Why is it so important for merchants to manage their chargebacks? It is lost revenue. It varies by company, but at the end of the day the money that is taken away when a dispute happens and the fees that are associated with it can have big implications.
That was one of several highlights Scott Stone shared in Soar Payments’ latest podcast, PayPod: The Payments Industry Podcast.
Chargeback’s CMO and PayPod’s host Scott Hawksworth had a 30-minute conversation about how Visa is pioneering the dispute process, and how automated dispute management prepares our clients for these changes.
What Can I Expect on Paypod?
Here are some topics that are also discussed in this podcast:
- Using technology to bridge the gap between chargeback expertise and customer-product knowledge.
- Giving internal teams control to lower their dispute ratio while improving their win rate.
- Adding integrations to eliminate manual data extraction.
Feel free to listen to Ep. 03 Managing Disputes and Chargebacks with Scott Stone of Chargeback right here. Enjoy!
What Does Chargeback Do For Merchants?
“To summarize in one sentence we automate dispute management and we enable Real-time Resolution. Why that is important is because we are trying to do three key things. We are trying to lower the dispute rate that merchants have. A lot of what we do, what we focus on, product roadmap, centers around lowering your dispute rate. Secondly improve your win rate. The better understanding you have of disputes the more scientific and objective you can be with your approach you can have to them. The higher win rate you can have and the more comfortable and fair you can feel about the whole situation and outcome. Lastly, we are trying to save time. We are trying to allow merchants to repurpose time spent on manual work. Software in general is a process of automating work that was traditional manual. This is a big part of what our platform and company does. It automates a lot of the manual labor associated with responding to and tracking the effects of disputes.”
Why Is Managing Chargebacks Important For Merchants?
“It is lost revenue. It varies by company, but at the end of the day the money that is taken away when a dispute happens and the fees that are associated with it can have big implications on something like EBITDA. If you are a publicly traded company that amount of money has the ability to move your share price. Most importantly managing disputes is analogous to managing any part of your business. It could be customer service which is very similar and a lot of the times tied to the disputes process. As well as logistics, product features and enhancements, and anything you are putting time and energy to to create value for your business is just part of running and owning business. Ignoring disputes has the same effect as ignoring any other part of your business. It creates a leak that bleeds money, bleed time, resources, etc. As with anything if you ignore it it will eventual rear its head in a way that is very hard to deal with.
It is better to get out in front. Be aware of it, understand it. We actually work with some portfolios and venture backed firms to help educate their start ups on disputes. What they are, what they will be because it’s not just something you really know about going into business in any way. But as you grow and mature it becomes something you have to manage very closely. There are managers, there is a team, and they are rolling up to a department. It becomes an interracial part of the business. So having software facilitating that just like you would have software facilitating sale or facilitating marketing is just important.”
How Do Alerts Work?
“The alerts are really a collaboration effort. The issuers would like to see data shared in real time. They would like to give merchants and acquirers the opportunity to not deal with the dispute. If it is possible why don’t we just take care of this immediately. There is a really large disconnect between the card holder and the merchant in the dispute and payment process. Even though they interact with each other and they make the transaction together there are half a dozen parties that get involved just in the flow of funds and completing that transaction. Then if there is an issue and it becomes a dispute, all those parties get re-involved. It creates a lot of friction. The alterts attempt to get a message over to the merchant allowing them to either accept it. Where they were at fault, made a mistake, or whatever it is and issue a refund. Thereby just ending it right there. There is no reason to send these messages and involve all the six parties if the merchant would just rather refund it. It is a great scenario that creates a good opportunity to rectify the situation. Obviously not everyone wants to issue a refund. While you have that alert and have that information you also have the option to say go ahead and let them file the chargeback. I have no intention of refunding it, I am going to fight this dispute.
That entire process has driven some recent innovation in the industry. Some innovation that Visa has been spearheading and the other networks are jumping on board with. We have built a product around it, we call it Real-time Resolution. In effect what this allows us to do is communicate the details of an order at the very granular level. What they bought, when they bought it, how it shipped, when it arrived, the type of stuff you would see in a very comprehensive dispute response. We are actually able to communicate it back to the issuers. We no longer just communicate back that there was a mistake and to refund it. We are communicating back all of the detail about the order. And say here is the hard truth about this they are actually still eligible for a refund and they are still within the return time frame, they just need to give use a call. Or whatever the scenario is. There are a lot of things that can play out there. It may be this isn’t fraud because it was delivered to their address or they are logged in and using it right now and this is the username and the email.
There is a story I like to tell related to Real-time resolution whenever I’m talking to the clients. It actually had to do with a dispute I almost filed against Microsoft. I got a notification that I purchased something on Microsoft which didn’t make any sense to me. I actually have a Mac and we have an iMac in the house. So I called my wife and asked what she bought at Microsoft. She said she hadn’t bought anything and that she has no idea what I was talking about. So I thought that was strange maybe I need to file a dispute. Maybe is an old subscription or from a business expense that was on my card. Then she called me back as she said could it be an Xbox game I just let Oliver buy? And yes that is exactly what is it. Microsoft owns Xbox and it totally made sense. But I was very close to filing a dispute that was totally unnecessary. Had I gone to file a dispute, the beauty of Real-time Resolution is it wouldn’t have just been the descriptor or just a little bit of information. It would say Oliver801 bought a Minecraft extension pack that is $30 and here are the details. That would have rectified the situation right there.
When I talk about the three key tenets that we are tracking and trying to support that merchants should all be aiming for, one of them is to lower the dispute ratio. It should always be your goal to have a lower dispute ratio. As you scale or as you grow ten basic point in disputes or fifty basis points is going to equate to a certain number of manpower, time and energy, and of course it will be tens or hundreds of thousands or even millions of dollars depending on how far you’ve come along with that process. The bigger you get because it is a percentage of your sales obviously the bigger the problem gets. It is more transactions, more dollars lost, more time and energy. Lowering your dispute ratio is the number one goal. That is what you want to be focusing on. There is customer service tweeks, product enhancements, marketing communication, all these thing tie to lowering your dispute ratio. It is an important piece of managing your business.”
How Does The Chargeback App Create Responses?
The trick is digging into the rules and regulations. It is deeply complicated. It is really burdensome on the processor and the other vendors to know and understand all that stuff. They are trying to provide payment processing, the ability to accept fund. But Visa and MasterCard are operating on another level. They are trying to create a network of value. They are simultaneously working with merchants and cardholders to create an ecosystem of trust, confidence, and simplicity. This boom in ecommerce is a hundred percent attributable to credit cards. Without Visa this wouldn’t be a reality. The ability to go onto a website you have never been to, you don’t know a single person who works there, you haven’t touched anything, you have no idea what the real quality, deliverables, or customer service is going to be. Then you go ahead and punch your info in that takes confidence, trust, and implicit understanding. No one is going out and educating people on this. This is all absorbed subconscious information that we feel good about and that we are used to. Obviously bitcoin is a good example here, because if you go plug your bitcoin into that same website you better hope they deliver because that stuff is gone forever. It is a very different experience.
The main thing we are providing here is expertise. We are pouring through the documents. Visa just did a major overhaul in April. It was supposed to go out in October. We were ready in October, we are ready now, and we were ready when it went live in April. The changes can be very difficult for a person who is in accounting or in finance at the organization where they are managing a lot of different things to also know the rules and regulation. To manage a team of people that are doing to the work and the manual labor of responding. And to know whether or not they are doing a good job, how to measure them, what is a good win rate, is this the right evidence, there’s a lot that goes into that. It is what leads a lot of companies to outsource this work.
We don’t like to see companies outsource it. Obviously we want them to use our software but mainly that boils down to expertise and understanding the rules and regulations. We can program that, we can stay on top of that, and facilitate that through software with guided workflows and an easy tool to use. But knowing your product, your customer service channels, and sales channels, how things were delivered, what expectations were set, that’s just something outsource can’t handle. The best of both worlds is when your internal team is the expert. That is when dispute management is really crushed and is really done well.
That all ties back to the improved win rate. If you are going to provide these really accurate responses, and I don’t really mean big. It’s not about a big document and chucking the kitchen sink at someone. On the other side the issuing bank has a customer service person who reviews the first chargeback. Then it gets picked up to a tier two for a second or a prearb. So it needs to be a good solid communication. It’s got to be free of emotion and it’s got to have objective evidence that ties to the rules and regulations. Because they are looking to check boxes too. If it is this reason code, these transaction modifiers and this evidence is permissible which you provided the two of the three pieces. Then they are totally authorized to in effect to deny it and say no. You have got to understand those details and provide that information. that’s what is going to help with the win rate.”
What Can Businesses do to Prevent Chargebacks From Ever Happening?
It is an data driven process. When we are talking to a high risk merchant we are going through their communication touch points, how they are facilitating the delivery of the goods or services, and when it goes awry. Then how to they are satisfying that. It has to be data driven. There is going to be costs associated with being in a high-risk environment that might not happening to other merchants. But at the same token fraud might not be something you see a lot of. You might not have a lot of people coming to your site trying to get something they can easily resell or liquidate. Everyone has their own problems whether you are low-risk or high-risk. We have low-risk merchants that have a 30% decline rates because they have extreme target for fraud. It is a constant process, all day chewing up their server with people trying to use fake card programmatically. It’s insane.
Everyone has different problems, but if you want to be able to implement procedures that affect the bottom line you have to be willing to repurpose that retained revenue into managing it. And continuing to push the envelope to reduce that dispute rate. The primary goal for a high risk merchant is to control that dispute rate. And make sure it is managed with the right amount of people, processes, and technology so it’s in that positive. You can put tens of hundreds of thousands of dollars into dispute management on a monthly basis. If it keeps your business running and earning a profit it’s absolutely fine and you shouldn’t compare yourself to a non high risk merchant who is maybe dealing more so with true fraud. Because they are putting hundreds of thousands of dollars into fraud filters. It is just a different expense for them. As long as it is facilitating the business you are being responsible. Track the data, consume the data, analyze it, make decisions, share it, and that’s what’s going to enable you to improve and stay ahead of the curve.
What Integration Do You Guys Offer?
To tie in the third key value proposition automation is derivative by integrations. In the not-too-distant past you logged into payment processor, your gateway, sales platform who shipped it, and maybe your actual web app. Then you copy and paste all this information into document or reports to track it. The point of software, integrations and API’s is to eliminate this work that’s not necessary. What is going on inside the gateway is in a database. It might be in Amazon, it might be in Google, it is somewhere. That data is not required to get manually. There are already systems interacting with it. So this relentless pursuit of integrations and managing and transcribing those languages into our language and into our database is a huge piece of what we work on all day everyday. It’s a never-ending conversation on the development side and on the road map and the product team. But the point is is that we want every merchant regardless of their stack, whether they are using Magento or a homegrown system or a billing system like Recurly we want them to enjoy the benefits of automation. The platforms that play nice and really have solid APIs that are head of the curve those are where business is shifting. Who is picking up a lot of business these days are the extensible tech-centric companies being acquired and the company is that are adding customers. A lot of that boils down to architecture. These integrations are definitely a key part of our platform and the future of our company.
Where Do You See Chargeback in Five to Ten Years?
I think there will be a lot more logic driven off of the status of the orders and the customers transactions being driven out of our system. When you take the chain of vendors and the payments ecosystem and you have all of their data you can start to make really informed decisions. There may be a customer service issue and the fact that a ticket it was opened or a third party logistics company had an order in a status that is in between out on a truck and being pick and pulled can drive a very helpful automated decision. To minimize a dispute from occurring or lost revenue from happening. The integrations will continue to grow and the logic that is driven by all these different databases and the statuses of their a piece of the puzzle is what I would like to see a tackling in five years and really taking to scale.