Chargebacks and false declines present many problems to merchants and issuers alike but where there’s complications, there’s payment facilitator opportunity, says one risk management expert.
“Whereas merchants may not be familiar with all aspects of payment processing and risk management controls, payment facilitators provide affordable accessibility to systems, knowledge and focused expertise that may otherwise be unattainable,” says Marcus Smith, the senior vice president of risk management for processor iPayment Inc. “Due to scale and buying power, payment facilitators can also allow merchants to benefit from their data acquisition, proprietary and third party technology and other value added service that meet the needs of their aggregate clientele.
“Ultimately, payment facilitators can eliminate various administrative costs and distractions allowing merchants to place their money, time and attention on managing and growing their business.”
In a recent report named Chargebacks and False Declines; Cards’ Ugly Underbelly, Aite Group talked to 35 executives from merchants, large U.S. issuers, payment networks, processors, and solution providers earlier this year. The executives hailed from consumer goods, digital goods, petroleum, subscription services, and travel industries.
The report’s conclusion included suggestions on improvements to what it called a ‘necessary evil’, such as:
Merchants should learn from non-fraud disputes, clarify customer communications, perform reason code analysis, and invest in solutions that facilitate collaboration with issuers. Chargebacks and false declines are a shared problem, and alternative communication rails outside of the traditional authorization process can help reduce both chargebacks and false declines.
Issuers should automate the process, refer the customer to the merchant for non-fraud disputes, empower contact centers to help with instant chargeback resolution, and invest in solutions that facilitate collaboration with merchants and early resolution to disputes before they turn into chargebacks.
Smith says while operating rules changes and EMV have improved the card present world, fraud has migrated to the card not present world. The security solutions for card not present transactions are complicated, he says, and “adoption has been slow, security has been weak, and fraudsters have frequently enjoyed walks down the paths of least resistance.”
Chargeback activity has risen significantly since the 2015 liability shift, he says.
“While some industries suffered more than others due to challenges related to EMV point-of-sale device and software certification, there was a huge spike in non-EMV related chargebacks,” Smith says. “Knee-jerk reactions by issuers increased disputes as well as falsely declined authorizations. This presents problems for issuers as well as acquirers and the need to work together toward resolution.”
Smith is optimistic that all sides are heading toward understanding and pain management, especially in the areas of communication, collaboration and investment at all stages of the authorization and dispute process.
“This ranges from third party intermediaries who provide conduits for issuer/merchant communication to technology providers who provide intuitive systems for transaction vetting,” he says. “Issuers are also more willing to alert acquirers of observed malicious authorization attacks and work together to verify questionable cardholder or merchant activity.”
Smith has a couple of tips for merchants:
*Merchants who have little to no fraud controls should consult their gateway provider or trusted payments professional to develop a fraud screening strategy.
“Many providers have fraud control suites that allow for the identification of suspicious transaction activity and permit manually or systematic extraction prior to batch closure,” he says. “Merchants shouldn’t be afraid to spend a little money on additional fraud tools. In the long run, these tools tend to pay for themselves.”
*Merchants should increase their fraud and chargeback awareness training and regular processing activity reviews.
“They may not be aware that trouble is on the horizon until it is too late to do anything about it,” says Smith. “Increased education allows for early detection and cure. Merchants are in the best position to identify potential problems. By reviewing their processing activity, listening to their customers and addressing concerns immediately, costly disputes can be curtailed before getting out of hand.”
In the end, communication, as usual is the most crucial aspect to collaborative problem solving, says Smith.
“I encourage the continued open dialog between issuer and acquirer,” he says. “Increased sharing of information through various means seems to be a current trend. I see more topical information shared via multiple publications in various formats. Payment professionals should take advantage of trade shows, networking opportunities and training sessions offered by card companies. Participation and collaboration at all levels is the key.’