**UPDATED - Originally published December 19, 2019**
Dispute management is necessary for every company that wants to prevent fraud and protect hard-earned revenue. There are three core types of dispute management software that help merchants prevent and manage disputes - and they work best when used together. The three core functions of dispute management software are:
- Stopping True Fraud Disputes
- Stopping Friendly Fraud and Chargeback Fraud Disputes
- Responding to Disputes
Merchants can create a robust dispute management process by utilizing all 3 types of software.
Stop True Fraud Disputes
True fraud happens when a fraudster obtains stolen credit card credentials and successfully uses the credit card at a merchant's store or site. This results in the actual cardholder disputing the charge as a fraudulent purchase. Once a merchant receives a true fraud dispute, they are unable to win it because it is the merchant's responsibility to prevent fraudulent transactions from being accepted.
To prevent fraudulent transactions from being processed, many merchants use fraud filters that identify potentially risky orders. Fraud filters are customizable and can be based on your industry, customer behavior, and other factors. Filters can be layered on top of each other in a specific order. These filters can include:
- A Daily Velocity Filter: This filter limits the number of transactions that can be processed in a day from the same IP address.
- Shipping and Billing Mismatch Filter: This filter identifies a transaction that is submitted with different shipping and billing addresses.
- High Ticket Purchase Filter: This filter notifies when a purchase is above a set threshold.
- IP Address and Shipping Address Mismatch Filter: This filter compares where the order is coming from compared to the shipping address provided.
These are examples of just a few of the possible filters that can be put in place. A filter can trigger a couple of actions to happen, depending on how the merchant sets it up. It can instantly reject the purchase from happening, send it to a manual review, accept the purchase, or just send it to the next layer of filters.
By preventing fraudulent purchases from happening, merchants can lower their dispute rate and prevent unwinnable disputes.
Many front-end fraud prevention providers offer dispute “protection” or guarantees. What most merchants don’t realize is that these protections only extend to true fraud disputes. That leaves your company vulnerable to friendly fraud and chargeback fraud disputes.
Stop Friendly Fraud and Chargeback Fraud Disputes
Friendly fraud and chargeback fraud can't be stopped with front end fraud filters because these fraudsters are your actual customers. Friendly fraud happens when a cardholder disputes a purchase accidentally. This could be caused by simple forgetfulness, an unclear merchant descriptor, or a family member making unknown purchases.
On the other hand, chargeback fraud is when a cardholder maliciously disputes a charge to regain the transaction amount while still retaining the goods or services. Chargeback fraud can happen when a customer has buyer's remorse, is frustrated with a return policy, wants to sell the product for profit, or many other reasons.
So, how can merchants prevent friendly fraud and chargeback fraud from happening?
Chargeback management software is the answer. The right software will utilize Visa Merchant Purchase Inquiry (VMPI) to limit friendly fraud. With a VMPI integration, merchants can provide detailed company, customer, order, and product information to card issuers automatically. The response details are rendered in the issuer's system so both customer service representatives and customers themselves can quickly review and discuss. The customer service representative can then use transaction details to decide if the dispute is invalid and prevent it from being filed.
In cases of friendly fraud, the additional data often helps jog the cardholder's memory about the purchase. And in cases where the cardholder is trying to intentionally misuse their chargeback rights, the extra layer of confirmation acts as a critical deterrent from proceeding with the dispute.
Respond to Disputes
Friendly fraud and chargeback fraud disputes are invalid disputes. This means merchants can regain the transaction amount by submitting a dispute response document that disproves the cardholders' claims. The last function of dispute management software allows merchants to create and respond to invalid disputes efficiently.
In the past, merchants relied on homegrown processes to respond to disputes, which included a lot of spreadsheets and copy+pasting. Now, with automated dispute response software, merchants can link data, automatically import information based on the reason code and transaction modifiers, and create an aggregated dispute response document in seconds.
This software links data from an initial transaction across all other business services to get a full, instant view of a dispute. Dispute response software automatically imports order information, shipping updates, payment information, and more from a full commerce stack, and instantly links it all together using a common database.
Then, the transaction data that is tied to a dispute is pulled and aggregated in one place. Since every dispute is unique, the software automatically populates a detailed response that is adjusted for each case. It processes all of the compelling evidence from your account integrations and builds it into a single, perfectly formatted document. Response text and imagery are configured to address each card networks' rules and regulations to ensure the most compelling evidence is presented for each reason code, transaction modifier, and industry.
For most companies, the "expert system" (aka the source of all the dispute response knowledge and process information) is one single person. This may put your company in a bind if your expert system changes roles or leaves the company. Not only does dispute response software make responding easy, but it also secures your dispute response team's knowledge and efficiency even if a key player leaves.
Dispute Management Software Working Together
The combination of these three dispute management software functions covers all the bases when it comes to disputes. By putting front end protection and chargeback management software in place, you can prevent disputes from ever happening, which keeps your dispute ratio low. For the disputes that do happen, having an efficient and effective dispute response process helps merchants respond to every dispute with the correct evidence to regain revenue.
To learn more about how dispute management software can benefit your company and the possible ROI, you can schedule a demo with one of our dispute experts.