Accenture published a 2017 report that highlights 10 Mega Trends Driving the Future of Payments. And while reading the opportunities (and challenges) that banks and payment companies will experience, we couldn’t help but ask ourselves ‘How will these trends have an impact in how merchants resolve disputes?’ This article will provide summaries of Accenture’s 10 Mega Trends and a brief analysis that attempts to answer this question.
Mega Trend #1: Gen Z is Rising
So, who’s Gen Z? This generation consists of the younger siblings of Millennials. Unlike their older counterparts that embraced the early stages of digital media, Gen Z was genuinely born into digital media. You may have heard of Gen Z being called ‘iGen’. That’s because their first baby steps more than likely involved a rattle in one hand and a smartphone in the other.
Sixty-nine percent of Accenture’s Gen Z respondents use mobile banking apps daily or weekly. The consulting firm compared their responses to the Baby Boomers (A.K.A., Gen X). And the results showed only 17% of Baby Boomers share Gen Z’s frequency in mobile banking apps. The trend is expected to widen the gap, as Gen Zers continue to handle payments, transactions and transfers while ‘on-the-go’ to wherever they’re going.
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So, what does that mean? Will Gen Z file disputes more so on mobile apps?
That’s possible. We already explained how easy it is for cardholders to commit chargeback fraud with their own issuing bank. Imagine how easy it will be for Gen Zers to file disputes on a mobile app. I recently had to dispute a transaction on my Wells Fargo app after being charged twice at a parking structure (i.e., Visa Chargeback Reason Code 12.6). And I’m an outdated Millennial who prints event tickets instead of using the Apple Wallet.
Mega Trend #2: UX is the New Gold
Accenture also dubs Gen Z as the “see now, buy now” generation. They want immediacy just as much as they want a unique user experience (UX). In fact, Accenture discovered that roughly 61% of consumers welcome open access to their finances. This does not suggest that consumers don’t care about who is handling their transactional data. But it does show consumers are more open in having different parties process their transactions in exchange for a quick and seamless purchasing experience.
Payment providers and banks are doing their part to meet this demand. But this golden, UX experience can only go as far as the merchant being able to authorize this type of transaction.
So, what? Does that mean I need to adopt every quick-payment technology currently available and in the future?
Well, maybe. But the amount of technology (and its efficiency to authorize transactions) will depend on the needs of your market. For example, retailers and subscription box startups can bring their UX experience to a whole new level with ZapBuy. This allows consumers to hold their smartphone over any display ad on any media platform, and make a purchase.
Very nice. Quick money. But how does that relate to dispute resolution?
There will be a strong emphasis on the quality of products and services being sold. You can expect a wave of Discover Chargeback Reason Code RM if there is any deficiency or a ‘not as described’ element in the filed dispute. And let’s not forget about the damage that can be done by fraudsters. After all, it will be very easy for them to make a fake display ad with your company name and brand logo. Think of this as the next evolution of phishing scams.
So, take precaution in protecting your user experience while you are enhancing it.
Mega Trend #3: Mobile Hits Its Groove
This trend is a combination of the last two trends. Consumers are performing more mobile finances. And they want a UX that fits their needs in any given day and any given scenario.
Sixty-four percent of consumers said they plan to use a digital wallet in 2020, according to Accenture. Forty-six percent of Accenture’s respondents currently use digital wallets. That shows digital wallet usage receiving a 39% increase in the year 2020. And let’s not forget the 23% of respondents who would give up their mobile banking apps in exchange for a digital wallet (Mega Trend #1 appears to have its limits).
This calls for a growing demand of APIs to transfer payment information from the issuing bank to the merchant—and all payment intermediaries in between the exchange.
All right. Digital wallets are a hot item. How does that (again) relate to dispute resolution?
A digital wallet consolidates all payment information into one place for the cardholder. But unlike its physical counterpart, a digital wallet saves cardholders time and energy from pulling out a plastic card. In a nutshell, it’s convenient for them. And that convenience will shift more liability toward the consumer when it comes to transaction authorization.
Think about it. An all-in-one source of anything will bestow some form of responsibility and accountability onto the gatekeeper. It may most likely be presented in a long, detailed legal notice on a smartphone. And security measures such as Face ID and finger recognition will make it difficult for fraudsters and friendly fraudsters to authorize a transaction without the cardholder’s consent. So, who is the primary gatekeeper of the digital wallet? It’s that growing Gen Zer and Millennial (and some Baby Boomers here and there).
But that liability shift will not completely relieve merchants from all accountability. You need to make sure that your EMV terminal is up-to-date in security and processing. That last thing you want is to ‘drop’ an API in mid-transaction or have some hacker gain access to your EMV terminal. You can expect American Express Chargeback Reason Code F31 and Visa Chargeback Reason Code 10.2 to be added in your records.
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Mega Trend #4: Rewards Revolution
Remember when either you or someone you know expected a reward for the little things? Now more than ever before, consumers want rewards just for being a participating customer. Forty-eight percent of Accenture’s respondents are willing to switch banks if their competitors offer more value for their purchases.
But the high-demand for rewards doesn’t mean consumers want any generic reward. They want a reward that is most relevant to them, whether it meets a lifestyle or a financial habit. For example, I like how my bank gives me an extra buck or two whenever make a transaction.
And how does this relate to disputes?
You may be aware of the significance of rewards programs. This can reduce the likelihood of a dispute. Especially when customers are willing to authorize recurring transactions while earning a few points, credits or items for their participation. And these rewards will have a stronger impact if you tailor rewards to their needs.
But you can extend the impact of rewards programs beyond transactional affairs. For instance, you can reward Gen Zers and Millennials for participating in an experiential or word-of-mouth campaign. Boston Market tried this method. They encouraged consumers to visit its locations and scan QR codes in order to win a trip to Maui. The execution of rewards programs is always changing. But you can expect that it needs to be more mobile (and relevant) for Gen Zers and Millennials.
Mega Trend #5: The Network Effect
All of this demand for mobile payments and immediate purchases requires a lot of collaboration. And that is only possible when the affiliated parties enable Open Authorization (OAUTH), so that data can reach from point A to point D.
Like any network effect, its growth can expand exponentially when big players reform their business model. According to the Accenture report, “MasterCard and Visa have expanded the use of partnerships, open APIs and other tools and technologies to deliver more customized and cross-device payments experience.” That will inevitably trickle down to its partnered banks, followed by payment technologies, smartphones, merchants and so on within the ecommerce market.
But this is nothing new, right? Merchants like me are already enabling OAUTH in one form or another.
That’s true. But enabling OAUTH will only fulfill (at least) half of the network requirements. You will need to continue business with due diligence in order to earn the “customized…payments experience” that Accenture reported.
An expanding network means a dispute has more opportunities of being filed. All it takes is one glitch from a payment processor or an oversight from a partner to make that happen. This will signal a growing need to analyze and flag any deficiencies that arise in areas such as transaction authorization. No, I take that back. I mean especially in transaction authorization if you want to earn mobile revenue from future Gen Zers.
Mega Trend #6: Fintech and Payment Fusion
This trend is more of an extension to the last trend. And its main takeaway is big banks and payment providers are starting to think like fintechs while partnering with fintechs. Fintechs still have the benefit of being a disruptive industry. But Accenture points out that the “Achilles Heel” of fintechs is the lack of infrastructure. They can revolutionize how payments are immediately authorized via mobile. But its popularity will hit its peak if there is nothing to support its growth.
Accenture recommends future partnerships in order to combine fintechs’ disruption and the banks’ infrastructure. The demand for a disruptive infrastructure is growing, and you should make plans to embrace this method.
Think like a fintech. Be a disruptor. Disputes tend to be filed by a mixture or conventional and radical strategies. That will bring a mixture of conventional and radical cardholders who are tempted to commit friendly and true chargeback fraud.
There is no fixed approach in being disruptive. But sometimes it’s the most basic things that will keep you ahead of preventing disputes. For starters, be a little more upfront in your newsletters and automated emails. Let your customers know, in a unique message, that they can always contact you if they ever think about disputing a transaction, product or service. Stay updated on the latest fraud and chargeback trends whenever it’s a in white paper. You will be surprised on what you can learn—and what you can do to plan accordingly.
Mega Trend #7: An Arms Race in Code
Accenture predicts that the tokenization and EMV encryption of payment data will soon kill the physical credit card. But that’s not only because cardholders and finding it more convenient (and much faster) to authorize transactions via smartphone. Most transactions, and eventually all transactions, require tokens to be generated. And that token makes that transaction valid only on the website the cardholder is e-shopping. That makes their payment data useless if a hacker attempts to steal and reuse it on another website.
This will inevitably force banks to take a different approach in managing this emerging payment credential, according to Accenture. You may already know who will soon be affected by this trend.
Yeah, me. But how will this affect dispute-related matters?
Think of an API token like an arcade token. And imagine a hacker stole this token from a random cardholder. He can’t use this token on another website for the same reason a Chuck-E-Cheese token is invalid at Dave-N-Busters. The token is good at one location and for one purpose: to buy the best products and services a merchant can offer on her website. And depending on the hacker’s technical skills, he may not be able to decrypt the token and steal the cardholder’s information.
Your worst-case scenario is that the cardholder may dispute the transaction for being partially authorized (e.g., MasterCard Chargeback Reason Code 4853). You will simply need to provide compelling evidence that you never received the token that authorized the cardholder’s transaction. But that’s just one of many scenarios that can occur. At least the tokenization of payments can potentially favor you with payment processing and security.
Mega Trend #8: Payments Everywhere
This trend is pretty much a confirmation of anyone and everyone can become a merchant. Whether it is PayPal or Venmo, cardholders can easily make payments among themselves and with merchants while ‘on-the-go.’
Mobile payments are device-enabled, not location-based. That will force banks and merchants alike to be more flexible wherever and whenever cardholders want to send you money.
I know. And it’s exhausting. Can’t a merchant just go ‘all-mobile’ to resolve this dilemma?
You can. But that doesn’t mean your customers will initiate mobile payments all the time. It really boils down in knowing how your customers are authorizing payments. This includes knowing the difference between how your loyalists and newcomers authorize payments, and where are they authorizing payments. Amazon? PayPal? Chase Pay? WeChat? The list may be endless. But your customers eventually gravitate to their most preferred payment methods. But don’t expect that to remain the same forever.
Mega Trend #9: Fraudsters Innovate Too
It may seem obvious. But it’s important to have that motto stored in the back of your head. No matter how secure or efficient mobile payments become, you can expect fraudsters to tinker with (presumably) multi-layered encryption. Accenture urges banks and card networks to “out-innovate” fraudsters. Especially because synthetic identities are becoming more effective with so much data being available.
So, how can I prevent fraudsters from successfully tinkering with my business?
Mobile payments may happen electronically. But every cardholder lives at a physical location. And let’s not forget how effective IP addresses are in verifying the electronic transactions. Every device has an IP address. It will be very beneficial on your end to get to know your customer’s devices. Do they search for products and make purchases on their smartphone? Or do they search for items on their smartphones and then make purchases on their desktop?
This may seem like a daunting task. But I can assure you that this will help you understand the difference between your true customers and synthetic ones that were created by fraudsters.
Mega Trend #10: Rip and Replace Required
Build it up. Tear it down. And build it stronger than ever before (and expect to tear it down, again). That’s a very condensed paraphrase to describe Accenture’s recommendation for banks to overhaul its current systems. The consulting firm rightfully argues the need for banks to become flexible with API integration and third-party intermediaries. The growth of mobile payments are inevitable. And they are only going to become faster. I won’t be surprised if cardholders are empowered to authorize transactions with a blink of an eye.
So, it is natural for entities of all sizes to collaborate and ensure these payments are supported with the right disruptive infrastructure. This disruption will never be concealed to one bank or one card network. It will require all of us to participate because—as cliché as it is—this disruption started from the consumers. And it will continuously be renovated by Baby Boomers, Millennials, iGen and the unknown generations of the future.
Amen. So, what do you recommend?
Tear up these recommendations in the near future. And we will provide you the most updated advice there is in handling future disputes.