Dispute management is necessary for every company that wants to prevent fraud and protect hard-earned revenue. There are three core types, or functions, of dispute management software that helps merchants prevent and manage disputes. However, these types should not operate independently. In fact, when used together, merchants can have the most robust dispute management process possible.
The three core functions of dispute management software are:
- Stopping True Fraud Disputes
- Stopping Friendly Fraud and Chargeback Fraud Disputes
- Responding to Disputes
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. Which is why merchants should use front end software such as fraud filters.
Fraud filters are a tool used by merchants to help assess if a purchase is fraudulent. These fraud filters are customizable and should be based on your industry, customer behavior, and other factors. There are many layers or filters that can add on top of each other and 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: Which compares where the order is coming from compared to the shipping address provided.
Those are examples of 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. A filter can instantly reject the purchase from happening, it can send it to a manual review, it can accept the purchase, or it may 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. Which means that friendly fraud and chargeback fraud disputes can still cause problems.
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 on accident. 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, among other reasons. So, how can merchants prevent friendly fraud and chargeback fraud from happening?
Visa Merchant Purchase Inquiry (VMPI) is the answer. With a VMPI integration, merchants can provide detailed company, customer, order, and product information to card issuers on-demand. 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 use transaction details to decide if the dispute is invalid and prevent it from being filed.
First, the cardholder contacts their issuing bank about a specific suspicious transaction. Then, the issuer locates and confirms the purchase in question. At this point, transactions from merchants enrolled in VMPI offer agents and customers the opportunity to view additional details. Through the VMPI integration, a response is generated that contains merchant, product, and line-item details within seconds.
In cases of friendly fraud, the additional data 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.
When VMPI was initially released, it was only possible for merchants to go through Visa directly. This caused a problem because there was limited staff and availability, which narrowed VMPI's scope to only large merchants. Because of this issue, Visa introduced VMPI facilitators that provides merchants of all sizes the ability to connect to VMPI.
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 will be pulled and aggregated all in one place. Not only is the data aggregated, but it's aggregated intelligently. Every dispute is unique, so the software automatically populates a detailed response 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. Which 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 VMPI in place, you are able to 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.