The credit card industry is failing miserably to put disputes online.
Questioning transactions is an expensive customer service function but is also an essential protection for cardholders, who must be able to recognize charges and have protection when merchants screw up.
The costs are in the processing, not the chargebacks themselves. By our calculation, about 0.67% of U.S. cardholders' purchases result in a dispute initiation, costing issuers somewhere between $1 billion and $2 billion a year to process about 100 million transactions.
Even worse, the share of purchases disputed seems to be rising. There are more "card-not-present" transactions, and more transactions over all. As credit purchases grow - for example, to get more mileage rewards - cardholders have more trouble remembering every purchase. Transaction reporting (merchant name, etc.) has, unfortunately, expanded very little if at all over the years. Cryptic indications are very high, as cards are used for subscriptions, services, aggregations, foreign currencies, and even deposits.
The result is a surge in cost due to mailing and other handling of paper-based cardholder correspondence to provide updates, request additional information, obtain sales or return slip copies, or show final resolution.
The move to online dispute-handling ought to be obvious, especially in light of the move to online viewing of statements, which is when cardholders are most likely to have a question.
Yet the industry has missed this opportunity. Our recent research behind the password showed:
Capital One Financial Corp., J.P. Morgan Chase & Co., the Discover Financial Services division of Morgan Stanley & Co., MBNA Corp., and the First USA division of Bank One Corp., among major issuers, do nothing online for disputes except give a phone number to call.
Wells Fargo & Co. gets a special approbation award for not even mentioning card disputes on its Web site.
The Citibank division of Citigroup Inc., FleetBoston Financial Corp., the Juniper Bank arm of Canadian Imperial Bank of Commerce, Providian Financial Corp., Sears Roebuck & Co., and U.S. Bancorp at least go to the next step, which is to have forms online that need to be mailed back - hardly rocket science.
Bank of America Corp., American Express Co., Diners Club (a Citigroup unit), and First National Bank of Omaha have gone to a third step: online dispute initiation. The cardholder identifies the disputed or questioned transaction, gives the reason or reasons, and may add free-form information. The process goes quickly offline after that, but at least the initiation is completed online.
Our bronze star goes to the folks at Household International's General Motors MasterCard operation, who send auto-generated e-mails confirming dispute processing.
No issuer gathers additional information online from the cardholder, or completes the process online, such as submitting a resolution with proof, including a sales slip and/or cardholder signature, which would require image technology.
Cardholders initiate disputes infrequently enough that the initiation process, when it is online, needs to be as simple and clear as possible. Three key usability problems are:
Initiation Location: Issuers haven't standardized where dispute initiation belongs. American Express and Diners Club have dispute-initiation links on their e-statements. Bank of America and Household provide a radio button on the transaction drill-down screen. First of Omaha and Digital Federal Credit Union list dispute initiation under generic customer service or "Contact Us" headings.
Transaction Identification: How should the disputed transaction be identified? Ideally, users should click it on their e-statement or transaction drill-down window. Issuers with online forms force the user to reenter transaction data manually from the e-statement, which is repugnant. Many issuers don't pre-fill the forms. Diners Club even makes the user reenter the account number. Fleet makes users find the transaction through its search engine, even if they already know what it is.
Additional Information: After initiation, a fairly elaborate tree of different processing workflows opens up, depending on the type of dispute. Today, all two-way communication to gather more information, if needed, or communicate resolution, is completely offline. A letter sent by the postal service is the typical response to an online initiation.
Why this failure? We suspect a combination of other, bigger, priorities; a prejudice against making disputes easier to initiate; and a general failure of imagination.
To the issuer, disputes are nuisance transactions that create costs without any supporting revenue. (Bank of America, however, does attempt this by charging $3 for a copy of a sales receipt.) Further, dispute-processing quality won't attract new cardholders and isn't believed to be a major cause of attrition.
Still, disputes must migrate online in the long run. After the initial infrastructure costs, variable inquiry costs should be slashed. To do this, issuers should:
- Initiate all disputes online.
- Have multiple paths to initiation from the transaction itself and from the "customer service" or "contact us" section. There should be a separate dispute section.
- Not require any data entry by the cardholder of data already known to the issuer.
- Use e-mail or secure message centers for follow-up.
- Expand reason codes so they are more in fitting with today's largest problem areas. For example, despite the overly documented rise of "card-not-present" transactions, no issuer we know separates out this type.
- Clearly indicate suspense amounts on e-statements.
- Identify double postings first and propose them to the cardholder when they log in.
- Present sales slips or other purchase proof by using online images.
The answer to issuers' fears about greater dispute volumes - and greater unreimbursed costs - is fuller data about transactions.
