During development of a recent white paper on handling customer exceptions (here), my team developed the ‘seven golden rules for issuer chargeback management’. Ultimately these are all logical consequences of a well-run card issuing business and require little else than pragmatic process to be employed by issuers. However, in our industry with all its mystery, it is often the simple stuff that gets forgotten.
Rule 1: Avoid claims, or at least minimize their numbers
However, achieving this is not so simple. The first port of call should be customer and merchant education. Significant volumes of online commerce-related claims could be avoided if customers and merchants are advised about the best practices for transaction handling. Special attention needs to be focused on security aspects, the rationale for deploying 3D-Secure with dynamic passwords. Helping clients to understand their rights and how best to go about receiving them – work with consumer organisations to promote good commercial practices.
Rule 2: If you can’t negate, automate!
There will always be some level of exceptions to be handled – this is a fact of life in any human system. However, from a customer service perspective, and directly impacting your bottom line, it is imperative that your processes are lean and optimised, and that any IT software tool technologies supporting the claim management systems work in harmony with your staff. In many issuer or acquirer systems the gap between paper-based work and redundant data entry procedures and the state-of-the-art rules-based workflow management systems has not yet been bridged.
Rule 3: Know your costs
While redefining the work organisation or adopting new support tools we should keep in mind that a predominant element impacting any issuer or acquirer profitability is the cost of staff allocated for claim management. Claim management activity requires highly trained experts who should be focussed on the transactions where you stand to lose most. Their job is to either try to contest the received transaction presentments that are paid by the claiming customer (Issuer side) or to contest the chargebacks (Acquirer side). However, if you have no understanding of the cost of processing a single claim, understanding where to direct your resources is impossible – this includes call centre costs, scheme costs, administration, regulatory filings, and other elements essential to getting a result. Essentially, if it costs 25 EUR to process a claim worth less than that, why not automatically write off the claim? So at first sight you may think that a total suppression of a claim management department would be the best solution. Evidently in such a case all other players within the card payment systems and worldwide would quickly attack you and lead your company to bankruptcy. Consequently if we cannot avoid it we should at least make it cost efficient – and understand what those costs are. The claim management staff should therefore be focused on decision making while minimizing any repetitive or manual data handling, but also on ensuring that risk parameters are managed within any automated environment. Integration of claim management systems with all other card management and transaction management system is a key to success which should go evidently in parallel with the accurate and fast reactivity to the customer questions. This will generate two benefits: lower processing costs and higher customer satisfaction. Simple entry-level solutions typically reduce man-power needs by 30%. More integrated and sophisticated tools may halve the costs. Select your tool based on your volumes and the potential to gain a quick ROI.
Rule 4: Motivate your claims staff
If you win a claim, invariably this means a win for your customer. This customer factor needs to be considered when introducing automation. While the entire process cannot be automated, the human effort needed in the process is more interesting and challenging – but more than that, they are customer champions. The vision is of a smaller, better qualified and more engaged team backed up by tools that can handle the process, but likewise the tools need to be backed up by motivated and engaged staff. For example, a major player handling over 10,000 chargebacks per month typically employs over 50 people to process the paper. Automate this and the numbers drop to between 20 and 30 staff handling the same chargeback rate. The same figures hold for small and medium players seeing chargeback departments halving headcount, retaining the best and most qualified staff to handle the interesting work, but this change needs to be delivered in a positive way – demonstrating progress rather than replacement.
Rule 5: Communicate!
The automatic refund component of a chargeback claim is often hidden from the cardholder – a fact not unnoticed by regulators and now a fundamental rule built into both EU and US payments legislation. Don’t wait for consumers to ‘discover’ their rights, set out your stall to tell them it is OK to talk when things aren’t right – but more importantly ensure that you are ready to facilitate them in a profitable way.
Try to make your claims process visible at all stages – customers have warmed to the online channels providing information and sharing the status of a claim, regardless of complexity or positivity. This is what the customer of today calls for.
On the issuer side, you will invariably refund immediately and then fight the chargeback battle – let the customer know this, so that if the battle is lost and you have to undo the refund, it doesn’t come as a surprise. And if you succeed, let them know (even if this comes months after the initial credit) so that they increase in confidence that the process works. Sharing is caring!
Rule 6: Recover costs at every point
If you are the ‘victor’ in a claim, you are invariably able to reclaim the amount, but not usually your costs (see rule 3!). However, there are many mechanisms that can be put in place to ensure that the costs of the claim do not translate into costs for your organisation even if the claim is unsuccessful.
Directly charging your customer is rarely an option. EU legislation provides for this, but demands efficiency in return – other legislators frown upon direct charging. Scheme rules also vary. The most common ways of recovering costs typically come out of the prepaid market, where the ‘pay-as-you-go’ model is well accepted. In this space there are a variety of methods of upfront charging from direct ‘pay to claim’ through ‘pay if you fail’ and even less obvious premium rate telephone lines for claim services. There are also examples of companies using premium rate SMS confirmation for a claim action so that the charge is disassociated by the consumer. Regardless of your method, rule 5 still applies. Transparency usually leads to more satisfied customers.
Rule 7: Take fraud seriously
One of the largest contributors to exceptions claims is the proliferation of fraudulent transactions throughout the payment lifecycle. Organisations that implement preventive and responsive anti-fraud solutions typically experience lower chargeback levels than other organisations. The best fraud protection is ‘woven in’ to your system – from a strong card profile and PCI DSS adherence through to well-informed claims management staff and extensive cardholder information, fraud prevention is the best tool in preventing many exceptions entering your system.