Merchants and issuers have to step up efforts to slow down the flood of chargebacks, which in many cases could be thwarted by better communication between the two and the consumer.

It sounds simple enough, but those tasks are becoming increasingly difficult in a retail space shifting gears from physical in-store purchases to mobile and digital transactions.

Chart: The chargeback blame game

Ultimately, a "chargeback triangle" involving all parties involved needs to be more aware of a problem that cost $31 billion in 2017 and establish procedures to minimize them, according to a new Javelin Strategy & Research report commissioned through Verifi, a payment protection and risk management solution provider.

A key factor appears to be that consumers don't feel welcome to contact the merchant before initiating a chargeback. When contacted first, merchants are able to prevent a chargeback up to 80% of the time, and resolve problems without refunds or replacements 56% of the time.

Unfortunately, as many as 72% of merchants selling digital goods believe their customers bypass them and go directly to the issuer with a complaint, while 64% of those selling only physical goods feel the same way. Consumers confirmed those fears, as the report found that in 76% of cases, they said they went directly to the issuer.

At the same time, 78% of all merchants say greater cooperation between issuers and merchants is necessary to successfully control chargebacks, according to the report.

In compiling the report, Javelin Strategy & Research conducted an online survey in October of 2017 of 2,000 U.S. consumers, 300 executives who influence chargeback policy at U.S. merchants earning $10 million or more in revenue annually, and 200 executives influencing chargeback policy at card-issuing retail financial institutions.

To address chargebacks, merchants and issuers should share more information to streamline the dispute and chargeback process, the report recommends. Non-fraud disputes should go directly to merchants, and issuers should also capture dispute reasons online before routing the customer to customer service. Tracking the dispute process and keeping the consumer informed through an app or e-mail, without constant phone interaction, would be helpful to the process, the report said.

Tracking the rate at which individual customers dispute transactions is also important, as it allows both merchants and issuers to react based on their distinct approaches to customer service. Such an approach could help lower the friendly fraud risk.

The report comes a month after Visa launched its Visa Claims Resolution, a process by which the card brand hopes to ease the problem with rules capping the dispute process at 31 days, and consolidating disputes into fewer categories. The jury is still out on how VCR will diminish merchant woes in the chargeback process, though merchants were generally optimistic about the potential despite some technology upgrades needed to make it work.

Visa's effort on behalf of its issuers also seeks to address a problem pointed out in the Javelin report, as a chargeback resolution that drags on for weeks tends to shift the consumer's blame to the issuer. Such a shift puts the issuer in danger of losing top-of-wallet status with that consumer.

The Javelin report also emphasized that chargebacks can muddy customer relationships, giving merchants another potential blow to the pocketbook. Consumers reduce purchase behavior with a merchant by as much as 62% following a chargeback, the report said, and nearly two-thirds of consumers are more cautious about patronizing merchants similar to the one with which the dispute occurred.

Merchants and issuers have much to gain in resolving the chargeback issue, as the report estimates that for every $1 in a disputed transaction merchants and issuers incur an additional $1.50 in costs from technology, personnel and external resources. Though protected from liability when using their payment cards, consumers aren't off the hook in the chargeback scenario. They generally endure higher costs on merchandise and services as a result of numerous chargebacks, the report said.

In breaking down the $31 billion hit to the retail payments industry, the report estimates that merchants absorb $19 billion, while issuers bear $12 billion in costs. Because issuers are legally liable to protect consumers' rights for disputing a charge, they tend to settle frivolous complaints readily and it adds to about $2.4 billion of issuers' costs in personnel, technology and outsourcing.

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