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.”
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.
Originally published on PYMNTS.com.