The reduction of the timelines for dispense errors, refund complaints by CBN effective June 8, 2020, was a happy point for cardholders as this further increases the rapidity at which they are re-instated for unsuccessful transactions especially when performed on the issuer’s terminal.
It is therefore safe to establish that various stakeholders in card business such as the card schemes, switches, acquiring and issuing banks have integrated this adjusted timeline to ensure cardholder complaints are resolved within the stipulated period as provided by the regulator.
However, the intricacies have become an issue of deep concern for financial institutions that shoulder this responsibility of handling issues of dispense errors and refund complaints for their cardholders. Card dispute management is a core and sensitive area integrated into bank operations as cardholders should find it convenient to dispute transactions that are truly unsuccessful; it is therefore the responsibility of involved parties to determine and develop rules and policies that govern the chargeback process with CBN playing a major role.
As much as the regulator strives to protect the interests of cardholders ultimately, the interest of banks and other responsible parties should be reasonably considered as seeming negligence is amounting to serious financial loss to banks.
The card dispute link is gradually being weakened by the challenges and issues captured later in this piece
as banks are inadvertently spending more time trying to contain the outcome of false disputes not timely attended to by acquirers. It is therefore unarguably salient to further review, discuss and come up with a wholesome approach that would create a balance between providing undisputed quality services to cardholder whilst protecting the interest of financial institutions.
Let us get to understanding what “chargeback” really means and the parties involved.
Chargeback Defined – A chargeback is a transaction reversal meant to serve as a form of consumer protection from fraudulent activity committed by both merchants and individuals.
Parties involved in the Chargeback Process
For clarity and concise understanding, this will be limited to Issuers, Acquirers Merchants, Cardholders by extension, and the switches.
The Merchant
The Merchant often also called “The Acceptor,” is the vendor to the consumer. The Merchant sells goods or services to the cardholder and accepts card payments. Typical examples are restaurants, hotels and shops equipped with POS payment terminals.
Switch/Processors
An organization that switches and routes transactions involving multiple issuers, acquirers, transaction types and card types.
Issuer
The issuer provides payment cards to the cardholder. Some examples include credit and debit cards. The issuer is ‘the underwriter’ of the account. That means it is responsible to disburse funds from the customer to the merchant.
Acquirer
The Acquirer is the financial system that provides the Merchant the tools needed to accept payment cards. The acquirer can be a third-party system that is not directly the bank where the merchant has an account. In general, the Acquirer will provide hardware and software to the Merchant and allow the Merchant to process transactions. The Acquirer must manage the final return codes (return authorization codes or not) from a transaction. The Acquirer will be responsible for authorizing the Merchant to deliver a good or service.
Customer
The customer is a cardholder who makes a purchase with a merchant. There are several reasons that a cardholder will file a dispute. In this context, we will be focusing on “goods and services not received/value not given”
Concept of False Disputes
Successful and approved transactions deliberately being disputed by cardholders.
The issues:
I. Cost: Most dispute management portals
(Issuer and Acquirer Processors) charge for each transaction disputed on their platform. This obviously translates to banks bearing costs for falsely disputed transactions and other losses relating to human resource, time, and effort. Hence, ensuring disputes logged on these portals are genuine would invariably translate to cost-saving from the banks. Though it is unmistakably the responsibility of the issuing bank to file for chargeback for her cardholders, it will be of a greater benefit that cardholders make it a point of duty to only dispute genuine unsuccessful transactions and not put banks under exposure and increasing the friction in inter-bank relationships.
ii. Trust: Among other core values that sustain wholesome banking relationships involving various players and parties, TRUST stands out. It is the point that engenders commitment and consolidates
decisions. The quest however for financial service providers is directed at further intensifying this trust in terms of being a custodian to customers’ funds, financial advice and assisting them put their monies to better use and most importantly timely resolving issues with usage of services channels card usage issues.
An effective dispute process is one good way of promoting customer retention. A cardholder should be confident to use your card and channels provided that when it fails, there is a timely and transparent dispute process that sees to protecting cardholders’ interest per time.
iii. Improved Resolution Time: Disputing the right/genuine transactions will mostly reduce the time and resource spent on false disputes which would translate into improved Turnaround Time (TAT) as focus is channeled to transactions that were not successful having reduced the influx from the entry point.
This has same effect on the relationship between merchants and their banks. The time and resource vested in declining successful claims could be put to better use such as strengthening AIR (Acquirer Initiated Refunds) a pragmatic strategy of proactively returning funds for confirmed failed transactions on their terminals.
Furthermore, time spent on recall of defaulted claims in the spirit of inter-bank relationship by dispute officers is widening thereby diluting concentration on peculiar customer issues and the drive to continuously improve customer experience in relation to dispute resolution; what exactly is the chase here?
This is fast becoming a trend and the impact on relationships between banks, merchants, switches are adversely being threatened and becoming questionable. The industry is currently under a lot of pressure, ultimately and issue of deep concern as parties are fighting for the interest of their customers and hence must prioritize as much as possible. This is really a pain point.
iv. Bottom line and Integrity of Financial Institutions at stake. Disputes involve movement of funds at different stages and of course is a critical aspect of banking operation. So, in situations where the acquirer is unable to decline and represent disputes logged against them with substantial proof and the chargeback cycles completes – claims default, money moves from acquirer to the issuer the next settlement day for cardholders to be credited even for approved and successful for which values were given transaction point. If at the event of a recall, funds are fully withdrawn and the rapidity of recouping declines, banks would have been in deficit and at the mercy of such Issuer in such recoveries, this would invariably translate to a reduced bottom line as banks keep losing money trying to resolve customer complaints in addition to the exposures triggered by this on the side.
The integrity of financial institutions become rather questionable at the point where some bank-induced measures like liens and debiting cardholder to aid acquirers recoup funds are being explored to aid with the recovery of successful transactions credited back to cardholder via chargeback, the cycle continues and it keeps deteriorating cardholder’s relationship with the bank, increases customers’ complaints and impairs trust.
At this point, the cardholder would feel his/her funds are not safe and the image of the bank suffers for it, as the measures to recoup would raise concerns when debits are passed to regularize if accounts are sufficiently funded. The extended impact of this reflects on cardholders not continuing to use their accounts as they are very aware of their outstanding with the bank having been credited back via chargeback for successful transactions which have now been drawn by them bank loses.
The Exposure
Here is an analogy to buttress further – A cardholder does a cash withdrawal thrice on an ATM terminal (off-us) and one was unsuccessful but duly settled by the switch hence funds moved to the acquirer via settlement next working day. If cardholder does not keep tab on the unsuccessful one, dispute will most likely be raised for the three transactions when complaint is received.
There is however a stipulated TAT for acquirers to respond to claims raised against them via designated dispute platforms. When this timing elapses and they are not able to represent the successful ones due to explainable challenges, claims will default, and cardholder will be credited again for same already given value for. After settlement, debit is passed to the acquirer for those successful ones that defaulted, a recall process is usually initiated and, in most situations, funds would have been fully withdrawn by cardholder and acquirer will be at the mercy of the issuer.
This constitutes an exposure to banks as dubious cardholders will deliberately raise dispute for successfully consummated transactions with an expectation of claims defaulting.
We have seen from experience instances where dubious cardholders capitalize on this seeming loophole and deliberately continue to raise false disputes with such intentions.
The effect?
From the foregoing, the estimation of the cost attributed to the shrunk TAT since advised to banks which is the contention of this research is rather ridiculous. I strongly believe it is worth the attention and requisite consideration more appreciative balance between stakeholders’ interests is clearly a road map to harmonize relationships and equally share liabilities inherent in the dispute process.
Way Forward
In as much as we advocate for service quality and want to ensure cardholders’ complaints are resolved timely, we must also protect the interest of service providers banks as basing considerations to capture solely customer interests will lead to abuses that will invariably translate to loss of funds for banks as we keep chasing them to recoup settled and successful transactions that defaulted against acquirers.
It is true that customers are kings, how about wrong/dubious ones? This grey area can be addressed by a well-articulated policy tailored to better protect the interest of banks, reducing their losses via disputes to the barest minimum.
The goal is to reduce false disputes. In the light of this, the bulk of complaints that are captured from the business offices and other dispute entry points become genuine and increases the level of trust between responsible parties amongst other resources that would be saved in the process.
Why We Need to Charge for False Disputes
From the foregoing, it becomes worrisome to estimate the volume of funds trapped in the recall process for banks across various dispute categories, what really happens at the end of each financial year? Do banks write them off to ascertain their true financial position; Are the net positions settled within banks based on relationships? Do they write off to the tune of the fully withdrawn funds that have limited chances of being recouped as they do for bad debts and non- performing loans?
Funds unduly trapped in this category invariably has a downward impact on the overall bottom line of any financial institution. There is therefore a need to ensure that false disputes are reduced and the regulator – CBN has a major part to play.
I would strongly propose that CBN in partnership with major stakeholders and industry players agree on a deterrent control in the form of a fee chargeable to cardholders on false disputes. This strategy effectively will reduce the influx of false disputes as most in that category are results of deliberate actions.
The proposed charge would serve as an integrity check and improve the commitment in keeping logical
tabs on unsuccessful transactions by cardholders to enable them only raise dispute for transactions that were truly not successful.
A bank’s true position is determined at the end of each profit year and the overall objective integrates cost- effective strategies focusing on increasing shareholders’ wealth by taking calculated risks and utilizing opportunities; it is therefore expected that they continuously review existing processes and improve on them to maintain competitiveness keeping time, cost, and quality in perspective.
Full-fledged Sensitization:
It is very pertinent that bank resource persons are trained as appropriate to enable them to communicate effectively to cardholders the consequences of raising false disputes. This approach overtime is bound to have a ripple effect on volume of complaints logged and more time and resource can be vested in resolving genuine disputes.
Furthermore, a dedicated dispute team should be put in place and re-sensitized based on this trend to ensure claims are declined rightly with valid evidence as this would make more effective the revised CBN policy and not extend TAT for claims; the rapidity of claims defaulting will be minimized.
From a dispute processor’s perspective, the newly advised TAT by CBN has stemmed a lot of pressure both on banks, merchants, and switches. It is unarguably a good cause from a customer viewpoint and with some fine-tuned inputs from big industry players like NIBSS in reducing the rate of transaction failures, the chargeback process will somewhat become seamless.
On the flip side, banks are losing out in the face of untimed challenges in responding to disputes within TAT given to the false disputes that will default which translates to funds being trapped in recall processes. At this point, it becomes pertinent to communicate that if charging for false disputes is not an option, then the exposures inherent in the already existing process should be painstakingly reviewed and strict strategies be put in place to curb it.
Impact of CBN Revised Timelines for Dispense Errors, Refund Complaints on Banks – The Concept of False Disputes
The reduction of the timelines for dispense errors, refund complaints by CBN effective June 8, 2020, was a happy point for cardholders as this further increases the rapidity at which they are re-instated for unsuccessful transactions especially when performed on the issuer’s terminal.
It is therefore safe to establish that various stakeholders in card business such as the card schemes, switches, acquiring and issuing banks have integrated this adjusted timeline to ensure cardholder complaints are resolved within the stipulated period as provided by the regulator.
However, the intricacies have become an issue of deep concern for financial institutions that shoulder this responsibility of handling issues of dispense errors and refund complaints for their cardholders. Card dispute management is a core and sensitive area integrated into bank operations as cardholders should find it convenient to dispute transactions that are truly unsuccessful; it is therefore the responsibility of involved parties to determine and develop rules and policies that govern the chargeback process with CBN playing a major role.
As much as the regulator strives to protect the interests of cardholders ultimately, the interest of banks and other responsible parties should be reasonably considered as seeming negligence is amounting to serious financial loss to banks.
The card dispute link is gradually being weakened by the challenges and issues captured later in this piece
as banks are inadvertently spending more time trying to contain the outcome of false disputes not timely attended to by acquirers. It is therefore unarguably salient to further review, discuss and come up with a wholesome approach that would create a balance between providing undisputed quality services to cardholder whilst protecting the interest of financial institutions.
Let us get to understanding what “chargeback” really means and the parties involved.
Chargeback Defined – A chargeback is a transaction reversal meant to serve as a form of consumer protection from fraudulent activity committed by both merchants and individuals.
Parties involved in the Chargeback Process
For clarity and concise understanding, this will be limited to Issuers, Acquirers Merchants, Cardholders by extension, and the switches.
The Merchant
The Merchant often also called “The Acceptor,” is the vendor to the consumer. The Merchant sells goods or services to the cardholder and accepts card payments. Typical examples are restaurants, hotels and shops equipped with POS payment terminals.
Switch/Processors
An organization that switches and routes transactions involving multiple issuers, acquirers, transaction types and card types.
Issuer
The issuer provides payment cards to the cardholder. Some examples include credit and debit cards. The issuer is ‘the underwriter’ of the account. That means it is responsible to disburse funds from the customer to the merchant.
Acquirer
The Acquirer is the financial system that provides the Merchant the tools needed to accept payment cards. The acquirer can be a third-party system that is not directly the bank where the merchant has an account. In general, the Acquirer will provide hardware and software to the Merchant and allow the Merchant to process transactions. The Acquirer must manage the final return codes (return authorization codes or not) from a transaction. The Acquirer will be responsible for authorizing the Merchant to deliver a good or service.
Customer
The customer is a cardholder who makes a purchase with a merchant. There are several reasons that a cardholder will file a dispute. In this context, we will be focusing on “goods and services not received/value not given”
Concept of False Disputes
Successful and approved transactions deliberately being disputed by cardholders.
The issues:
I. Cost: Most dispute management portals
(Issuer and Acquirer Processors) charge for each transaction disputed on their platform. This obviously translates to banks bearing costs for falsely disputed transactions and other losses relating to human resource, time, and effort. Hence, ensuring disputes logged on these portals are genuine would invariably translate to cost-saving from the banks. Though it is unmistakably the responsibility of the issuing bank to file for chargeback for her cardholders, it will be of a greater benefit that cardholders make it a point of duty to only dispute genuine unsuccessful transactions and not put banks under exposure and increasing the friction in inter-bank relationships.
ii. Trust: Among other core values that sustain wholesome banking relationships involving various players and parties, TRUST stands out. It is the point that engenders commitment and consolidates
decisions. The quest however for financial service providers is directed at further intensifying this trust in terms of being a custodian to customers’ funds, financial advice and assisting them put their monies to better use and most importantly timely resolving issues with usage of services channels card usage issues.
An effective dispute process is one good way of promoting customer retention. A cardholder should be confident to use your card and channels provided that when it fails, there is a timely and transparent dispute process that sees to protecting cardholders’ interest per time.
iii. Improved Resolution Time: Disputing the right/genuine transactions will mostly reduce the time and resource spent on false disputes which would translate into improved Turnaround Time (TAT) as focus is channeled to transactions that were not successful having reduced the influx from the entry point.
This has same effect on the relationship between merchants and their banks. The time and resource vested in declining successful claims could be put to better use such as strengthening AIR (Acquirer Initiated Refunds) a pragmatic strategy of proactively returning funds for confirmed failed transactions on their terminals.
Furthermore, time spent on recall of defaulted claims in the spirit of inter-bank relationship by dispute officers is widening thereby diluting concentration on peculiar customer issues and the drive to continuously improve customer experience in relation to dispute resolution; what exactly is the chase here?
This is fast becoming a trend and the impact on relationships between banks, merchants, switches are adversely being threatened and becoming questionable. The industry is currently under a lot of pressure, ultimately and issue of deep concern as parties are fighting for the interest of their customers and hence must prioritize as much as possible. This is really a pain point.
iv. Bottom line and Integrity of Financial Institutions at stake. Disputes involve movement of funds at different stages and of course is a critical aspect of banking operation. So, in situations where the acquirer is unable to decline and represent disputes logged against them with substantial proof and the chargeback cycles completes – claims default, money moves from acquirer to the issuer the next settlement day for cardholders to be credited even for approved and successful for which values were given transaction point. If at the event of a recall, funds are fully withdrawn and the rapidity of recouping declines, banks would have been in deficit and at the mercy of such Issuer in such recoveries, this would invariably translate to a reduced bottom line as banks keep losing money trying to resolve customer complaints in addition to the exposures triggered by this on the side.
The integrity of financial institutions become rather questionable at the point where some bank-induced measures like liens and debiting cardholder to aid acquirers recoup funds are being explored to aid with the recovery of successful transactions credited back to cardholder via chargeback, the cycle continues and it keeps deteriorating cardholder’s relationship with the bank, increases customers’ complaints and impairs trust.
At this point, the cardholder would feel his/her funds are not safe and the image of the bank suffers for it, as the measures to recoup would raise concerns when debits are passed to regularize if accounts are sufficiently funded. The extended impact of this reflects on cardholders not continuing to use their accounts as they are very aware of their outstanding with the bank having been credited back via chargeback for successful transactions which have now been drawn by them bank loses.
The Exposure
Here is an analogy to buttress further – A cardholder does a cash withdrawal thrice on an ATM terminal (off-us) and one was unsuccessful but duly settled by the switch hence funds moved to the acquirer via settlement next working day. If cardholder does not keep tab on the unsuccessful one, dispute will most likely be raised for the three transactions when complaint is received.
There is however a stipulated TAT for acquirers to respond to claims raised against them via designated dispute platforms. When this timing elapses and they are not able to represent the successful ones due to explainable challenges, claims will default, and cardholder will be credited again for same already given value for. After settlement, debit is passed to the acquirer for those successful ones that defaulted, a recall process is usually initiated and, in most situations, funds would have been fully withdrawn by cardholder and acquirer will be at the mercy of the issuer.
This constitutes an exposure to banks as dubious cardholders will deliberately raise dispute for successfully consummated transactions with an expectation of claims defaulting.
We have seen from experience instances where dubious cardholders capitalize on this seeming loophole and deliberately continue to raise false disputes with such intentions.
The effect?
From the foregoing, the estimation of the cost attributed to the shrunk TAT since advised to banks which is the contention of this research is rather ridiculous. I strongly believe it is worth the attention and requisite consideration more appreciative balance between stakeholders’ interests is clearly a road map to harmonize relationships and equally share liabilities inherent in the dispute process.
Way Forward
In as much as we advocate for service quality and want to ensure cardholders’ complaints are resolved timely, we must also protect the interest of service providers banks as basing considerations to capture solely customer interests will lead to abuses that will invariably translate to loss of funds for banks as we keep chasing them to recoup settled and successful transactions that defaulted against acquirers.
It is true that customers are kings, how about wrong/dubious ones? This grey area can be addressed by a well-articulated policy tailored to better protect the interest of banks, reducing their losses via disputes to the barest minimum.
The goal is to reduce false disputes. In the light of this, the bulk of complaints that are captured from the business offices and other dispute entry points become genuine and increases the level of trust between responsible parties amongst other resources that would be saved in the process.
Why We Need to Charge for False Disputes
From the foregoing, it becomes worrisome to estimate the volume of funds trapped in the recall process for banks across various dispute categories, what really happens at the end of each financial year? Do banks write them off to ascertain their true financial position; Are the net positions settled within banks based on relationships? Do they write off to the tune of the fully withdrawn funds that have limited chances of being recouped as they do for bad debts and non- performing loans?
Funds unduly trapped in this category invariably has a downward impact on the overall bottom line of any financial institution. There is therefore a need to ensure that false disputes are reduced and the regulator – CBN has a major part to play.
I would strongly propose that CBN in partnership with major stakeholders and industry players agree on a deterrent control in the form of a fee chargeable to cardholders on false disputes. This strategy effectively will reduce the influx of false disputes as most in that category are results of deliberate actions.
The proposed charge would serve as an integrity check and improve the commitment in keeping logical
tabs on unsuccessful transactions by cardholders to enable them only raise dispute for transactions that were truly not successful.
A bank’s true position is determined at the end of each profit year and the overall objective integrates cost- effective strategies focusing on increasing shareholders’ wealth by taking calculated risks and utilizing opportunities; it is therefore expected that they continuously review existing processes and improve on them to maintain competitiveness keeping time, cost, and quality in perspective.
Full-fledged Sensitization:
It is very pertinent that bank resource persons are trained as appropriate to enable them to communicate effectively to cardholders the consequences of raising false disputes. This approach overtime is bound to have a ripple effect on volume of complaints logged and more time and resource can be vested in resolving genuine disputes.
Furthermore, a dedicated dispute
team should be put in place and re-sensitized based on this trend to ensure claims are declined rightly with valid evidence as this would make more effective the revised CBN policy and not extend TAT for claims; the rapidity of claims defaulting will be minimized.
From a dispute processor’s perspective, the newly advised TAT by CBN has stemmed a lot of pressure both on banks, merchants, and switches. It is unarguably a good cause from a customer viewpoint and with some fine-tuned inputs from big industry players like NIBSS in reducing the rate of transaction failures, the chargeback process will somewhat become seamless.
On the flip side, banks are losing out in the face of untimed challenges in responding to disputes within TAT given to the false disputes that will default which translates to funds being trapped in recall processes. At this point, it becomes pertinent to communicate that if charging for false disputes is not an option, then the exposures inherent in the already existing process should be painstakingly reviewed and strict strategies be put in place to curb it.
