Dispute resolution is a problem that impacts all the major participants in the payments industry, including credit card issuers, merchants, and consumers. In America, an estimated 25 million transactions are disputed each year, and this number is only expected to grow.
Mercator Advisory Group estimates that by 2022, there will be as many as 33 million disputed transactions annually. Since resolving disputes can prove to be costly and time consuming, it is essential that the dispute resolution process be efficient and effective. To aid companies in selecting a dispute resolution solution, BHMI partnered with Mercator Advisory Group to release “Chargebacks and Disputes: Strategic Solutions.” The white paper provides an overview of the chargeback and dispute landscape, and outlines what companies should look for in a dispute solution.
Growth in card volume drives dispute volume
With an estimated five transaction disputes per 10,000 purchases, disputes only comprise a sliver of total transaction volumes. However, the sheer volume of transactions is large enough to make disputes a formidable issue. For example, in 2019, the credit card industry processed 49.9 billion transactions totaling $4.18 trillion, according to Mercator Advisory Group.
And the problem is expected to get worse. Mercator projects that credit card transactions will rise to 66.8 billion by the end of 2020, resulting in over 33.4 million disputes. As the white paper notes, part of this rise can be attributed to the decrease of cash use in favor of cards.
Since cash is often used for transactions under $25, more low-dollar transactions are ending up on cards. This makes it even more important that companies adopt efficient dispute management procedures, as resolving a $10 dispute can be just as time consuming as resolving a $10,000 dispute.
The four types of dispute transactions
The white paper divides disputes into four types:
- Fraud Event
- Authorization Failure
- Processing Error
- Consumer Disagreement
Any dispute tool adopted by an issuer needs to be able to accurately classify a dispute into one of these four categories. The authors of the report also point out that since Mastercard and Visa use their own codes to classify disputes, it is essential that credit managers learn how the networks differ in their codes and services offered.
Understanding the codes enables payment parties to maintain dynamic workflows to properly classify a dispute. Properly classifying a dispute helps both issuers and merchants allocate resources to reduce expenses and risk. If a chargeback is caused by fraud, resolving the dispute requires more time and resources than if the chargeback was caused by a simple processing error.
The costs of disputes
Disputes can prove costly in a variety of ways. To resolve a dispute, issuers and merchants must spend time and money establishing whether the transaction was legitimate or not. From claim losses to lost customer revenue, there are financial harms to chargebacks.
But there are also reputational harms. If an issuer or merchant is perceived as incompetent or unjust by consumers, the company’s reputation will be adversely impacted. In such a situation, consumers may take their business elsewhere, turning a reputational cost into a financial one.
Foundation for a chargeback solution
Any chargeback solution needs to obey credit policy requirements and the payment networks’ operational rules. The white paper identifies five necessary elements of a solution:
- Technology-Driven Process
- Immediate Data Access
- Instance Interface
- Direct Input to User System
- Effectively Engineered Process
If a company’s current chargeback solution does not encompass these elements, now is a good time to consider switching to a better solution. This is because both Visa and Mastercard have overhauled their chargeback policies with the aim of expediting the dispute process.
Visa, for example, set a goal of resolving disputes within 31 days, down from the typical 46 days it used to take (more complicated disputes can take up to 100 days to resolve). Adopting an effective dispute solution is needed to speed up the chargeback process. To learn more about chargebacks and potential solutions, including BHMI’s Concourse – Disputes™, readers can view the “Chargebacks and Disputes: Strategic Solutions” white paper here.