Fraud and the cost of managing it are going up despite a vast army of technologies to fight it. While technology tools are critical, you can reduce your losses and management costs by optimizing your customer service and back-office operations.
By Kathy Clark, Ubiquity
Payment card fraud losses worldwide reached $27.85 billion in 2018, up more than 16% from the previous year, and are projected to top $35.67 billion by 2024, according to The Nilson Report’s most recent data.
Even more troubling is that the cost of fraud is also going up. Fraud today costs about three times more than the actual fraud itself. For every $1 fraud, merchants pay $3.13 and financial institutions incur costs of $3.25. Both figures are new records and represent an increase of more than 6% and 11% for merchants and financial service providers, respectively, since 2018.
Managing fraud and the subsequent cardholder disputes that result from unauthorized transactions is expensive. That’s because the back-office processes required to investigate and make decisions on claims is often time-consuming and manual.
When a cardholder calls to dispute an unauthorized transaction, a whole range of requirements kick in. Provisionally crediting accounts while investigations are in progress may be costly to banks, and the programs they support can be on the hook for considerable losses, especially if they have a high volume of first-party or so-called friendly fraud.
As noted, disputes and chargebacks are a significant resource drain for both merchants and banks, and the vast majority—70.85%, according to Midigator—are directly related to fraud. More than 77% of those fraud claims are the result of friendly fraud.
Bring on the Experts
If you’re relying on an in-house team to manage your disputes and chargeback process, you know it can be hard to find (or afford) staff with the experience you need. Scaling up or down quickly to meet seasonal demand also can be a challenge. Many banks and program managers experience volume spikes around back to school, holiday shopping, or after tax refunds or stimulus checks hit accounts.
To succeed, your team must be agile enough to handle those fluctuations. You also need the expertise to operationalize strategies for reducing losses while ensuring that the front-office customer experience and loyalty aren’t compromised. One example is conducting merchant outreach early in an investigation to try and validate transactions before filing a chargeback. This can reduce investigation time, operational costs and overall losses.
Another strategy is to participate in so-called chargeback avoidance networks, such as Verifi or Ethoca. These services seek to connect banks and merchants for faster, less expensive resolution than network chargebacks.
If you’re already using a third party to manage disputes, make sure they’re helping you achieve the best results. Rigorous training and ongoing quality assurance are critical, but you also need robust reporting and communication to measure performance and identify fraud trends.
Ideally, working with a specialist provider can reduce your fraud management costs because it can eliminate in-house recruiting, hiring and other operational expenses. That savings typically goes up even more if the operations are off-shore.
However, bringing down the costs of managing fraud and associated dispute claims is not the only benefit of working with a specialist. An equally important aspect is protecting the customer experience. When customers are worried that their accounts have been compromised, they want the situation to be solved quickly with as little friction as possible. Having the right combination of empathetic and knowledgeable support while also protecting yourself from unnecessary losses is key.
With the cost of fraud continuing to rise, financial service providers must be able to operationalize strategies that lower costs and risks without sacrificing customer loyalty.
Kathy Clark is the vice president of Banking Operations at Ubiquity, where she focuses on mitigating client losses, managing regulatory compliance and ensuring quality control. She has more than 25 years of experience managing financial operations. She joined Ubiquity after nearly 13 years managing operations for Higher One, a fintech company that later became BankMobile.