Industry Experts Wonder If Chargeback Process Changes are Enough

Friday, June 28th, 2019

About a year ago, the payments industry was buzzing with news over Mastercard and Visa’s announcements that both companies would be making changes to the chargeback process. However, fast forward to today, industry experts are questioning whether these changes are enough, and merchants are wondering if they will need to take matters into their own hands.

Visa Inc. was the first to share its plans to roll out a new initiative to update, modernize and streamline chargeback procedures and the dispute-management process. Later on in 2018, Mastercard followed. The company began making changes by rolling out its Mastercard Dispute Resolution (MDR) program.

For both companies, the process is ongoing. But they share the same goal: simplify the chargeback process, and bring disputes into the 21st century. Why are these overhauls necessary? The answer appears to be ever-changing technology and ecommerce.

The Chargeback Process

The chargeback process itself has been around for some time – more than 40 years. While the way the industry handles disputes has stayed much the same, the market has changed dramatically. This disconnect has become a very costly problem.

In addition, the initial chargeback process was created and developed pre-Internet. Thus, it was not designed with ecommerce in mind. This is one of the big reasons why companies today are struggling with the costly fraud source called “friendly fraud”. Friendly fraud occurs when a customer files a chargeback without proper justification, which leads to sales disputes and merchant losses.

Why Friendly Fraud Flourishes

Whether the individual is motivated by buyer’s remorse or genuinely mistakes a legitimate purchase, the effects are the same. The merchant loses in the end. There are several key reasons why friendly fraud has flourished in recent years:

• Pace of change – The rapid development of technology has simply left chargeback procedures out of date and unresponsive to current market conditions.
• Customer entitlement – The contemporary customer expects a lot from their experiences and purchases. If they are unsatisfied, they may jump to filing a chargeback.
• Inconsistent standards – Merchants struggle to keep up with each card scheme, which has its own complex system of rules and procedures.
• Increased use of payment cards – Today, there is a widespread use of payment cards. As a result, transaction volume, and therefore disputes, is much higher.

Visa and Mastercard Policy Changes

Visa’s Visa Claims Resolution (VCR) and Mastercard’s MDR initiatives seek to modernize the chargeback process and improve the situation for merchants and customers. Some of the biggest changes include new workflows, new reason codes and new processes. Both companies are also implementing new uses for existing tool and new timelines. The new timeline would involve time reductions for cardholders, banks and merchants to initiate and resolve a dispute.

What Merchants Can Do Now

Unfortunately, neither of these initiatives really addresses the core issues with chargebacks: friendly fraud. The longer the industry goes on without universal rules and procedures, the worse the situation will get. Meanwhile, merchants carry the heavy burden of preventing friendly fraud.

In an effort the handle the situation themselves, many merchants are taking a second look at their merchant account provider. Some providers offer chargeback protection and prevention programs that assist merchants in being proactive when it comes to friendly fraud. The key is to choose a provider that specializes in working with your business type and industry.

If you would like to learn more about friendly fraud, how to manage it, or find a new payment processing provider, consider the helpful reviews and information Best Payment Providers has to offer.