AI and Real-Time Monitoring Staff the New Front Line Against Disputes and Chargebacks

The digital shift that started during the pandemic sent consumers toward social media platforms for online shopping, which are considered card-not-present transactions. It continues today.

In tandem with that shift, transaction disputes have also increased and come in a variety of flavors, so to speak.

Fraudsters are using the allure of seamless commerce to ply new schemes and offer enticing deals that are actually scams.

Manish Jindal, senior manager and domain specialist for cards at EvonSys, told PYMNTS in an interview that card-not-present transactions “lack stringent security measures, and this increases the risks of disputes and fraud for merchants and banks.”

To get a sense of how acute the problem is, Jindal said CNP fraud leaped by 35% during 2021 alone, as the darkest days of the pandemic raged on.

Billions of Dollars in Losses

The vulnerabilities of merchants and banks — where disputes and chargebacks lead to lost revenues — are starkly apparent as consumers are unable to inspect products bought online until the goods arrive on the doorstep. Broken or damaged goods, or claims that they are in disrepair, lead to disputes. As Jindal told PYMNTS, there is a rise in friendly fraud, as some customers intentionally file disputes, often due to misunderstandings when they don’t recognize a charge on their bill.

“And it is also estimated that this friendly fraud almost accounts for 28% of overall eCommerce fraud losses globally,” Jindal said.

The confluence of all these factors poses a threat to some merchants’ top lines. Jindal told PYMNTS that for “overall chargebacks, we are estimating that it might go up to 42% between 2023 and 2026, which is equal to almost $37 billion in … lost revenue.”

What Can Be Done?

There are several options and lines of defense for merchants and banks to embrace, especially in the bid to break what Jindal called the “cycle of frequent disputes.”

There’s the need to implement robust fraud prevention and systems that work right at the time a transaction is originated. Banks can use artificial intelligence to block suspicious transactions at the stage of authorization. They can also send alert messages to consumers to verify whether transactions are legitimate. Even if the transaction proceeds, banks can use AI and modeling to determine the likelihood of disputes, Jindal said.

“Banks can start providing more information about the transaction once a consumer logs in to their bank site or through mobile apps,” Jindal said, adding that banks “can look at … merchant location, merchant contact details, as well as the exact authorization date and time. So, the merchant can verify the legitimacy of this particular transaction,” all of which helps resolve any issues without resorting to disputes.

Banks can collaborate with third-party providers like Ethoca or Verifi to verify that they directly file disputes with merchants without moving directly to chargebacks, which can be costly to banks at around $50 to $500 per dispute. EvonSys helps client firms and banks design their own dispute management systems using low-code platforms and applications to identify frequent disputers and streamline documentation to expedite dispute resolution processes, he said.

“We identified that by using EvonSys’ dispute management system, many banks are able to reduce their chargeback volumes by almost 15% and decrease their timelines by 25%” through automated processes, he said.

“As fraud prevention and managing disputes becomes critically important for many businesses to survive, we are leveraging advanced technologies, [including AI and machine learning] to address these challenges,” Jindal told PYMNTS.

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