After processing more than 106 million disputes last year, Visa is rolling out new AI tools to tackle a growing—and often understood—problem.
Many of these disputes arise from unrecognized, but often legitimate, charges on consumers’ increasingly complex statements. This surge represents roughly a 35% increase over the past six years.
To address this pain point, Visa is launching six AI-driven tools. Three are designed to help issuers better analyze and centralize dispute data, while the other three focus on merchants, aiming to improve a longstanding challenge: data sharing between merchants and card issuers.
“The legacy chargeback and dispute process was designed around consumers working with their card issuers and merchants working with their acquirers,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “At the same time, legacy data formats like ISO 8583 were designed to be compact for fast communications. They only allow 23 characters to be transmitted for the merchant descriptor, with no supporting info on what was purchased.”
“As consumers use cards more and more, monthly statements are typically multiple pages and consumers are challenged to remember where they shopped and what they bought,” he said. “With cryptically brief merchant descriptors and no purchase details, consumers frequently click on the ‘dispute this charge’ button next to an unremembered in their bank’s mobile app, hoping the card issuer can provide the details.”
Timed-Out Inquiries
In the current model, issuers often lack direct access to key transaction data. Compounding the issue, retrieving the information requires a complex chain of communication among the acquirer, merchant, issuer, and ultimately the consumer.
“This whole process runs on a short time window in order to provide good service to the cardholder,” Apgar said. “If the response process isn’t completed in time, the default is a chargeback to the merchant and the consumer gets reimbursed for the purchase.”
“The result is that chargebacks are increasing, simply because the legacy process is being overloaded,” he said. “Many of these chargebacks get classified as friendly fraud, where the consumer intentionally tries to evade a valid sale. And in fact, some of them are, but many are simply the result of timed-out inquiries.”
Piloting an Answer
Because many steps in the dispute process are still manual, the current system struggles to scale alongside the increasing volume of credit card transactions and disputes.
“The answer is to build a process where card issuers can communicate directly with merchants to obtain more detailed info about who the merchant is and what the consumer bought there,” Apgar said. “There are number of different models being piloted now, including a shared database where merchants upload info for access by issuers and an API hub that enables issuers to query merchants and for merchants to provide automated replies.”
“Issuers can also use this data to proactively expand their cardholder statements and head off inquiries from consumers by providing detailed purchase info upfront,” he said.
