Disputes and chargebacks are nothing new. But in the digital age of commerce wrought by the pandemic, they’re becoming a key point of friction between consumers, merchants and issuers.
Amid the great digital shift, retailers and financial institutions (FIs) must walk the fine line between challenging transactions and letting the consumer journey proceed frictionless. And then, after the transaction is made, there’s the task of understanding the byzantine codes and data that are tied to online statements.
The “language” of the statements may represent a Rosetta Stone of sorts for the 110 million consumers who have pivoted online in the wake of the pandemic.
Confused and frustrated consumers throw up their collective hands, dispute transactions and leave it to the FIs to figure it all out. In essence, the consumer is begging: Just let me figure out if it’s a transaction that I actually made.
Clarity would make all those online statements much easier to navigate, especially for first-time online shoppers. Clarity would also help issuers and merchants avoid the hundreds of millions of dollars in chargebacks that add to friction in commerce (and additional operating costs, of course).
The topic was front and center in an On the Agenda discussion with PYMNTS CEO Karen Webster, Ethoca CEO Andre Edelbrock, Cabela’s and Bass Pro Shops Senior Manager of Fraud and Investigations Keith Thompson and First National Bank of Omaha Director of Fraud Management Steve Furlong. All said that clearing up the jargon and guesswork — while pinpointing real fraud — can go a long way toward improving digital commerce itself.
The Scope Of The Problem
As Ethoca’s Edelbrock stated, at a high level, the great digital shift has been greater than anyone could have imagined, where 22 percent of retail transactions in March and April were done digitally, a doubling over the previous year.
The downside to all of that activity moving online has been such that one in four disputes are tied to transaction confusion, he said. The financial fallout is that we’ll see at least 20 percent more chargebacks and disputes through the end of the year, he said — and Ethoca has estimated that the cost of chargebacks to U.S. issuers will grow to $690 million in 2020, and to more than $800 million in 2021.
“The big question could be: ‘Could that put us over a billion in the U.S. from an issuer side on costs or chargebacks and fraud?’ And that’s a big number,” he told the panel.
Withs such high costs, said First National’s Furlong, issuers start blocking good transactions.
To get a sense of how it all can impact firms at the front lines of commerce — the merchants themselves — Cabela’s Thompson said different types of disputes have been gaining traction. He cited claims of non-receipt, whether due to carrier snafus, porch pirates or friendly fraud. That’s driven the retailer to require merchandise, risk-driven signatures that can be dynamically altered, said Thompson. In addition, and adding to the confusion, distribution from different centers may result in multiple authorizations on a credit card.
“The way we authorize is we don’t authorize until we ship,” said Thompson. “So, a consumer might buy a hundred dollars’ worth of items. It may come in 10 different boxes.”
The more boxes, the more confusion may be in the offing — and then firms like Cabela’s have a dispute on their hands, especially if certain items have strict return policies (notably firearms are not all that easy to return in the first place).
Beyond the consumer-led disputes over charges that are in fact legitimate, there exists a growing trend of account takeover as fraudsters co-opt passwords.
“We need to educate the public to make sure that when they’re shopping on a site, that that password is unique to that site,” said Thompson.
Navigating the sites themselves touched off a discussion about the customer experience. And as Furlong told Webster, FIs must develop a fraud stack that can be likened to a three-legged stool. It must let good customers get approved for a card, let them transact, and then keep the bad actors from entering the mix. That stack must use all manner of tech-driven tools to verify identity and review transactions, but not disrupt the customer journey. With the customers themselves, speed counts.
“If you’re shopping at a Bass Pro Shop … I want to confirm that transaction as fast as I can so my card doesn’t go to the bottom of the wallet and potentially stay there,” said Furlong. “I want that transaction to go through just as much as Bass Pro Shop does.”
Communication can be sped up and streamlined through texts, push mobile, phone calls and other efforts. And, as Furlong contended, transparency can be improved through the use of digital receipts, which in turn can shorten or eliminate calls into call centers. The ripple effect, according to Furlong, is that banks do not have to reissue cards, and they can save costs.
Edelbrock noted that because for many digital goods, upwards of 80 percent of chargebacks is from friendly fraud, collaboration between merchants, issuers and consumers is critical.
So, too, are data. The next level of this whole consumer clarity, as he termed it, takes all of that rich transaction information on the merchant and issuer sides, and gets both parties working together (rather than just sending a simple alert).
“There’s a much better customer experience when we put the right information in the hands of the cardholder,” he said. “And if that didn’t jog the memory, you put that information in the hands of a call center rep.”
On the spirit of collaboration, Thompson contended that Cabela’s interaction with banks has been more frequent and that banks have been proactive.
Cabela’s would normally handle everything through the chargeback dispute process, and of late the firm has actually had banks reach out to note that there’s a dispute probably going to be pending, but that a given individual has 15 claims of non-response with other retailers.
“So, banks are starting to pick up on some of these schemes — that folks are running friendly fraud and actually reaching out to retailers and number one, notifying them, but sharing as much as they can to where at least we can take some action, whether it’s blocking the consumer from ordering again, or forcing the consumer to always pick up in store,” he said.
Eliminating The Confusion
Digital receipts and better use of data can resolve as many as 50 percent of disputes before they escalate.
But as Thompson noted, it’s an involved and ambitious project “to get down to the ‘dirty details’ of a skew number and a description. It’s just a lot of data to send back and forth.”
But the efforts toward greater transparency have been paying dividends and need not be the proverbial tech heavy lift.
Ethoca’s Edelbrock said simple but effective remedies have involved putting clear merchant descriptors with merchant names, and logos on statements have warded off disputes from becoming chargebacks by avoiding disconnect between merchant and consumer and focusing on the post-transaction experience.
Thompson also advocated giving customers multiple avenues through which to contact their merchants (such as through live chat).
Looking ahead, Thompson mused that chargebacks in the first quarter of 2021, for many merchants, will be related to slow shipping times. Ethoca’s Edelbrock said that with an estimated 34 percent increase year over year in eCommerce sales, and an average 120-day timeframe for chargebacks, dispute activity will mount into the new year even as the shift to digital transactions become permanent.
Merchants learned in 2020 to be agile, said panelists, noting that retailers have done everything from build websites at warp speed, build curbside pickup operations, and move toward digital-first offerings.
“If you set the expectation with the consumer as they’re shopping, that eliminates 90 percent of your problems,” said Thompson, adding that 2021 is going to be a year in which stakeholders “realize that dispute avoidance — and not necessarily dispute management — needs to be a top-of-mind topic.”
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