Five Ways To Build an Effective Dispute-Resolution Process

The plague of data breaches is bad enough. What’s worse is the impact it’s having on outdated and overburdened systems. Here’s what can be done about it.

Every year, more and more consumers fall victim to card-payment fraud. Fraudsters are adapting quickly to security measures, exploiting human trust, and finding new ways to steal.

This has a significant impact on consumers, retailers, and especially the financial institutions that—more often than not—foot the bill. In addition to the money lost to fraud, FIs are forced to invest significant hours and dollars in the management of the disputed transactions that result from fraud.

Certainly, fraud-detection and -prevention strategies are an important part of FIs’ response to fraud. They prevent billions more in losses every year. But dispute management needs to be addressed as well.

FIs need better, more scalable processes and technology to tame the growing beast of dispute resolution. Many FIs that boast cutting-edge analytic security technology, for example, still take disputes from their accountholders with pen and paper.

Dispute-resolution procedures have not kept pace with fraud volume and, as fraud continues to grow, traditional dispute-management practices simply won’t scale adequately to meet the problem. If this problem is not addressed, the result is an operations staff that can be over-burdened with disputes leading to errors, shortcuts, and possible compliance violations.

To contend with the growing dispute-resolution workload, consider the following improvements to automate processing, simplify compliance, and enhance the accountholder experience.

1. Provide a positive consumer experience

In the eyes of an accountholder, a potentially fraudulent transaction might already be seen as a strike against you. Providing an inconvenient or cumbersome experience as they’re reporting the dispute to your staff can turn a slightly concerned accountholder into a thoroughly disgruntled one.

In the digital age—where battles are fought with fraudsters online—relying on paper processes doesn’t inspire confidence. Nor does it create efficiency, sufficiently support compliance, or help prevent errors.

It’s crucial that you equip your frontline staff with processes and tools to better serve and reassure your customers. Consider, also, the possibility of self-service disputing from within your digital channel to save your customers from hold times and other inconveniences.

2. Reduce back-office workloads

As with paper-based dispute-taking, many FIs are using spreadsheets and manual processes to manage disputed transactions. It’s time to leverage technology for more efficient, scalable, and audited dispute processing. Replace your spreadsheets and automate everything from letter generation and the posting of adjustment transactions to tracking representments and regulatory timelines.

Automation will make your operation more resilient in times of high volume. Without an automated solution, a single breach can quickly overwhelm dispute-management processes that rely on multiple manual touch points.

It’s also crucial to cross-train your back-office staff and distribute duties to help avoid bottlenecks or delays when an unexpected absence takes key personnel out of the office for extended periods. Relying on one person to manage all of your dispute processes creates significant operational risk.

3. Gain insights through reporting and analysis

The ability to track and report on dispute activity is imperative. This is very difficult with Excel and other traditional solutions. FIs should be able to create reports on both fraud and non-fraud disputes, including adjustment-transaction reporting for both current-day and historical activity with a simple yet comprehensive tool.

An FI’s dispute-management process should also support management oversight by allowing visibility into your fraud volume, including automated alerts for dramatic changes in activity like sudden increases.

Traditional dispute management doesn’t do much to shed light on the financial impact of fraud. The right technology will track the outcome of a dispute at the transaction level, helping management understand and monitor fraud losses—which is crucial in the face of a significant breach. Furthermore, understanding the fraud activity associated with each data breach is valuable when trying to grasp the magnitude of the event and its impact on the FI.

4. Maintain compliance

Automating dispute processes can help ensure your FI remains compliant with both Reg E (for debit cards) and Reg Z (for credit cards). Your dispute-administration solution should include comprehensive compliance reporting to provide a full audit of all activity. Anything less leaves you at risk.

Even if you’ve never had a compliance violation, outdated procedures pose operational risk that can—and will—be exposed when there is a significant influx in fraud due to a breach.

5. Upgrade your technology

A technology solution that integrates with your core, card processor, customer-service portal, and other archives and tools can help you leverage existing data to streamline dispute processes and reduce the effort to resolve disputes.

In addition, consider the pros and cons of in-house dispute-management software versus the software-as-a-service (SaaS) model. The former might feel safer or more reliable, because all data remains on your network, but robust SaaS processing has become a secure and accepted option. Many factors play into this discussion, including technical expertise and systems-integration requirements.

For the vast majority of community FIs, the dispute-resolution process is in dire need of an overhaul. It’s time to leverage technology to more efficiently and accurately manage disputed transactions. Fraud is an unpleasant reality, and will continue to be so for the foreseeable future. But the workload fraud creates doesn’t have to be as unpleasant or unmanageable as it is today. It’s time to tame the beast!

—Brad Johnson is director, solutions consulting, at Centrix Solutions Inc., Lincoln, Neb., a unit of Q2 Software Inc., Austin, Texas.