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What Merchants have, Issuers need: collaboration and the fight against chargebacks

The payments ecosystem has evolved significantly over recent years. The rise of mobile and in-app purchases, same-day delivery and subscription options has created an impersonal and disconnected relationship between consumers and merchants.

This lack of personalisation affects both consumers and merchants. From a consumer perspective, they don’t know who to contact when they have a transaction dispute or inquiry, and from a merchant perspective, as the consumer is now at arm’s length it has become easier for them to commit friendly fraud. Friendly fraud is usually a result of card not present (CNP) purchases. Consumers make a CNP purchase, and then contact their card-issuing bank to file a chargeback claim. This can be the result of children buying online subscriptions without parental consent; consumers purchasing on-demand movies without permission; or even one-touch purchases being too quick for the consumer to realise they’ve made a commitment.

As a result of the payment process, friendly fraud and the disconnected relationship between consumers and merchants there has been an increase in the number of chargebacks being made by consumers, which is both costly and time-consuming for merchants and issuers.

Chargebacks are essentially the reversal of an outbound transfer of funds from a consumer’s debit or credit card. They occur for various reasons, such as quality issues with products, deliveries not turning up, or confusion on bank statement.

In order to fight the problem together, and drive down chargeback costs, merchants and issuers must collaborate better. 

The Need for Merchant-Issuer Collaboration

In the current chargeback process, the issuer lacks the information needed to make an informed decision about the cardholder dispute, and the merchant is alerted far too late to make a tangible difference. Collaborating to share data and information in a timely manner can really help to solve the problems created by the outdated chargeback process.

Today, the speed of innovation in the frictionless payment space, mixed with the inherent vulnerabilities in digital purchasing channels, has made collaboration between merchant and issuers even more important. Key issues with the current chargeback process include:

  • Friendly fraud is all too easy. Due to advances in technology that have made in-app purchases, instant home delivery, and other perks of e-commerce a reality, friendly fraud is on the rise. With a simple click, a cardholder can trigger a dispute and get away with a digital form of shoplifting
  • Issuers are the first point of contact for consumers. The consumer is conditioned to file a dispute with the issuer, without understanding that contacting the merchant first is the most direct way to solve their problem. The underlying challenge is in connecting the right people, with the right information, at the right time
  • Merchants have the data but don’t have a chance to use it. In most cases, the merchant can prevent a chargeback because they have transaction details readily available, such as the consumer’s shopping history and delivery information. Unfortunately, they are alerted too late in the process to solve the problem

Data sharing, the key to collaboration

In the digital age, every click, swipe, tap, like and comment is captured and saved. This data has become a huge asset for merchants to resolve a dispute before it develops into a chargeback. Examples include:

  • Complete transaction details. Including the merchant name, time and place of the transaction, and how the purchase was made 
  • Complete merchant information. Including the merchant name, address, phone number, refund/return policies, email address, etc. 
  • Complete consumer details including when the purchase was made, the IP address of purchase device, location of an in-store purchase, type of device used, phone number, email address, dispute history, and transaction history
  • Ensure all your consumer communications are in line with GDPR requirements

This critical merchant data should not remain the sole domain of the merchant, when it is shared it can be a powerful tool in the fight against chargebacks. Merchants have a limited time to respond to chargeback claims, this data is key to building a successful representment case. It allows issuers to make informed decisions to quickly differentiate valid problems from friendly fraud and stop unnecessary chargebacks. It also helps to connect consumers with merchants. With shared data, the issuer can re-direct the consumer to the merchant, allowing the merchant to resolve the consumer’s problem. Finally, a quick resolution to a customer’s inquiry, provides a positive, simple experience for consumers helping to protect brand loyalty.

To break down the solution in its most basic form, merchants have the data issuers need to quash unnecessary chargebacks and stop friendly fraud in its tracks. Sharing that information is key to collaboration. 

Data is what issuers need to make a quick, informed decisions about the validity of disputes. With quick access to the merchant’s data, issuers don’t have to guess about the truth behind the dispute claim. In addition, the issuer can easily direct the consumer to the merchant, because they know the merchant’s contact information.

The objective for both merchants and issuers is the same – reduce the amount of friendly fraud and unnecessary chargebacks. Collaborative tools allow merchants and issuers to work together as a unified force to win the battle against chargebacks and fraud. 



Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 30 October, 2018, 15:23Be the first to give this comment the thumbs up 0 likes

Merchants probably deserve what they got vis-a-vis not being the first point of contact for customers filing chargeback claims. IME, of late, it has become very difficult to contact many merchants, especially the new-age digital ones e.g. (1) Amazon India used to accept customer queries via email until last year, whereas now it has stopped providing email support. More at (2) Ola Cab. Six months ago, it shut down its telephone support. The only way to contact the company is via its mobile app and, if you can't select one of the pre-existing options on the app, you're out of luck (3) Ditto with Uber, which never provided telephone support but has lately stopped providing email support as well.

While banks don't distinguish themselves with customer service, at least they're available on multiple channels including web, phone, social media, email, and branch.

Ergo it's much easier to contact a bank than many merchants. TBH, merchants - especially new age digital merchants - deserve to suffer more chargebacks. You reap as you sow, and all that.

A Finextra member
A Finextra member 02 November, 2018, 12:09Be the first to give this comment the thumbs up 0 likes

Thanks for your comment. Research we commissioned by Javelin Strategy & Research found that consumers go directly to the issuing banks to resolve issues 76% of the time.  It is true, as you point out, that some merchants do not always showcase easy ways to contact them about a dispute. However, some are making efforts to improve. Nevertheless, your comment highlights the need for collaboration to achieve the objective for issuers and merchants – to reduce the amount of friendly fraud and unnecessary chargebacks.

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