Transaction Clarity Seen As Key To Reducing Friendly Fraud

Issuers and merchants have, by and large, been handling the digital shift. But many are not ready to grapple with the fact that it’s producing more disputes and chargebacks.

The financial fallout is that the cost of chargebacks to U.S. issuers topped $690 million in 2020 and will exceed $800 million in 2021.

But with a bit of help from advanced technologies and rich data sources, financial institutions (FIs) and merchants can work together to craft a digital-first strategy to prevent and resolve — in a positive, proactive manner — the disputes that have become an unfortunate cost of doing business online.

In an interview with Karen Webster, Jason Howard, Ethoca’s executive vice president at Mastercard, said the digital age of commerce demands that FIs and merchants gain some control over eliminating those disputes and chargebacks while improving the customer journey.

As Howard told Webster, at least some of the groundwork and infrastructure was already in place to handle the increased eCommerce demand.  Merchants had actively been looking for new ways to engage with their customers online before the pandemic.

“Merchants, issuers and others in the ecosystem were preparing for the shift, but nobody saw 2020 coming,” said Howard.

As for the wave itself, in the midst of the pandemic, U.S. online sales revenue was up more than 50 percent, and in the Latin America and Asia Pacific regions, there were strong moves by consumers to embrace digital payments and move away from cash.

The pivot is here to stay as Mastercard has estimated that 7 in 10 consumers intend to stick with their online buying habits. And as PYMNTS data has shown, 97.3 million U.S. consumers are now “digital shifters” — those who have done more in the digital channel and less in the physical channel for the same activity, whether that’s shopping for retail products or groceries or eating food from restaurants. For consumers living in large cities, the digital shift is even more dramatic, with 47 percent of all consumers living there now defined as digital shifters.

That’s the glass half full.

The glass half empty is what happens after the sale is made, the goods are delivered, and the credit card statement appears. Although FIs and merchants have made the jump into eCommerce with aplomb, the chargeback and dispute management flows reflect some friction.

Drill down a bit more, and the friction isn’t only about more digital shoppers doing business online with the merchants they know. It’s about consumers discovering new brands online and shopping them, and a new category of consumer who has gone online for perhaps the first time. Howard said the new-to-the-internet consumer comprises roughly 20 percent of online shoppers.

“It’s an amazing statistic,” said Howard, “but think about all of our own personal situations and our family members … maybe our parents and older aunts or uncles. You can certainly think back to the conversations when they called and asked how to use the internet to buy things.”

Recipe For Confusion

That, Howard said, is a recipe for confusion, complaints and the inevitable call to their bank as card statements reflect the merchant and transaction abbreviations and prefixes that mean something to the payments ecosystem but sow confusion for consumers.

“That’s where you’re going to go because that’s where your trusted relationship is for your money,” said Howard. “And that’s the process by which you would move to raise concerns about the transaction.”

It Starts With Simple

The best way to avoid a chargeback is to eliminate the need for a dispute, and this is where a “digital-first, multilayered strategy” can help. Howard pointed out that as much as 25 percent of all disputes could be eliminated if consumers saw more (useful) information on their statements.

Delivering that clarity starts by making it easier for consumers to recognize the “who and the where” of their purchases — equally important for new internet users as new-to-a-merchant digital natives, Howard sad. The industry is moving closer to providing that clarity by cleaning up merchant descriptors or phone numbers on the statements, then putting the merchant’s logo on the statement. He noted that Ethoca is giving merchants free tools to upload their logo so that issuers can integrate them into their digital statements.

“These are things that have become very simple, low-hanging fruit for how a merchant can participate and leverage the issuer’s infrastructure to deliver clearer statements to consumers,” said Howard.

He also said that it’s a “win-win-win” for the ecosystem. Communicating efficiently and effectively — and digitally — with the consumer, including with the merchant’s logo visible, means that it’s still the merchant’s customer experience and it’s also the issuer’s customer. Consumers have a great experience and attribute that great experience to all parties to the transaction — avoiding a dispute.

Beyond Clarity To Utility

Moving beyond clarity to efficiency within the bank’s ecosystem means including the digital receipt as part of the transaction description on the credit card statement. Howard described this as the “final part of the digital strategy” by creating a “single source of truth” for the consumer that lives in the bank’s mobile or online banking channel.

“No one is keeping those receipts in an aggregated way,” Howard said.

New infrastructure, along with collaboration with merchants and data aggregators to capture receipt information for presentation as part of the digital statement, is work that Howard said is already underway.

Simple transaction descriptions, merchant logos and receipt capture and presentations are powerful tools to avoiding the disputes that can lead to chargebacks, particularly those that originate from consumer confusion over charges on their statements.

Data-rich interactions can also link to merchant terms and conditions, said Howard, or other information about the specific items that were bought, to help inform the issuer that transactions were indeed legitimate and that the dispute need not move forward.

“Most importantly, [through] using better tech and data, both the merchant and the issuer are delivering much better user experiences — and that’s really the name of the game,” said Howard.