Business
Speeding up chargeback resolutions to boost financial performance
Global Banking and Finance Review
Company
By Gaurav Mittal, Executive Vice President, Ethoca
Commerce has been even expanding rapidly. In the US, for example, retail sales are increasing by 8.8% each year, and eCommerce sales are also up by 8.4%, according to recent data. However, many challenges lie ahead despite this resilience in customer spending.
Take the example of the growing trend of purchase confusion. This is where a consumer reviews their bank statement and sees a list of unfamiliar names or references, alongside their outgoing payments. The person then mistakenly requests their money back from said bank.
This is known as a chargeback – it can be extremely costly and time-consuming for all involved. Chargebacks are estimated to cost businesses around $117.46 billion per year, and the average chargeback would cost a business $191 with an estimated 615 million chargebacks happening worldwide per year.
The chargebacks process is also extremely complex as the customer’s card issuer (i.e. bank), card network and the merchant’s acquiring bank all have to work together to determine whether the dispute is warranted and whether the customer’s money should be refunded.
Although businesses and financial institutions should take steps to manage changing consumer behaviours and complexities, preventing chargebacks from negatively affecting their profits is also crucial.
Nearly all consumers want their bank to increase clarity by providing more transaction detail. Therefore, finding a solution that makes transaction information more transparent to everyone is essential. Adding a logo or using digital receipts to each outgoing payment could help reduce consumer confusion by jogging customers’ memories on purchases they’ve made. For a financial institution, this digital-first approach is the best method of prevention because it enables them to address disputes earlier in the process before they become a chargeback.
However, when a chargeback does occur, an alerts-based system can be utilised to receive fraud data from issuers in real time. We’ve seen an example of a leading US-based card issuer that was able to address this, having experienced a growing volume of chargebacks. This, combined with the changing nature of fraud, meant they were spending an unacceptable amount of time and money in addressing these challenges.
The obvious solution was to automate the chargeback and fraud processes. The benefit of a digital solution means it can scale along with sudden surges in chargeback volumes. It also doesn’t require any new, additional staff or training and is faster and more accurate than challenging chargebacks manually.
The use of near real-time data transformed its chargeback prevention and management programme and helped the issuer prevent $8M worth of fraudulent and non-fraudulent chargebacks over the course of 12 months. The solution’s automated and scalable nature enabled the issuer to both more easily handle its monthly volume of disputes and still meet customers’ expectations.
Businesses and financial institutions can reap significant advantages and increase their bottom line if they prioritize streamlining and preventing chargebacks.
Firstly, it can benefit smaller companies which may not have the resources to absorb the costs associated with chargebacks and reduce the financial impact. Moreover, effective chargeback solutions builds more trust with customers and improves customer loyalty, which in turn can improve the overall customer experience and service.
Businesses can achieve these goals by implementing a more comprehensive strategy around collaboration and technology. By doing so, they can reduce the risk of chargebacks, improve their operations, and ultimately reap dividends in the form of increased profitability and customer loyalty.
Preventing problems and resolving issues are the key to retaining customers and building trust.
We believe that, by enhancing the customer experience, we can help to reduce transactions, lower dispute costs and increase customer retention. This will help boost Lifetime Value, create trust with consumers and help to encourage a long-term relationship.
About the author
Gaurav Mittal is the Executive Vice President of Ethoca, a Mastercard company. Gaurav is focused on executing and evolving Ethoca’s global strategy to help businesses further reduce fraud and disputes and create better digital customer experiences.
Gaurav joined Mastercard in 2014. Immediately prior to his role at Ethoca, Gaurav led Global M&A for Mastercard. He has also held leadership positions across Product Development and Enterprise Strategy. Prior to Mastercard, Gaurav worked at Booz & Company where he helped customers develop and focus on their strategic initiatives. Before Booz, Gaurav worked as an early employee and senior executive GEP, a B2B procure-to-pay technology company, where he oversaw rapid growth of the firm. .
Gaurav received his MBA from Columbia University and an undergraduate degree in Computer Science from Denison University.
A chargeback is a transaction reversal initiated by a bank, typically when a customer disputes a charge on their account, often due to fraud or error.
Customer loyalty refers to a customer's commitment to repurchase or continue using a brand's products or services, often influenced by positive experiences.
Transaction clarity involves providing detailed information about transactions to customers, helping them understand their purchases and reducing confusion.
Fraud management encompasses strategies and processes implemented by businesses to detect, prevent, and respond to fraudulent activities.
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