How High-Tech And High-Touch Can Help Merchants And FIs Grapple With Chargebacks

Helping Merchants, FIs Grapple With Chargebacks

In the age of eCommerce, chargebacks are on the rise.

Case in point: The Wall Street Journal recently reported that the bankrupt owner of New York Sports Clubs and Lucille Roberts might have to pay out about $850,000 in chargebacks and refunds. That amount is leagues above the original forecast of $225,000.

In an interview with PYMNTS, Melissa Jankowski, head of debit and ATM services at FIS, said that as cancellations and postponements mount, financial institutions (FIs) and merchants can be proactive in reaching out to customers in anticipation of disputes – and can effectively battle scammers, too.

Jankowski noted that the pandemic had played havoc with a significant number of merchants. Several verticals, such as the T&E, airlines and exercise industries – pretty much any industry where in-person is a part of commerce – have been impacted.

“Many of these businesses require upfront deposits, with recurring transactions based on services provided in the future,” she pointed out. And many of the payment networks or debit programs have rules in place mandating that services or products must be received by the consumer in order to charge for those deliverables.

“Organizations that support and work with both sides of the equation, if you will – both the merchant community as well as the financial institutions that are issuing the payment products – have seen the effects of the pandemic,” Jankowski said.

Against that backdrop, communication with end users could effectively avoid the dispute process among all stakeholders. For companies such as FIS, helping communicate the merchants’ policies for refunds – whether they offer upfront refunds (such as for cruise lines) or credits – can smooth interactions between cardholders and merchants.

Communication can be a proactive strategy, affirmed Jankowski. Gyms, for example, “can communicate how they are going to keep individuals safe and when they will open their doors. They’re more likely to get that consumer participation so they can begin charging their monthly fees … If gyms want to avoid any chargeback volumes that they might be experiencing, they really have to articulate the plan.”

Jankowski said that when individuals see charges – without explanation – for services they are currently not using, they’re likely to set chargebacks and disputes into motion.

The Fraud Factor

Of course, with the massive uptick in card-not-present transactions, fraud has been on an upswing, too. Of FIS’ own fraud-fighting efforts, Jankowski said that a number of tech-driven tools in the marketplace can be used to combat bad actors, including Mastercard’s Ethoca offering that can help clear up any confusion consumers may have about their statements (sometimes merchants’ names are not clear, for example).

As a network, Jankowski noted, Ethoca fosters communication between merchants, issuers, acquirers and FIs before and during the dispute process.

Ethoca, she said, “allows us to take a look and to educate each other when we [have] transactions [that] look fishy based on consumer behavior. And when we get to a point where there is potentially a chargeback or a dispute, we can communicate with one another before that chargeback is actually processed.”

Illustrating the value inherent in sharing information across networks, Jankowski said that FIs could ask merchants for additional details surrounding transactions, “so that the two can try to work it out before they officially reverse a charge and start going through the investigation process.”

Separately, behavioral biometrics and additional layers of authentication (via Verified by Visa, for example) can help boost fraud prevention efforts, said Jankowski – especially in determining, from an issuer’s perspective, whether cardholders are behaving in legitimate ways. Leveraging advanced technologies like 3-D Secure and tokenization add more levels of protection amid the eCommerce boom.

Mobile devices allow FIS to “deputize cardholders” to help prevent fraud, noted Jankowski. That’s tied to giving consumers the ability to remove risk through a greater ability to control, and even to “self-service” transactions, turn cards on and off, and get real-time notifications about transactions.