Proactive Dispute Policies Put Merchants, Consumers on Same Page

Transaction disputes, by their very nature, are reactive problems for merchants.

They don’t exist until a cardholder is dissatisfied or confused about a transaction, setting off a chain reaction of events. The cardholder first contacts the credit card issuer with a complaint, then a provisional credit is shared with them before an investigation, commonly referred to as dispute representment, begins to determine liability.

Disputes, of course, negatively impact merchants, who lose the sale pending the outcome of the investigation and generally must write off the loss. Acquirer or processor costs may add to the expense of a dispute, and then there’s an intangible cost as brand reputation may suffer.

Lisa Tennant, senior vice president, global client relations at Verifi, told PYMNTS in a recent conversation that merchants are getting savvier about managing those disputes — not in a reactive way, but a proactive one.

Firms such as Verifi (through its Order Insight offering), she said, can aid that proactive approach by passing along enhanced transaction data to customers and issuers in a bid to prevent chargebacks.

The issue is critical, as so much commerce continues to move online, and as merchants are focused on customer retention. As card-not-present (CNP) transactions have risen, so, too, have CNP disputes, as evidenced by Visa data that shows CNP sales grew by 51% from 2019 to 2021 while CNP transaction disputes gained 29%. The cost of managing those disputes has also increased significantly, Tennant said, surging 18% in just the past few quarters.

“Disputes are a global issue,” she said, noting that Verifi is seeing significant growth in North America, Europe and Asia.

In fact, the data shows that 76% of merchants use third-party tools for dispute alerts. Tennant said that figure indicates merchants are becoming better educated about the tools available to them.

“We’re seeing more merchants embracing a more holistic approach to their strategy when it comes to managing disputes,” she added.

By minimizing friction and transaction problems before they blossom into disputes, she said, merchants can devote more time to their core businesses and on day-to-day operations. The opportunity lies in the period after the sale is complete and the purchase is made, but before the customer might have an inquiry.

“They haven’t gone to full-blown dispute yet,” she said, “but they may be headed that way. That’s the ‘opportunity zone’ where merchants can employ tools to help them prevent or mitigate that dispute.”

Verifi’s own approach, she told PYMNTS, has been one geared toward helping merchants decide which transactions to address through representment – presenting evidence to prove chargebacks are not warranted — or instead, accepting liability.

If the value of the dispute was lower than the total cost to fight it, or if the dispute was true fraud, she added, Verifi analysts may recommend merchants accept the dispute. But: Even in the cases where there was representment, and the issuing bank evaluated the evidence and reversed the chargeback, Tennant noted that the disputes still counted against the merchant’s chargeback-to-sales ratio.

There also is the ever-looming specter of friendly fraud, which Tennant said is estimated to account for as much as 70% of fraud disputes. Picture the consumer who looks at their credit card bill and sees a charge from a video game company. An immediate reaction might be to file a dispute. But with a bit of collaboration and transparency between the merchant, the issuer and the cardholder, it might come to light that a child made the charge on her gaming console to pay for a coveted new title. The consumer would be able to “place” the charge, see that it was legitimate and pivot away from filing a dispute.

Tennant told PYMNTS that it’s critical for consumers to understand what they have purchased and the purchase terms. Those details need to be visible to consumers during checkout and in the receipt or order confirmation after the transaction.

In these ways, she said, data can help remove the “noise” from disputes and help issuers and merchants find the best, most streamlined process, with strong, open lines of communication with customers.

All of this benefits the customer, Tennant said, “because it resolves the dispute, and it’s meaningful for the merchant who now can ‘balance’ their operations.”