Costly Chargeback Queries Help Create a Market for Better Data on Statements

By John Stewart
@DTPaymentNews

Chargebacks cost issuers millions every year just to investigate, let alone process, so technology companies see an opportunity in reversing the rising tide of cardholder inquiries financial institutions and merchants confront every day. The latest example is a service from financial-data aggregator Yodlee that adds information to the detail on statements so consumers can better recognize transactions.

The service, called Transaction Data Enrichment, comes as the U.S. EMV rollout is shifting the burden for counterfeit card chargebacks to merchants that aren’t prepared to process chip cards. For the entire industry, chargeback inquiries alone, before any other action is taken, are “hugely expensive,” says Julie Conroy, research director at Boston-based Aite Group LLC.

Aite estimates the annual toll at $2.7 billion, in part because initial calls from cardholders questioning items on their statements take 13 minutes on average to complete, according to information Conroy has received from banks. Aite estimates 14.7 million card transactions will be subjected to chargeback this year, up 17% from 2015.

The problem is compounded on card statements because merchants are limited to descriptors of 23 bytes of data, Conroy adds. Often, these descriptors can look like a foreign language to cardholders, particularly when payment aggregators are involved in processing the transaction. Anything that can clarify this information “is a fantastic idea,” says Conroy. “Chargebacks are a very ugly process.”

TDE, which Yodlee announced Tuesday, works by using data feeds the 17-year-old company receives from financial institutions to augment information already entered on statements, John Bird, vice president of product marketing and alliances, tells Digital Transactions News. Redwood City, Calif.-based Yodlee last year became part of Envestnet Inc., a Chicago-based company specializing in wealth-management technology and services.

The added detail, including merchant name, merchandise category, transaction type, whether credit or debit, and transaction frequency, is designed to “reduce the user’s questioning of transactions,” Bird says. Many consumers these days look at their statements online, he adds, rather than wait for the monthly mailed statement, which is “going the way of the dinosaur.” That can trigger more calls but also lead to queries sooner after the transaction occurs.

Yodlee’s engine receives data from 15,000 sources, Bird says, and can overlay machine learning to add context to a transaction description so consumers might better recall it. The enhanced transaction description is then served up to clients directly via an application programming interface.

Bird will not give specifics about pricing, but says clients “can expect a nominal increase in fees. It’s our belief we can charge a bit of a premium.”

The “premium” might be well worth it if TDE cuts down on call-center queries, Conroy says. “If you can prevent those calls by giving better information on the statement, that’s a win-win,” she says.