When a consumer files a dispute, the focus is generally on the merchant. However, banks also have an important part to play in preventing illegitimate chargebacks from being filed. Staff should be properly trained to vet cardholders and ask the appropriate questions to manage fraud claims. They must also understand how to proceed when cardholders claim that they don’t recognize transactions on their statements.
The rate at which cardholders file chargebacks varies from one vertical to the next. Overall, though, fewer than 1% of transactions will result in payment disputes between customers and merchants. These moments have an outsized impact on the overall relationship between banks and customers, though.
Issuers represent their customers, and thus, they have an interest in keeping cardholders happy. This creates a dangerous incentive to be too permissive with chargeback issuances. However, we can also look at this as an opportunity to retrain customer expectations regarding the chargeback process.
Roughly 40% of cardholders who commit deliberate chargeback abuse (friendly fraud) will do it again within 60 days. If they can manage fraud claims effectively, though, banks have a good chance of retaining customer loyalty while providing a better understanding of the chargeback process. This will help cardholders avoid committing friendly fraud down the road, ensuring long-term stability in the payments ecosystem.
Initial Customer Engagement
After seeing an unrecognized transaction a one’s statement, a cardholder will often contact the bank in a state of panic and request an immediate refund. They’ve been trained to be vigilant about fraud, and simply want to protect their own best interests. In the heat of the moment, though, they may not realize that they actually did authorize the transaction. Or, if there is some other problem with the transaction, that there are alternative ways to receive a refund.
The key is to approach the customer in a respectful and professional manner. Issuers should presume good faith, and avoid being accusatory or possibly embarrassing the cardholder. This approach will preserve the relationship they have with that customer. At the same time, they need to ask the appropriate questions to get to the bottom of the situation and drill down to determine whether the dispute is illegitimate.
That initial customer engagement is the first opportunity to get a read on the situation. Try to establish how, when, and where the unrecognized transaction was carried out. Through this line of questioning, the associate handling the claim should be able to uncover information that can suggest if the:
- Transaction was a genuine case of fraud.
- Transaction was made by the customer, and they just don’t recognize the name.
- Customer filed any disputes of a similar nature recently.
Be on the lookout for a clear statement from the customer that they did not approve the transaction, and that no other user, such as a spouse or family member, carried it out on their behalf. It’s important to set expectations from the beginning, and that the bank inform cardholders of what steps need to take next.
Watch for Indications of First- or Third-Party Fraud
Follow up calls increase operational costs; thus, the goal for most issuers is to close a case quickly. If unsure about the validity of a cardholder’s initial claim, though, once can consider the following:
- Is there a history of transactions with the merchant?
- Was the transaction completed using the same device I.D. and IP address?
- Could a third party have gotten access to the customer’s payment details and completed the transaction?
- Has the customer received education on avoiding fraud?
Geography is an important factor; trying comparing the location of the cardholder’s genuine spending history up until the point of alleged loss or theft to look for inconsistencies. Finally, compare the use of a mobile application and online account service data to the time the fraud was reported. If applicable, this could reveal a cardholder’s activity on an app or online account after the point at which the user claims that the fraud occurred.
Once staff has considered each of these factors, it’s time to make a decision. If the cardholder’s version of events complies with the transaction type and demographics, then the bank should issue a chargeback. If not, though, they should deny the request.
Managing Fraud Claims is a Group Effort
When a cardholder contacts the bank to report fraud or abuse, they’re already under a considerable amount of stress. A positive experience during this process is essential to maintaining a good relationship with customers. However, the process could easily involve three levels of staff; the initial call center, dispute research, and back office. Therefore, it’s important to ensure that everyone is trained properly and on the same page.
To ensure that staff are following the correct procedures and asking the right questions, issuers should consider including performance targets in the process. The handling of fraud claims should be monitored to better understand the effect this process has on the rest of the organization.
Fraud is constantly evolving, and fraudsters are always looking for new ways to beat the system. Because of this, the process used to challenge, investigate, and manage fraud claims will require ongoing review and attention.
Preserving the balance between serving customers and preventing unnecessary fraud losses is a delicate process. However, it’s one that we all need to undertake for the long-term wellbeing of the payments space.
