Managing Disputes In-House: Physical Goods Subscriptions

Sydney VaccaroPhysical GoodsLeave a Comment

Managing Disputes In-House_ Physical Goods Subscriptions
There are plenty of benefits to dispute management in house, but it requires creating or finding processes that are efficient for your employees, but also effective to regain losses.

Outsourcing dispute management is not an option for many companies. They want to keep their data, work, and time spent on disputes inside of the business. There are plenty of benefits to keeping this process in house, but it requires creating or finding processes that are efficient for your employees, but also effective to regain losses.

For subscription merchants selling physical goods, it is even more important to create streamlined processes — because subscription goods are even more susceptible to disputes.

In-House Dispute Management for Subscription Merchants

Here are some must-haves for creating effective and efficient in-house dispute management processes:

1. Understand the Current Dispute Landscape

No matter what your current process of handling dispute is, you need to take a look at the current landscape of your disputes. This is necessary to benchmark your company at its current state and to identify any potential gaps that are causing disputes. Take the time to go through factors like your current win rate, how much revenue is lost to disputes, if there are any prominent reason codes you are receiving, etc.

The information you find can tell you about what fraud your company faces. Only winning a small amount of disputes? That probably means that your company is receiving a lot of true fraud. Which is when a fraudster uses a stolen credit card to make a transaction. On the other hand, are you winning a large amount of disputes? This means you are getting hit will friendly fraud and chargeback fraud disputes.

For subscription or recurring billing merchants selling physical goods, the nature of subscription billing makes it important to be aware of both chargeback fraud and friendly fraud disputes.

Chargeback fraud is when a cardholder is taking advantage of the dispute process to try and gain the funds back from a transaction while still retaining the product received. For example, a cardholder could have been meaning to cancel their subscription and totally forget to. Instead of just paying another month or trying to work with the merchant they dispute the transaction.

Friendly fraud is when a cardholder disputes a charge over a misunderstanding or forgetfulness. Mistakes as simple as a cardholder not recognizing the merchant descriptor can cause a friendly fraud dispute.

Try to find patterns in the dispute or reason codes your company receives. Put yourself in your customer’s shoes and try to understand their motive or situation for disputing that charge. Then when pinpointed, make the necessary changes to prevent those disputes. Maybe a solution is to send out a reminder email about the recurring transaction a couple days before it happens to prevent both chargeback fraud and friendly fraud.

2. Building the Right Team, Building the Right Resources

It is necessary to create and dedicate resources to managing disputes. The first resource that should be calculated is how many part-time or full-time employees need to be dedicated to managing disputes.

The next step is to gather a knowledge base and give your employees access to all the required sources to make a dispute response. The knowledge base is required because each reason code has specific evidence that needs to be followed to make a winning response. Some companies may make templates for their knowledge base, others may use an Excel sheet process, and some will use automated software. To create a knowledge base requires research into reason codes, transaction modifiers and other card network rules.

3. Track Progress

After your new in-house dispute management system is set up, you will need to track several metrics in order to learn even more about the company’s dispute ecosystem and how the ecosystem impacts overall business operations. Here are some of the most basic metrics you will need to track across the dispute resolution process:

  • Dispute ratio
  • Dispute ratio by processor
  • Dispute ratio by network
  • Win rate
  • Win rate by processor
  • Win rate by network
  • Revenue recovered
  • Lost revenue
  • Breakdown of reason codes seen
  • Breakdown of reason codes seen by network
  • Products frequently charged back
  • Customers who frequently dispute
  • Geolocation of customers who dispute purchases
  • Hot spot mapping of dispute volume by Zip Code
  • Volume of dispute by bin
  • Volume of dispute by card network

This was a general overview of creating an in-house dispute process. If you would like a deep dive into creating this process you can download our Manage Chargebacks In-House eBook.

Outsourcing dispute management is not an option for many companies. They want to keep their data, work, and time spent on disputes inside of the business. There are plenty of benefits to keeping this process in house, but it requires creating or finding processes that are efficient for your employees, but also effective to regain losses.

For subscription merchants selling physical goods, it is even more important to create streamlined processes — because subscription goods are even more susceptible to disputes.

In-House Dispute Management for Subscription Merchants

Here are some must-haves for creating effective and efficient in-house dispute management processes:

1. Understand the Current Dispute Landscape

No matter what your current process of handling dispute is, you need to take a look at the current landscape of your disputes. This is necessary to benchmark your company at its current state and to identify any potential gaps that are causing disputes. Take the time to go through factors like your current win rate, how much revenue is lost to disputes, if there are any prominent reason codes you are receiving, etc.

The information you find can tell you about what fraud your company faces. Only winning a small amount of disputes? That probably means that your company is receiving a lot of true fraud. Which is when a fraudster uses a stolen credit card to make a transaction. On the other hand, are you winning a large amount of disputes? This means you are getting hit will friendly fraud and chargeback fraud disputes.

For subscription or recurring billing merchants selling physical goods, the nature of subscription billing makes it important to be aware of both chargeback fraud and friendly fraud disputes.

Chargeback fraud is when a cardholder is taking advantage of the dispute process to try and gain the funds back from a transaction while still retaining the product received. For example, a cardholder could have been meaning to cancel their subscription and totally forget to. Instead of just paying another month or trying to work with the merchant they dispute the transaction.

Friendly fraud is when a cardholder disputes a charge over a misunderstanding or forgetfulness. Mistakes as simple as a cardholder not recognizing the merchant descriptor can cause a friendly fraud dispute.

Try to find patterns in the dispute or reason codes your company receives. Put yourself in your customer’s shoes and try to understand their motive or situation for disputing that charge. Then when pinpointed, make the necessary changes to prevent those disputes. Maybe a solution is to send out a reminder email about the recurring transaction a couple days before it happens to prevent both chargeback fraud and friendly fraud.

2. Building the Right Team, Building the Right Resources

It is necessary to create and dedicate resources to managing disputes. The first resource that should be calculated is how many part-time or full-time employees need to be dedicated to managing disputes.

The next step is to gather a knowledge base and give your employees access to all the required sources to make a dispute response. The knowledge base is required because each reason code has specific evidence that needs to be followed to make a winning response. Some companies may make templates for their knowledge base, others may use an Excel sheet process, and some will use automated software. To create a knowledge base requires research into reason codes, transaction modifiers and other card network rules.

3. Track Progress

After your new in-house dispute management system is set up, you will need to track several metrics in order to learn even more about the company’s dispute ecosystem and how the ecosystem impacts overall business operations. Here are some of the most basic metrics you will need to track across the dispute resolution process:

  • Dispute ratio
  • Dispute ratio by processor
  • Dispute ratio by network
  • Win rate
  • Win rate by processor
  • Win rate by network
  • Revenue recovered
  • Lost revenue
  • Breakdown of reason codes seen
  • Breakdown of reason codes seen by network
  • Products frequently charged back
  • Customers who frequently dispute
  • Geolocation of customers who dispute purchases
  • Hot spot mapping of dispute volume by Zip Code
  • Volume of dispute by bin
  • Volume of dispute by card network

This was a general overview of creating an in-house dispute process. If you would like a deep dive into creating this process you can download our Manage Chargebacks In-House eBook.