By Gabe McGloin, Head of Business Development EMEA at Verifi
Merchants and sellers have considered disputes as part of doing business ever since chargebacks first came into being. Chargebacks, however, are no small inconvenience, and they can cost businesses an estimated $30 billion a year . These numbers are only set to grow in the near future when considering recent shifts in consumer behaviour. In-store shopping is on the decline (down 3% YoY) and online shopping has increased over the same period (up 10% YoY2). Compound this trend with an increase of brick-and-mortar businesses making a move to an online space, and it’s reasonable to predict the expanding card-not-present environment that will foster an increase in dispute volume in the payments ecosystem. Consider that near the end of 2020, data revealed that 38% of consumers had reported an erroneous or fraudulent payment in the previous 12 months alone2. Merchants and sellers cannot afford waiting to adopt a dispute management mindset.
Focusing your dispute management efforts
Some of the biggest mistakes businesses can make with their dispute strategy are focusing on the wrong tactics and spreading their management activities too thin. Instead, businesses of all types should review how they are using their technology and employing their internal processes to manage disputes. By channelling their efforts into these two areas, merchants and sellers can develop a comprehensive strategy that touches all stages of the transaction life cycle.
The dispute funnel mindset
All payments are in jeopardy of becoming a dispute, but how businesses strategically minimise that risk is the heart of a robust dispute strategy. Imagine disputes as moving in a segmented funnel. Each segment acts as a stage of the transaction life cycle: pre-authorisation, post-purchase, pre-dispute, dispute, and analysis. Each stage should be considered for an opportunity to minimise disputes by deploying the right technology and employing the right processes.
Pre-authorisation: In an ideal situation, a strong, effective pre-authorisation process and strong customer communication lay the foundation for a smooth sales process, while also providing reassurance to the customer. Merchants and sellers should work with their payment gateways and facilitators to ensure that proper security and customer authentication tools are in place to minimise fraud, such as CVV and AVS technologies. Additionally, clearly communicated service policies, like for T&C and returns and refunds, can help set customer expectations before they make a purchase. When in place, these actions can help reduce disputes.
Post-purchase: An additional layer of an effective dispute strategy is utilising consumers’ familiarity with self-service. In the disputes space this can mean enabling customers to request a refund easily through the business’ platform, such as a website or mobile app. Appropriate transaction follow-up communication, like emails or push notifications, can help remind customers of their purchases. The goal is to provide the customer with as much information as possible to identify a purchase and avoid any kind of confusion resulting in a refund or chargeback.
Pre-dispute: The idea of a pre-dispute stage within the transaction life cycle is still a relatively new concept in the payments industry. With the right technology in place, merchants and sellers can collaborate with issuers to stop chargebacks by sharing transaction data. As an example, when a customer looks at their bank statement and sees a transaction that they don’t recognise, their next step is to contact their issuer for more information. If the issuer can’t provide the level of transaction detail the customer needs, then a chargeback is typically initiated. With pre-dispute technology, however, transaction data can be shared with the issuer, which can provide that information to the cardholder in turn. If the cardholder recognises the transaction, then the dispute is avoided. Other technologies allow merchants and sellers to simply refund or credit a transaction dispute before it escalates into a chargeback, thereby avoiding additional fees and impact to their dispute ratio. The point of pre-dispute technologies and the goal of the pre-dispute stage is to work within the issuer’s workflow and infrastructure, extend customer service to the cardholder and stop disputes from occurring.
Dispute: Not every dispute should be credited or refunded in the pre-dispute stage. In some circumstances, it could make more sense to let the dispute be submitted and then fight it with revenue recovery services. To reduce the impact of disputes at this stage successfully, merchants and sellers must have adequate data collection policies and processes in place to ensure that dispute responses are as compelling as possible. A CRM that tracks customer behaviour throughout their shopping process – from entering the store or website to checkout – is a good start. Storing all communication with the customer is also advisable. When businesses have their evidence compiled, they should A/B test their dispute response packages to determine what is most effective for various disputes and issuers. Alternatively, businesses can work with a managed service that specialises in dispute management and recovery to save time and energy and possibly recover more revenue than the merchant or seller could on their own.
Analysis: As with any other good business strategy, there should always be a feedback loop. A dispute management strategy is no different, and every business must set their own benchmarks that address their goals. Moreover, businesses should consider feedback from outside the organization to ensure that the strategy is keeping up with industry standards. External sources include seminars, industry roundtables, message boards, and issuer- or acquirer-directed fraud and dispute reports. This data should inform the strategy at each stage of the transaction life cycle to maximise dispute management efforts and guide strategy changes as necessary. Customer behaviour can change rapidly; dispute strategies should be as nimble.
A strategy for growth
The customer journey may be getting more complex, but more streamlining payments services are emerging all the time. It is the responsibility of merchants and sellers to take advantage of new innovations in the market and integrate them into their dispute management strategies. With the right technology and defined processes for using that technology, businesses can manage disputes effectively in any kind of payments landscape no matter how much it changes.
 Mercator – Merchant Chargebacks Are on the Rise Due to Friendly Fraud – December 2019
2 Javelin – Optimizing Dispute Strategies / October 2020