Guest Analysis: How the $40 Billion Chargeback Problem Impacts the Entire Payments Ecosystem

Matthew Katz, CEO of Verifi, Inc.

Collaboration Between Merchants & Issuers Enhance Customer Experience and Boost Profits

July 14, 2015 –   The $40 Billion chargeback problem[1] impacts the entire payments ecosystem.

• Merchants are hit with fines and fees, extra labor costs, loss of goods/services and even the potential loss of processing privileges.
• Issuers assume additional customer support costs as managing cardholder disputes costs time and money.[2]
• Consumers even feel the pain with increased fees, more friction in the sales process due to increased fraud prevention measures and, ultimately, increased prices.

How to fix the problem? The answer: improve merchant/issuer collaboration to preserve the customer experience and foster healthier bottom lines.

Benefits of a Collaborative Payments Ecosystem for Merchants & Issuers

Direct collaboration between issuers and merchants streamlines processes and reduces operational costs by sharing data and helping consumers resolve disputes directly with the merchant – thereby preventing the dispute from escalating into a chargeback.

Merchant benefits include:

• Increased efficiencies – The expert level of understanding required to manage chargeback disputes is significant. Manual processing, reconciliation and reporting, as well as interaction with various banks often results in inefficiency – some of which may not always be evident on the balance sheet.
• Effective use of resources – Near real-time notification of the dispute enables quick resolution without draining staff and resources once escalated to the exhaustive chargeback management process.
• Eliminated chargeback fees and penalties due to excessive chargebacks – Collaboration allows for the prompt resolution of disputes before fees and penalties can be imposed.
• Avoiding additional losses of goods and services – Merchants rarely receive back the original merchandise or service provisioned, adding to the total amount of losses. Organizations with a recurring business model or subscription services must also take into account services rendered when chargebacks occur, as these non-tangible goods cannot be returned.

Issuers also benefit, including:

• Reduced compliance burden – Properly filing chargebacks with the correct reason codes and documentation is time-consuming. Chargeback notices eliminate the need for this by allowing the issuer to pass the dispute to the merchant to handle directly.
• Enhanced customer experience – By looping the merchant in to communicate with the customer directly, issuers can foster a positive customer experience by making the dispute process more quick and efficient.
• Lowered dispute costs and improved efficiency – Automating the dispute process has been proven to decrease costs by 50 percent without sacrificing customer service ^[1].

The Importance of an Intermediary

Without more merchant/issuer collaboration, fraudsters will continue to profit, card acceptance will decline and the customer experience will continue to suffer. Using an experienced, third party intermediary that connects merchants/issuers streamlines processes and allows for disputes to be resolved more efficiently with the customer. A third-party intermediary that connects issuers and merchants in a collaborative eco-system improves the entire payment eco-system.

Everyone wins when Merchants and Issuers collaborate.

Keeping up with emerging technologies and increasingly strict regulations and standards takes its toll on merchants and issuers striving to maintain compliance and protect payments against fraud. Disputes that turn into chargebacks increase operational costs for both issuers and merchants. This leads to higher fees to merchants who, in turn; may pass them to the consumer.

When centralized data sharing between issuers and merchants is in place, the result is a seamless dispute resolution process that allows merchants to resolve the issue directly with cardholders and protect issuers from increased operational costs and poor customer reviews.

Merchants and issuers have the same goals – preserve the customer experience and foster healthier bottom lines. By taking a collaborative approach to payments risk management and implementing a collaborative chargeback dispute resolution process both merchants and issuers win and so do their customers.

About Matthew Katz, CEO, Verifi, Inc.
Matthew Katz is the founder of Verifi, Inc. and currently serves as the Chief Executive Officer. Matthew founded the company in 2005. Verifi’s Total Chargeback Management System includes the patented Cardholder Dispute Resolution Network (CDRN^™) to stop chargebacks before they happen and the Chargeback Representment and Revenue Recovery Service (CBR) to represent and dispute chargebacks and recover profits, which would otherwise have been lost. Recently, the company received the CNP Award for Best Chargeback Management Solution for the third consecutive year.