product that is aligned with current technology trends and customer expectations for quick and efficient service. In short, RDR is a modern solution for modern needs.
Removing Human Limitations
Responding to disputes takes time, however quickly merchants respond to an alert or find themselves knee-deep in the chargeback process. Someone must manually review the pre-dispute, accept liability, and take action to refund the transaction. That person might make a mistake, take too long, or simply not be available due to a furlough or layoff. RDR remedies all of those concerns.
Taking advantage of RDR is simplicity itself for issuers and merchants. This new automated solution is built directly into VROL, so Visa issuers only need to make the choice to add RDR in their regular process. Once participating merchants choose to get on board, they need only to define their rules and attributes. Verifi specialists then upload and activate the rules, and the decisioning engine does the rest. The chance of human error is effectively removed from the experience.
Automated Chargeback Resolution on the Visa Network
Combining Verifi’s ingenuity and Visa’s well-established vast data resources and excellence in secure and successful payments, RDR answers the call for automated chargeback resolution. And it’s all on a worldwide scale, as Visa is the largest global provider of powerful merchant, issuer, and customer payments solutions. As a Visa company, Verifi is in the ideal position to deliver automated dispute resolution with a reach like never before, in real time, and with virtually no vulnerability to human error.
To learn more about how RDR can benefit your business, contact us today.
Lack of communication and transparency in information can result in bad decisions and negative outcomes – particularly when it comes to transaction disputes.
Consider the following scenario: A customer makes a credit card purchase with a merchant, but the customer doesn’t recognize or remember that transaction later while reviewing their bank statement. The customer suspects the transaction may be fraudulent activity and contacts their issuing bank for clarification. The issuer probably has no information on the transaction and moves forward with filing a chargeback on behalf of their cardholder. Meanwhile, the merchant is left out of this discussion completely. At some point following this customer-issuer exchange, the merchant receives a chargeback notification – after having dispensed the goods or services sold to the customer, and that revenue is now lost. The customer has reclaimed the money they paid, but the merchant’s dispute ratio is impacted by a chargeback.
This negative outcome could have been avoided if the merchant were able to communicate the transaction details when the customer inquired about the purchase. Since customers seldom contact the merchant about unrecognized transactions, and may not even know which merchant to contact, it’s almost impossible for merchants to prevent chargebacks on valid purchases in such a case. In these common scenarios, a little collaboration can go a long way in chargeback prevention.
Fraud Affects Customers and Merchants
Most customers don’t make purchases with the intent of disputing them later on, but in this day and age of omni-channel shopping, it’s easy for customers to lose track of what they bought, where they bought it, and when they bought it. This problem is compounded when family members jointly access e-commerce accounts and share the same credit card used for various services. Cardholders can easily lose visibility on purchases made on their credit card and mistakenly think someone has unauthorized access. As a result, cardholders may be disputing transactions unnecessarily, cluttering the payments ecosystem with false credit card disputes that are really valid transactions.
Friendly Fraud (Chargeback Fraud)
Despite its name, there’s nothing amicable about friendly fraud. In these cases, the customer is disputing a valid transaction that they don’t recognize – or claim they don’t recognize. It is possible that the customer forgot the purchase, or the billing descriptor on their statement isn’t clear. Whatever the reason may be, the customer probably wouldn’t file a payment dispute if only they had the details to recognize it as valid. However, in cases that are virtually impossible to measure, some customers are intentionally challenging a legitimate purchase as fraudulent to regain funds, which is better known as chargeback fraud.
Family Fraud (Familial Fraud)
When a single credit card is shared by multiple family members and/or across multiple services and platforms, then it can be difficult for the actual cardholder to keep track of the purchases made on that card. Parents who attach their credit card to their child’s gaming console or cell phone app store know that unexpected purchases can appear on bank statements.
Buyer’s Remorse
People sometimes make purchases they regret. Perhaps the purchase was an impulse buy or fueled by the excitement around the product or service, which faded fast. Now, the customer wants their money back even though they got what they thought they wanted from the purchase. Unfortunately, filing false credit card disputes based on remorse blurs the line into bounded the territory of intentional fraud.
Informed Customers Help Reduce Disputes
Merchants should always communicate as much purchase information to customers as possible. This communication can include a digital receipt, follow-up email, push notifications, and more. Unfortunately, that information is rarely top of mind when the customer is questioning a transaction that they don’t recognize days, weeks or months later. For this reason, merchants need a way to communicate detailed transaction data to customers at the point of inquiry. Being able to do so can help fight chargebacks at the pre-dispute stage before it escalates to a formal chargeback.
Verifi’s pre-dispute solution, PREVENT, enables merchants to communicate transaction details to customers at the point of first customer inquiry. Featuring Order Insight®, PREVENT facilitates this communication by granting issuers real-time access to detailed merchant business and transaction data. PREVENT works can be effective for any business type or industry, offering delivery of over 160 data fields to merchants to ensure transparency in transaction data. Merchants can communicate details such as the color of a product, the last time a subscription service was used, the device on which a purchase was made, and more.
Communication Is Key
By enabling collaboration between payments stakeholders, PREVENT extends the merchant’s customer service into the issuer call center. And the issuer can now give inquiring customers detailed clarification on confusing transactions. Friendly and family fraud are virtually eliminated, because the cardholder has more detail to recognize the purchases as valid. Now, customers committing intentional chargeback fraud may think twice when the issuer can present to them compelling evidence that the purchases were made by the customer on purpose.
It’s rational to assume that most customers don’t intend to file frivolous disputes, but when customers question a transaction and issuers can’t provide answers, then what recourse do customers have? Verifi offers an alternative chargeback mitigation solution by enabling merchants to be part of the conversation. With PREVENT, merchants have a way to keep serving their customers, saving the sale and preserving the relationship.
For more information on Verifi’s pre-dispute solutions, contact us today.
