Andrew Reszka, Regional Head APAC, Verifi
Issuers’ legal responsibility to protect consumers’ rights for disputing a charge drives a large portion of chargeback costs. Rather than risk flouting regulations, issuers choose to accept losses on pesky chargebacks. To put this into perspective, in the US, chargebacks were a $31 billion problem in 2017. Issuers faced $12 billion of these costs mostly from liability – combined liability for credit, debit and prepaid card chargebacks accounts for $7.1 billion, or just more than 60% of total issuer chargeback costs. To compound the chargeback problem, Australians are also embracing the convenience of ‘contactless’ cards and online shopping, while mobile payments are gaining greater traction. The shift towards contactless payments and online shopping has seen a rise in payment fraud and chargebacks in Australia.
When it comes to combatting the growing problem of payment fraud, transaction disputes and chargebacks, issuers are placed in a difficult position. They can choose to prioritise by investing in personnel and the resources needed to investigate these transactions, or they can deploy simple rules-based approaches which potentially miss significant opportunities. In doing the former, they risk wasting costly resources on every dispute or chargeback that is not successfully pursued.
This costly and time-consuming process is made more challenging when issuers have to maintain a positive customer relationship. More often than not, issuers bear the cost of chargebacks in order to keep customers happy, rather than risk losing them as a customer. For card issuers, the customer relationship is the most important. To that end, issuers have even lowered barriers to allow customers to dispute transactions easily; often it is as simple as one tap in their mobile banking app. But by lowering barriers, issuers also contribute to the growing rate of friendly fraud in Australia. These are legitimate transactions that a customer later disputes in order to avoid making payment.
However, there are ways of dealing with the problems that issuers face that are ultimately beneficial for all parties involved.
What Can Issuers Do?
Greater information-sharing can help issuers, and by extension merchants, to better understand which disputes are worth pursuing, thereby enabling them to effectively use resources. Issuers can take advantage of this information-sharing to get ahead of customers who might be abusing their easy-dispute function.
Furthermore, issuers can ask customers to identify the reasons for disputing the transaction. In some cases where the dispute arises from a problem with the way a good or service was delivered, this simple step can enable an issuer to resolve the dispute without even directing the customer to a call centre. Providing the customer with additional information about the transaction could also remind a customer that he was responsible for the transaction, or he could be routed to the merchant first to solve the problem directly.
Issuers can explore how to react based on their distinctive approaches to customer service. But without information on whether customers are fooling the system, they leave themselves exposed to an unnecessarily high degree of friendly fraud risk and cannot expect to implement effective controls. Verifi’s products and solutions can help both issuers and merchants reduce the cost of chargebacks and boost profits. Speak to one of our consultants to understand how this works.