How Technology Adds to the Bottom Line

Banks and merchants lose billions every year to fraud and chargebacks, yet emerging technologies are turning the tide.

When a customer sees a charge that they don’t recognise on their credit or debit card statement, often their first reaction is to contact the bank directly, requesting the transaction to be reversed. These disputes often lead to a refund or “chargeback” being issued, as it is often not deemed cost-effective for banks to open an in-depth investigation, and they lack the information to legitimise the sale or satisfy the cardholder promptly.

Our research has shown that up to 86% of cardholders take this route when disputing transactions, and the problem can quickly scale up. Merchants are not only hit with the cost of each reversed transaction, but there is added impact in the form of various fines, fees, and related operational expenses—not to mention the long-term damage to customer relations that this process entails.

A large volume of chargebacks that merchants are routinely landed with is commonly referred to as “friendly fraud”. In these cases, the customer is genuinely responsible for the transaction in question but either fails to recognise it or decides to pursue the dispute, since they are aware of these weaknesses in the system and know that such claims remain unchallenged.

Be it due to fraud or non-fraud disputes, most of the time merchants are informed of these matters when it’s already too late to resolve them without incurring the added chargeback costs, damages to customer relations, and lost sales.

This represents a significant problem for the industry. Ultimately, it’s the consumer who bears the cost for this, since these losses eventually translate into higher prices as merchants and banks struggle to absorb these increasing costs. In fact, a 2015 report by Javelin Research indicated that the average organisation spent between 13% and 20% of their operational budget on fraud and chargeback management.

To effectively tackle these challenges, technology needs to do better align the interests of cardholders, issuing banks, and merchants, and bridge the information timing to when the customer initiates a dispute.

Verifi has developed solutions that address this growing problem holistically. First, Verifi’s Cardholder Dispute Resolution Network (CDRN) integrates directly with the top issuing banks and pauses the dispute process for up to 72 hours. The cardholder dispute is redirected through the CDRN patented “closed loop” platform from the bank to the merchant in near real-time. This allows merchants time to assess and resolve the issue appropriately without it becoming a chargeback, which works equally well for both fraud and non-fraud dispute resolution.

Covering approximately 50% of the North American market, CDRN supports more than 15,000 merchant accounts and handles over 200,000 individual disputes each month.

Additionally, Verifi recently launched Order Insight, a service that enables near real-time sharing of robust transaction details between cardholders, merchants, and issuers. Whenever a dispute arises, all parties would be able to access this information to eliminate customer confusion, determine the legitimacy of the sale, and reduce “friendly fraud”.

By being able to share and access data—such as purchase item description (size, colour, style), date of purchase, merchant’s name and contact information, customer’s device used, IP address, etc.—the volume of chargebacks can be significantly reduced. This results in fewer fees and penalties imposed on merchants, but most importantly the retention of sales and improved customer relations, all of which translate into increased profits.

For companies to succeed in the future, automation and continual innovation will be key. This is necessary to keep pace with new technologies—from encryption to IoT, as well as big data and Artificial Intelligence now emerging in the payments ecosystem—and to anticipate evolving industry demands as well. Getting this right is vital to providing merchants and consumers with a better experience by reducing instances of fraud, and thereby save the industry billions in avoidable losses.

By Matthew Katz, CEO of Verifi 

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