Five reasons to get a handle on chargebacks

by Donna Blum of BHMI

Chargebacks are a significant and growing challenge in the payments industry. The rapid growth in e-commerce, rise in fraud, and consumers’ increasing willingness to file chargebacks are making dispute management an increasingly challenging and complex job.

However, many merchants and processors still operate with legacy back office systems, making it difficult to keep pace. Dispute analysts often need to bounce back and forth between systems on a digital swivel chair, leading to frustration, inefficiencies, errors, and unnecessary losses.

Fortunately, new platforms now enable payment processes to consolidate and automate chargebacks. This increases efficiency and reduces losses while also yielding many other benefits in the process.

The growing issue with chargebacks

$343 billion paid by merchants for 2023 global fraud losses

While chargebacks and disputes have always been a reality in the financial services and retail industries, the costs and occurrences are rising. Merchants were estimated to pay more than $100 billion in chargebacks in 2023, according to a report by Merchant Fraud Journal.

Some disputes are legitimate. Yet most of them are driven by first-party, card-not-present (CNP), and account takeover fraud. According to Juniper Research, fraud is growing significantly, and losses will exceed $343 billion globally between 2023 and 2027.

Many merchants say dealing with the costs and complexity of chargebacks is now one of their biggest operational challenges. The growing number of payment types and transaction channels makes it more challenging for payment processes to handle chargebacks and disputes. As they juggle multiple systems, rules, and processes, merchants and payment processors must also find new, more efficient ways to manage disputes for real-time payments.

Compounding the complexity is that many companies still operate with outdated legacy back office systems. Some use spreadsheets and manual processes that cannot keep up with changes, workflows, and growing volumes of disputes. Many companies also juggle multiple internal dispute systems for different types of transactions, including credit and debit. Sometimes, one processor may use different systems for issuer and acquirer disputes.

Furthermore, many processors still employ an outdated “swivel chair” model for dispute management. Swivel chair refers to the manual and inefficient process of navigating back and forth between internal applications and external card network dispute systems like Mastercard Claims Manager and Visa VROL to manage and resolve disputes. This lack of integration and automation leads to double entry and tedious manual tasks that reduce data accuracy and consistency and increase the likelihood of errors. Swivel chair environments also force dispute personnel to duplicate research, which makes their jobs increasingly difficult in a fast-paced environment.

Streamlining disputes with consolidation and automation

Fortunately, merchants and payment processors can now access new solutions to improve the back office processing of disputes. These solutions interface directly with network dispute systems such as Visa and Mastercard, consolidating all chargeback activity and information in one place. This enables stakeholders to gain more insight and control, streamline processes, and reduce claims losses.

These solutions also automate much of the work with pre-configured workflows, dynamic screens, and system rules. While a single, integrated dispute resolution platform improves efficiency and simplifies tasks, it also produces a cascading effect of benefits for the entire dispute management process:

A Better Employee Experience
As the financial services industry faces a growing talent shortage, employee experience is critical to operations. Today’s employees, especially those from younger generations, have little patience for antiquated technologies and slow, inefficient processes.

A consolidated and automated system improves employee satisfaction and reduces turnover by eliminating manual processes and many tedious tasks that lead to burnout. Simplicity and automation also help recruitment by simplifying training and reducing the need for advanced skills.
Fewer Errors
The growing volume of manual processes makes the entire operation more prone to human and system errors. Legacy systems often require significant human intervention to review a pre-dispute, determine liability, and then process a refund.

However, an automated system has specific workflows for each payment and card type with rules, required documentation, and steps to complete. This takes the guesswork out of the equation, with dynamic screens that can walk payment processors through the process, significantly reducing the risk of error.
Improved customer experience
While merchants and processors want to rule out fraud, they also want to ensure legitimate disputes are handled properly and efficiently. For example, payment service providers need transaction visibility and a means to quickly validate situations such as SNAD (significantly not as described) and INR (item not received). Being able to process these disputes faster not only reduces losses but also helps resolve legitimate customer complaints.
Reduced losses and increased revenue opportunities
Improved oversight of the dispute management process can reduce losses from missing time windows or not “winning” disputes. Additionally, processors can generate revenues by offering a self-service option for clients or charging a fee to manage disputes on behalf of clients.
End-to-end case management with one system
Network rules and processes can be pretty complex and are constantly changing. When using legacy systems, processors must memorize relevant mandates or review manuals to figure out correct workflows or reason codes. Consolidation and automation embed this logic into one system, guiding the system user through the entire dispute lifecycle from initial claim to final resolution. Furthermore, unlike legacy systems, a modern system offers a real-time view and alerts and prioritizes cases based on which ones require the next action as soon as possible. This enables merchants and processors to work smarter and respond faster to the disputes flowing through their system.

As the volume and complexity of chargebacks grow, merchants and payment processors can no longer rely on decades-old workflows and systems. By deploying a modern, consolidated, automated disputes platform, they can simplify the entire process, reduce costs and losses, and improve both the customer and employee experience.

About the Author

Donna Blum is the Concourse Sales Director for BHMI, a software solutions provider trusted by leading financial services organizations around the globe to modernize their payments back office. Donna’s chief aim is to educate network operators, processors, and financial institutions on what is necessary to transform the back office to support both traditional card-based payments and real-time payments in one unified back office environment. BHMI employs a collaborative approach, working with each organization to identify the shortfalls of their current payments operations environment and recommending the most efficient and cost-effective way to accelerate the modernization of the payments back office. The goal is to help companies deploy an agile platform to keep pace with market trends and delight clients.