By: Steve Balmer, MVP, Delinquency Management & TriVerity
The number of fraud and non-fraud disputes, or chargebacks, has spiked significantly in recent years, causing substantial processing delays and increased cardholder dissatisfaction. Mercator Advisory Group estimates that the number of disputes will rise to 33.4 million in the U.S. in 2022 as payment volumes increase, as compared to a pre-pandemic 25 million disputes in 2019.
As the shift to online transactions continues, increased fraud and cardholder disputes are also expected, which continue to drive up chargeback volume. The current state of the economy, with increased living costs due to surging inflation, has resulted in consumers paying closer attention to their finances. These trends have also contributed to the increase in disputes as consumers look for opportunities to recoup money.
Today’s consumers have also become more aware of the disputes process and have used this knowledge to recover funds, resulting in a significant increase in non-fraud disputes, as cardholders are more likely to initiate a chargeback if they are dissatisfied with the product, service or billing (e.g., an article of clothing was the wrong size or color, a cardholder was accidentally charged twice for the same item, etc.). As financial institutions continue cardholder-centric initiatives, many have facilitated easier opportunities to dispute transactions by providing a “dispute this charge” option alongside every transaction, requiring nothing more than a few clicks or taps to initiate a chargeback, whether the transaction is fraudulent or non-fraud related.
Fraud disputes are also on the rise as fraudsters continue to innovate and find new ways to attack. Today, we have also seen a significant increase in first-party fraud, also known as “friendly fraud,” in which consumers knowingly participate in a purchase but later claim fraud. This has created increased fraud volumes and additional challenges for financial institutions as they navigate requests from their cardholders for reimbursements.
Current Industry Challenges
There are many aspects of disputes management that make it a complicated – and often frustrating – process for financial institution employees and cardholders.
As disputes volume continues to increase, financial institutions’ staffing resources can be overwhelmed, leading to delayed processing time. While staffing levels have increased since 2020, the number of disputes continues to outpace staffing levels equipped to handle them. Key vendors within the disputes industry are also struggling to manage volumes, impacting the issuers’ ability to resolve items in a timely manner.
Resolving disputes often requires a significant number of manual processes for back-office staff in every step, as disputes platforms span many applications and varying interfaces. Multiple manual processes, significant increases in chargeback request volumes and employee turnover can make the handling of the cardholder’s chargeback inconsistent across parts of the process – and all of these factors contribute to an increase in timeframes for processing and resolution.
In the current environment, many financial institutions and cardholders have limited visibility into dispute cases, with updates only coming via mailed correspondence or after the cardholder calls their financial institution to check on the status. This can lead to increased inquiries by cardholders and a desire for more robust reporting to assist employees. Consumers have grown accustomed to immediacy, so the lack of transparency and current timeframes in overall disputes processing time leads to unhappy cardholders.
Improving the Disputes Process
Enhancing your disputes management strategy will lead to a better experience for your cardholders and your employees. Create standardized workflows within the case handling process to ensure consistent and accurate collection of information. Provide real-time visibility into your financial institution’s volumes, aging and disputes stages in dashboard reporting, as well as visibility into individual case processing.
Reaching toward greater operational efficiency is important. Ensure that training is consistent, which will lead to better quality of staff processing. These enhancements will improve case processing time, which will result in faster response times and more satisfied cardholders.
Other suggested enhancements to consider include:
- Create real-time visibility into case status.
- Provide ability to review consumer correspondence and interactions within each case.
- Consolidate into a single platform to provide one-stop shopping for anything related to disputes.
- Include real-time dashboard reporting to help review overall open/closed inventories and statuses.
- Speed up disputes processing times via the automation of chargeback processing.
- Process chargebacks with better quality and consistency.
- Include compliance visibility and reporting, keeping in mind future considerations and enhancements.
- Implement a way for cardholders to select the communication channel of their choice, whether it be email, text, phone or mail. By having cardholders choose their preferred communication style, you are more likely to increase their response rates during the disputes process.
- Create a self-service option for cardholders in which they can initiate a dispute and check on its progress at their convenience. This self-service option should include a status-tracking mechanism that allows cardholders to see the status of their dispute in real-time, similar to trackers that are used by pizza chains and other food delivery services, which cardholders have become accustomed to and expect to see.
Some of the suggested improvements to your disputes management strategy may be too difficult to do on your own. Consider partnering with a fintech to help you achieve those enhancements. For example, PSCU is launching brand-new applications to help back-office staff enjoy greater case transparency and ease of case creation.
While the overall volume of disputes is not likely to decrease in the near term, making enhancements to your financial institution’s disputes management strategy will improve the processing experience and lead to better cardholder satisfaction.
Steve Balmer is MVP of Account Recovery at PSCU. Steve has been with the company since 2007. He provides management and leadership support to Account Recovery operations in Phoenix, AZ, and St. Petersburg, FL.