The Payment Management Blog

Operational Excellence: Chargeback Recovery Part 2. Lessons From the Field

In our last post we briefly discussed  some considerations when implementing a chargeback recovery process. Here are some lessons we've learned as we've worked with merchants on their chargeback recoveries:

o    As you examine your chargeback process, you may find lots of repeated, often manual, tasks or sequential steps that are out of order that offer opportunities for improvement. For example, placing the appropriate priorities on incoming chargeback cases so that we could focus on the most profitable work first. In one specific case, this meant recognizing certain types of chargebacks and focusing on resolving these first since those cases have a higher degree of success with re-presenting.

o    Learning about the characteristics and win rates of chargeback cases helps to both establish the priorities for efficient screening and determine the effectiveness of your re-presentment staffers. Tracking cases by reason codes, availability of evidence (such as delivery confirmations or account access dates and times), and time-in-process can help decide the right cases to work on, and which staffer should be offered overtime pay for the operation to be most profitable.
 

o    Just as there is a balance between detecting fraud and insulting a potential customer, there is a balance to be sought in deciding which fraud chargeback cases have a potential to be re-presented. In cases of identity theft, pursuing a chargeback dispute resolution and attempting to recover funds from the victim —could negatively impact your brand reputation. Of course, there are cases of "friendly fraud," or customer abuse that can be effectively pursued to a favorable conclusion, but experience is the best teacher for finding the right balance.

When implemented with an eye towards optimization and balance, chargeback recovery can offer an opportunity to improve collections against some of the fraud losses you're experiencing. Add that to your overall risk management operation (automated and manual screening, and order rejection rate optimization), and you have a complete portfolio of tools to reduce your fraud losses and improve operational efficiency.

Operational Excellence: Chargeback Recovery

Chargeback Recovery Part 1: To Do or Not To Do, That’s the Question

From the last few posts on effective order screening operation, you've probably noticed the following common themes:

o    Optimizing your operation often means winning a lot of little battles between doing the right things and doing things right (with the appropriate nod to Mr. Drucker)

o    Collecting and analyzingdata about what you do helps you refine your screening and decisioning process, as well as identifying new tests or rules to implement

o    You should strike a balance between the appropriate level of detection and the potential for false positives that often translate into suboptimal customer experience

Let’s now talk about chargeback recovery. In a lot of ways, the themes you noted above apply to this complex but important part of your risk management operation. Some merchants may not actively pursue the chargeback dispute resolution process, either from a lack of available resources, or inexperience with the steps involved. Our 11th Annual Fraud Report shows an average re-presentment rate of 53% and a success rate of 42%, for an average overall recovery percentage of 24%  [note: if you simply multiply the two averages you get 22% but we calculate the recovery % for each merchant re-presenting and then average this estimate to get to 24%]. Depending on your chargeback rates, business model, margins, and available resources, you may be considering adding or improving your chargeback recovery efforts. In my next entry, I'll discuss some things we've learned as we've worked with merchants in managing their chargeback dispute resolution processing.

Mixed Signals of the Economy offered at the MRC

Optimistic and pessimistic prognosticators probably found something they could agree with in the morning session at yesterday's Merchant Risk Council (MRC) Annual Conference in Las Vegas. Wayne Best, VISA's Chief Economist, served up a well-researched opening keynote address that indicated continuing consumer spending caution. However, he offered a ray of sunshine, which was eCommerce continues to grow (Best quoted a 15% CAGR), and most organizations’ sales from online stores continue to increase. In addition, this year's MRC event was sold out early, and had the highest attendance ever for the annual conference. Put all that together and you get a picture of optimism on the outlook of eCommerce.

In another session, the member merchants of MRC's Payment Committee discussed the application of mobile device interaction and social networking on their own websites. While the session was relatively short, it was packed with good advice on how these technologies are impacting merchants across industries.

So, while it seemed as though the signals were mixed, my takeaways from the conference are: first, eCommerce continues to grow, even against a gloomy tide of consumer spending caution; and second, that uncertainty in the market means online merchants must continue to focus on operational excellence and the value of new technologies to stay ahead of competition.

The conference continues today and I’m eager to find out what is being shared in the sessions.

--Paul Brock, blogging from the conference floor

Tokenization Vendors, Unite!

On Wednesday at the RSA Conference 2010, a presenter in the session for Tokenization and PCI raised an interesting point about the lack of standardization for the technology hindering its adoption in the market.

Ramon Krikken from the Burton Group said that, among many other things, the different ways vendors define and describe tokenization confuse the consumers. Additionally, the lack of interoperability between the tokens from different service providers fan the fear of vendor lock-in. For example, a merchant with multiple processors would likely use several tokenization services, and the tokens cannot be used interchangeably between the processors. 

In a sense, it's a chicken-and-egg problem. It is hard for vendors to standardize if the market hasn't matured enough, but consumers are not likely to adopt the technology due to lack of standardization. One way to break this roundabout is for a standards body such as the PCI Security Standards Council to lead the effort in drafting recommendations/guidance for tokenization as deployed for PCI compliance.This could go a long way in allaying confusion and fears in the industry.

What are your thoughts? Do you agree? Please share in the comments section.

Upcoming Webinar: Fraud Management Trends, Best Practices

If you are wondering what the e-commerce fraud trends are for 2010, CyberSource has the webinar for you. The one-hour free webinar will be presented on March 10, with an encore presentation on March 24 at 11 a.m. Pacific Time (noon Mountain Time, 1 p.m. Central Time, and 2 p.m. Eastern Time).

Doug Schwegman, research director at CyberSource, will share highlights from our 11th Annual Online Fraud Report. He will be joined by Paul Brock, principal of managed services, and Corey Siddens, senior product manager for CyberSource fraud management solution. Together they will share best practices in battling online fraud. A live question-and-answer session will follow immediately.

Register for one of the webinars. If you can't attend the webinars, download the report (registration required).