The COVID-19 pandemic forced us to change many of our routines, including how we shop, work, and socialize. One of the biggest shifts in habits was how consumers pay for purchases. Many moved away from cash and are increasingly relying on debit and credit cards. In fact, at the height of the pandemic in 2020, some businesses would only accept payment with debit and credit cards, citing health and safety issues. Other cashless options such as Venmo, Cash App, and Zelle are also taking a bite out of cash. A Federal Reserve Bank study on 2020 payments showed cash usage declined an unprecedented 7% to below 20% for the first time. And it’s not just the U.S. Cash usage in the U.K., which had been declining approximately 15% per year, saw COVID further accelerate the trend, and now cash is less than 20% of payments.
This increase in digital payments puts the spotlight on a major challenge for banks: fraud.
As debit and credit cards become more widely used as the primary form of payment, compounded by e-commerce growth, the volume of disputes that banks need to investigate and resolve also grows. Global card losses have climbed to over $28B, according to a 2020 Nilson Report. Each claim triggers a number of actions and steps that banks must take to comply with regulations. That’s why, as we explained in our 2021 PegaWorld iNspire session, banks are taking advantage of the automation provided by straight-through processing to help resolve these disputes more quickly and accurately.
Complex payment dispute processes impact a bank’s bottom line
Even though they represent less than 1% of all transactions, disputes are some of the most complex customer interactions in banking. Network compliance rules, internal policies, multi-item fraud claims, plus layers of government regulations complicate the investigation and resolution of disputes.
For example, in the U.S., banks are very concerned with Regulation E (Reg E), which outlines rules for electronic funds transfers (EFTs) and provides guidelines for debit card issuers. Banks have a period of 10 days during which to investigate a reported EFT error including fraud claims. The timeframe is extended to 45 or 90 days, provided that the bank provisionally credits the consumer's account with the reportedly missing funds while they continue investigating.
Any error or misstep in the process can negatively impact banks in two major ways:
- Accuracy – A less than thorough investigation, inaccurate data, copy/paste errors, or skipping a critical step in the process can all cause banks to take losses that might have been avoided. A McKinsey & Company study found 10% of dispute outcomes were incorrect. That’s a real impact on profitability!
- Customer loyalty – The potentially fraudulent use of a credit or debit card is stressful and inconvenient for a customer and could drive customers to a competitor. A PwC study found 33% of customers would stop doing business with a brand after a bad experience. Conversely, PwC also found that providing immediate relief when fraud occurs increases loyalty by 26%.
Straight-through processing of payment disputes can reduce operating expenses and increase accuracy
Using smart automation tools like case management and guided processing, banks can better comply with regulatory requirements while reducing operating expenses by 25% to 40%. Case management helps orchestrate all the data, documents, tasks, and processes needed to investigate the dispute from the initial claim to the final customer and regulatory report. And in situations where manual work is required, case management and guided processing automates what can be automated, freeing up staff for high-value, judgement-based work.
Additionally, solutions with built-in industry best practices, can help banks even further streamline operations. We’ve seen this ourselves with our own Pega Smart Dispute™ solution. With out-of-the-box rules and integrations for Visa® and MasterCard® compliance, we have clients that successfully automate the straight-through processing for more than half of their disputes – and there is even one client automating more than 80% of disputes with straight-through processing.
Increased preference for digital consumer interactions is only going to increase the volume of disputes
In a recent study, EY found that 38% of consumers plan on increasing their online shopping. That steady preference for online purchases is one of the reasons global fraud losses are projected to exceed $38 billion by 2027.
The bottom line to your bottom line is that relationships are built on trust. In a BigTech / FinTech era, providing simple and exceptional end-to-end service on consumer disputes and fraud claims will help you build trust with your customers. By using intelligent automation tools, you can deliver frictionless experiences while reducing errors and improving compliance.