Blog article
See all stories »

Win a credit card dispute and lose brand integrity

Many of my discussions are about how financial institutions can improve their processes to serve customers better, improve their brand and reduce costs. It seems that during tough times, and when customers are at their lowest, banks are playing tough, and forgetting that all the improvements in processes are worthless if you kick a customer when he is down. Fraud cases, and unexplained transactions on credit or debit cards are one of these areas when a customer feels exposes and the actions of a bank can make a huge difference in whether the customer stays or goes. I talked about how business account holders in the US are suffering this at the moment. It seems that personal account holders in the UK are seeing nasty dispute resolution tactics being employed as well.

The Light Blue Touchpaper blog by Ross Anderson of Security Research, University of Cambridge, describes how his recent experiences show banks are pushing customers to the courts to resolve issues (a summary of the post is on the Finextra blog). In Ross's experience, the process used by banks to try and resolve dispute cases appears to be designed not from the point of view of efficiency or speed of processing, but in fact to put as many hurdles in the way of the customer as possible. The hope appears to be that the customer will eventually just back off, pay the charge, and the bank can save some money. As I've discussed in the past, one in five cases of customers suffering identity theft switches banks. I bet that significantly higher percentages switch banks when they feel their bank is trying to avoid its obligations to handle disputed transactions.

Ross walks us through his experiences with dispute resolution at NatWest bank in the UK, when several months in, the bank shows its true colors - effectively saying, 'we delayed you so long by only responding to one piece of correspondence per month, now you are out of time':

The following month they wrote back saying that “we are governed by MasterCard International, who are the governing body for credit card transactions” and had to abide by their rules, under which our complaint was now out of time. This is nonsense on stilts; my contract is with the bank, who may not debit my account without my mandate, and if the bank enters into a contract with MasterCard that prevents it from discharging its obligations to me then that’s the bank’s problem, not mine. The bank suggested i get legal advice, or go to the Citizens’ Advice Bureau, Local Trading Standards or the Financial Ombudsman Service. Now I documented the failings of the Ombudsman in an earlier post, so I decided to go straight to the heart of the matter and sue the bank in the small claims court.

The bank settled at once.

From the bank's perspective, they probably find that the majority of customers just roll over at this point. The processes, designed to be as efficiently ineffective as possible, just lead people to give in. As Ross goes on to say:

This may be entirely rational behaviour on the bank’s part. If it can fob off most complainants with tiresome call-centre procedures, or tell them they’re out of time, or pass them off on Citizen’s Advice, then it will only have to refund the minority who ignore this flummery and go to court. Even then, the bank only has to pay an extra £25 for the court fee.

I have experience similar delay tactics, admittedly several years ago, from a bank reporting an odd Visa transaction. Their handling of the situation was not much better, although eventually they had no option but to pay the fee since the receipt they produced did not have my signature, or (since this was while I was in a country that insisted you write ID or passport numbers on credit card slips) a passport number that even matched my nationality. It would have taken someone in the back-office less than two minutes to resolve the issue without ever getting me involved for months. They failed, and thoroughly annoyed me.

If you are brought in to look at the metrics for dispute resolution, I wonder if you just count the amount of cash paid out as a key performance indicator, or the number of customers that switch banks and subsequently flame your brand online due to their experience. And which costs more? For the financial institutions I have worked with, they claim the cost of customer acquisition is hundreds of dollars or pounds, so it is hard to see why you would work so hard to avoid paying a small disputed transaction. I would love to see evidence where a very different approach that tried to resolve issues effectively and rapidly could leave a customer that is happy with the professionalism, customer service and integrity of the bank. Anyone wish to share their positive experiences?

A well organized department of a bank will do what is necessary to raise their game to meet whatever targets they are set. If those targets incorrectly (in my opinion) exclusively aim to reduce dispute payments, rather than balancing that with customer service and brand integrity, it is no surprise that we will see more use of legal threats to get issues resolved. I am looking forward to seeing the UK newspapers (please save them for this reason alone) picking the worst corporate offenders to strip down in public, as they tend to do so well. Profits do not come from saved disputes -- they come from happy, profitable customers.


Comments: (7)

Keith Appleyard
Keith Appleyard - available for hire - Bromley 31 March, 2010, 10:57Be the first to give this comment the thumbs up 0 likes

No need to go to Court as a first resort : this case originated back in June 2009; since November 2009 there has been a change in legislation : you now have up to 13 months to query a transaction - no matter what MasterCard bylaws state.
(reproduced verbatim below)
"If there is an unauthorised transaction on your credit card account you should dispute it without undue delay (and no later than 13 months after the transaction).
It is for the bank, building society or credit card company to show that the transaction was made by you and there was no breakdown in procedures or technical difficulty.
If you've not authorised the payment then your credit card company must immediately refund you the transaction amount unless they have some evidence suggesting you may not be entitled to a refund because of the way you have acted. In these cases the credit card company must investigate the claim, but must do so as quickly as possible."

Banks & Credit Card companies now have to keep all the data readily available for 13 months, just in case you make a claim a year later. They can't dismiss your claim citing they no longer have any records of the event. If they didn't keep any records, then since they can't prove their case - you win.

A Finextra member
A Finextra member 31 March, 2010, 14:51Be the first to give this comment the thumbs up 0 likes

Keith, thanks for bringing that to my attention, I had missed that piece of news. It certainly brings the importance of recordkeeping around credit card transactions in line with other banking transactions, which is good. 

I would like to suggest that I change my blog post to be more generic, to cover any banking dispute, and see if the idea still holds. Cheques and other transactions, (and credit cards) can still be disputed, and how the bank handles the issue may lead to the retention of the customer, or saving of a few pounds by the bank and loss of a customer.

Thanks again.


Keith Appleyard
Keith Appleyard - available for hire - Bromley 31 March, 2010, 15:04Be the first to give this comment the thumbs up 0 likes

I agree that there there are plenty of other types of disputes, such as Bank Charges and Cheques, that are not covered by the change in legislation, and it would be interesting to see if the idea still holds.

Nick Green
Nick Green - ISD Consultants - Northampton 31 March, 2010, 21:16Be the first to give this comment the thumbs up 0 likes

What seems to have escaped the Banks attention is that the disputes cost them money to delay sorting out. I know that merchant acquirers balance the cost of defending a chargeback against the administration cost of gathering the required data i.e chargeback £12, cost of getting the information in time and resources £25 - it's cheaper to just give the £12 back. In prolonging a dispute the bank is not only upsetting the customer they are running up their own cost. A speedy resolution would benefit everybody but unfortunately the compartmentalised institution just don't see it.

A Finextra member
A Finextra member 31 March, 2010, 21:46Be the first to give this comment the thumbs up 0 likes

You have some interesting numbers there to back up the discussion. Metrics and objectives drive the actions of departments, and it seems that these may have been badly set in some banks in the past. Hopefully we will see a return to customer satisfaction and retention, with the assumption of innocent until proven guilty around disputes. 

A Finextra member
A Finextra member 06 April, 2010, 09:38Be the first to give this comment the thumbs up 0 likes

You asked for some experiences:

I received a phone call from Sainsbury's Credit Card Services team advising that a fraud had been committed on my credit card and that I would see an amount of £2,000 applied & then refunded and a new card would be on its way.

True to their word, a new card appeared and my next statement arrived with the said entries nulled - I even got £20 of vouchers for spending so much on the card!

I use one credit card exclusively for internet purchases (so that I'm not inconvenienced should there be issues...). When reporting a fraud, whilst NatWest happily refunded the amount in a reasonable time period, they advise that as this related to an element of address/id fraud too that they'd placed a CIFAS [Credit Industry Fraud Avoidance Scheme] marker on my credit file as a precaution. Which sounded like a good idea, until I tried to get a new mobile phone contract...

CIFAS is an interesting subject matter - I'll leave you & readers to explore...


A Finextra member
A Finextra member 06 April, 2010, 15:19Be the first to give this comment the thumbs up 0 likes

That is interesting. The separate card approach for different types of transactions, in your case online v offline makes some sense. I believe Paypal offer this type of Visa credit card number just for offline purchases where a website doesn't offer Paypal transactions directly. I've seen some banks in the US at least providing a separate credit card number for online and phone transactions, tied to your credit limit but I suppose easier to handle if something goes wrong, since you don't have to cancel your primary card.

Maybe there are some other interesting approaches out there that are common enough and easy enough to use that they will be beneficial to consumers and banks.

Now hiring