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18th vs. 21st Century Disruption: A Parable in Payment Disputes

 

There is something happening in the eCommerce world that is baffling. Since the illogical actions and inconsistent mindsets are hard to explain, I’ll use an example from history to illustrate a modern conundrum.

Candles to Gas Lights to Light Bulbs

When homo erectus discovered how to produce fire, life was forever changed. For centuries, humans relied on fire for numerous things--including light. But there were obvious drawbacks. It took a significant amount of effort to build a burning blaze and open flames could easily spread out of control.

Candles eased some of those burdens. They were easy to light, but widespread danger was still a threat. And, they weren’t a powerful light source. Nearly all of a candle’s wattage was given off as heat--only 0.05% was light.

A more efficient light source was needed, and in 1792, William Murdoch delivered. Gas light was born.

A single gas mantle emitted 12 times the light of a candle and had a never-ending supply of fuel. This artificial light source revolutionized society. Businesses became more efficient and productive, being able to work throughout the night. Crime dropped drastically.

However, several problems lingered. Igniting gas light was a very manual process. Users had to go from mantle to mantle, turning on the valves and lighting them by hand. Plus, fires, explosions, and suffocation from carbon monoxide poisoning were common.

When Thomas Edison introduced his electric light in 1879, the public was ready for a change. The new light source produced better results, offered more flexibility, had fewer dangers, and required less effort. Once electric light gained widespread adoption, there was no looking back.

Countless other evolutions have followed the same path--transportation, communication, plumbing.

But here is where we circle back to the baffling part.

Business owners have not evolved in tandem with chargeback management techniques that followed this same natural progression from rudimentary to advanced.  

The Need for Chargeback Management

Legislation that established chargebacks, or payment disputes, dates back to the 1960s. However, no one gave much thought to chargebacks until the internet enabled eCommerce. Then, chargebacks morphed from an innocent consumer protection mechanism into cyber shoplifting.

The people being protected from fraud became the fraudsters!

This societal shift was a catastrophic problem for business owners. Fortunately though, chargeback regulations include rights for merchants. Merchants can respond to a chargeback and try to recover revenue that was unfairly lost if they can prove the dispute isn’t legitimate.

So, merchants went to work. They created chargeback management frameworks so they could challenge this “friendly” fraud.

And here is where we tie our history lesson to chargebacks...

Manual Chargeback Management to Automated Chargeback Management

The most basic chargeback management strategies are like a candle.

The candle produces some light, but not much. Rudimentary, in-house chargeback management efforts recover some revenue, but low success rates leave a lot of money up for grabs.

And, there are other drawbacks. Like a candle causing a forest fire, labor-intensive, error-prone chargeback management strategies can cause irreparable damage to the bottom line.

Recognizing these shortcomings and seeking to capitalize on them, cunning entrepreneurs launched chargeback management services--the equivalent of gas light.

Because these pros are focusing exclusively on chargeback management and not also tasked with running the business, they are sometimes able to achieve slightly better results than in-house teams. Just like a gas mantle that produced more light than a candle.

But those service providers use the same manual processes that in-house teams use. They added a few modern touches to streamline workflows, but the profit-stealing errors still exist. Just like gas light couldn’t eliminate the risk of fires, scorched walls, and contaminated air.

The real revolution came about with automated chargeback management. Just like electric light bulbs that produced better results and reduce costly risks, automated chargeback management technology can do it all.

It’s Time For a Change

Cyber shoplifters are cunning. They are constantly finding new ways to take advantage of outdated regulations--chargebacks increased by as much as 75% between 2016 and 2017.

If merchants want to protect their bottom line, they need to be just as agile as their opponent. The only way to do that is to use technology to its fullest potential, just like the fraudsters do.

When we look at the example of the light bulb, the innovation is an obvious improvement. But when it comes to chargeback management, merchants are reluctant to embrace a better solution.  

When asked what their biggest fraud management challenges were, 46% of surveyed merchants said a lack of sufficient internal resources. Additionally, more than 60% of respondents said the dynamic nature of fraud made it difficult to train employees, half said it was challenging to recruit staff, and nearly 60% think keeping staff current on trends and regulations is too expensive.

Merchants recognize that in-house chargeback management teams are neither cost-effective nor efficient, but they aren’t willing to change tactics!

When asked what their fraud management priorities were, as few as 26% were interested in improving their chargeback response efforts. And when asked which responsibilities they were willing to outsource, only 20% said chargeback management.  

Merchants who fall into both of these categories should ask themselves why. How can they both recognize the candle is inefficient and be reluctant to turn on a light bulb?

In-house teams report win rates between 24% and 38%, but automated chargeback management wins up to 85%. And when switching from manual processes to automated technology, ROI can increase by more than 1,000%. Just like a light bulb that produces 100 times the light of a candle!

In the candle era, crime rates were 5-10 times higher than they currently are in the light bulb era. The reason? Because criminal acts could easily go undetected. Friendly fraud is the same.

With manual, in-house processes, friendly fraud will continue without detection. Modern, intelligent, intuitive, automated chargeback management technology is the only true match for cyber shoplifters.

What’s stopping you from blowing out the flames and flipping the switch?

 

 

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Corey Baggett

Corey Baggett

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