The key to better CX: Reinvent the dispute process

The fastest way to level up your customer experience in financial services is to tackle the biggest source of friction—disputes.

For financial services brands—incumbents and challengers alike—earning and keeping consumer trust is fundamental to competitiveness. Consumers have more options, and it’s easier than ever to open a new account or switch providers. But consumers also are facing higher prices for just about everything, which translates to greater financial anxiety.

In this environment, customer experience is where you can make or break trust. How customers experience your brand, especially when they need help, matters more in financial services than almost any other industry, according to Morning Consult’s 2022 Most Trusted Brands report.

In fact, a bad customer experience is the No. 1 reason consumers would stop using a financial services provider, the survey of 2,200 U.S. adults found. What’s more, nearly 30% of consumers said they would never use a financial services brand after a bad customer experience, and only 17% would consider trying the brand again.

With such high stakes and fierce competition, financial services providers must rethink a key area of CX. The one driving the most complaints, presenting the greatest risk of reputational harm and regulatory scrutiny, and boasting the highest servicing costs—transaction disputes.

The dispute resolution process for debit products has historically been slow and expensive. The typical wait time to resolve a claim in the U.S. can be up to 90 days, depending on the transaction type. However, Regulation E requires providers to issue a provisional credit within 10 business days (20 for new customers) for the contested amount while the claim is being investigated.

That’s when first-party fraud can hit. Sometimes banks issue credits and later determine that there was no error, but are unable to recover funds because the balance is zero. Often called friendly fraud, first-party fraud is when a cardholder disputes a legitimate transaction, either because they don’t recognize it or because they’re knowingly trying to commit fraud. As much as 75% of transaction disputes can be attributed to friendly fraud, according to Mercator Advisory Group. Meanwhile, a 2022 True Cost of Fraud study by LexisNexis cites first-party fraud as a leading driver of fraud losses.

Conventional wisdom has been to set write-off thresholds so you’re not investigating small-dollar claims that divert resources from higher-value, higher-risk transactions while also prioritizing claim resolution ahead of the 10-day provisional credit window. But, for transaction types with chargeback rights, you might be waiting as much as 45 days before you get a merchant response. Fraudsters take advantage of those policies while customers with legitimate disputes can be left waiting for weeks, if not months, for a claim to be resolved. Balancing a seamless customer experience and mitigating fraud losses can be precarious, especially as the cost of managing fraud has ballooned to $4 for every $1 lost to fraud.

We’ve been working with our digital banking clients to make the dispute process more customer-centric while protecting the business from undue losses. Here are four keys:

Accelerating the investigation process has definitely improved the customer experience for our clients, who consistently rank high in Net Promoter Scores and customer satisfaction within the dispute process. But speeding up the investigation isn’t just a matter of moving faster. If you’re not careful, you could be facing significant losses and compliance errors. You have to move smarter, which brings me to the next three points.

Segmenting by claim type (ATM non-dispense, P2P payments, unauthorized transaction, etc.) and risk profile (geography, dollar value) is one way to boost productivity and compliance. For some clients we’ve reduced overall headcount because of productivity gains. Just be certain to apply your segmentation across the board rather than at the customer level, which could violate Unfair, Deceptive, or Abusive Acts, or Practices (UDAAP) rules.

Another word of caution. Artificial intelligence (AI) can have a role in dispute management, but if you try to use AI for claim decisions, you could create more problems than you solve. Regulators pay close attention to the dispute process, especially decisioning. An algorithm can’t explain why it made a decision for a specific claim, which means you won’t be able to either. We see AI as a helpful tool in guiding agents to the right decisions, but the investigator should be the one making the final call—with proof points to back it up.

When you compress investigation time, volume forecasts can’t be monthly or even daily; they need to be hourly. To improve forecasting, take advantage of the data you have. Historical data should be used to create a baseline forecasting model. Higher transaction activity almost always precedes higher dispute activity, and can be used to adjust the historical model for higher or lower expected disputes.

Depending on who handles your customer service and disputes, you might not have much flexibility to shape the process. And depending on your size, you could be dealing with shared resources. That’s not ideal for world-class CX, but it can be especially problematic for disputes. Clients often come to us because they want to make the dispute process faster and more customer friendly, but we also know that if volumes warrant it, dedicated resources who know your business and the dispute process inside and out are always going to outperform shared teams.

At the end of the day, customers want to know you’ve got their backs. If you make it hard for them to reach you or force them into channels they don’t like, that could cost you customers. But if you commit to making your dispute process as streamlined and customer-centric as every other part of your business, you’ll be more likely to keep your customers happy.

Corey Besaw is chief operating officer, responsible for delivery excellence across all service offerings and business units including Banking Operations, which helps financial services providers optimize dispute and chargeback management, fraud investigation, and manual KYC and identity verification processes. This article originally appeared in Business Reporter.

Discover more about how we helped one of the fastest-growing challenger banks in the U.S. revamp their dispute process amid skyrocketing volume in this in-depth Case Study.