New security risks call for automated dispute resolution

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In recent years, we’ve seen an increasing number of data breaches—many with far-reaching consequences for consumers, businesses and financial institutions.

A single payment card breach—similar to the ones we’ve seen from Target or Wendy’s—can result in a massive increase in disputed transactions for FIs. Most financial institutions simply can’t handle this exponential jump in their dispute management workload—at least, not without automation.

Financial institutions in need of faster dispute resolution processes are turning to automated solutions. For example, ANB Bank in Denver rolled out an automated solution in 2013—replacing a completely manual process. Now the $2.6 billion-asset bank can process around 275 disputes a month without complication. The bank has been able to weather the last few years’ high occurrence of breaches without incident. Even the compromise of two ATMs with deep insert skimmers—resulting in 195 disputes in a single week—posed no problem to the back office.
ANB Bank and other forward-thinking FIs are accepting the fact that fraud isn’t going away; in fact, it’s continuing to increase—as is the security and compliance lift required by FIs.

Despite these increases, many FIs remain unconvinced that they need to upgrade their processes. This is likely because most financial institutions have yet to experience a serious compliance issue. But continued increases in fraud have the potential to cripple FIs—if not with compliance complications, then with overwhelming workloads. It may not even take a large breach to expose these weaknesses; the inevitable increases in small-scale fraudulent activity may be sufficient to cause serious harm.

Manual means of dispute management are inefficient and growing untenable in the current security and compliance environment. Having front-line employees take disputes manually is not only slower and less accurate than newer dispute management processes, but having a pen-and-paper-based response to cybercrime isn’t likely to bolster account holder confidence. Behind the scenes, back-office employees in card services, operations and dispute management will soon be—if they aren’t already—overwhelmed by the growing manual workload related to disputes.

The busier an FI gets, the more likely a critical piece of dispute management will fall through the cracks—either neglected or mishandled, with unfortunate consequences. Reg E, for example, spells out timelines for completing investigation of a dispute; increased workloads can create unwieldy backlogs that aren’t resolved in a timely, compliant manner. Further, manual, paper-based processes may lend themselves to inaccurate record-keeping that can also lead to compliance issues.

Beyond compliance issues, account holders expect immediate results in the face of fraud. Mishandled or delayed dispute resolution can hurt customer confidence, lower the likelihood of deeper engagement with banking products and services, and even hurt retention.

There’s a real need for automated dispute resolution tools. But what would such a tool look like?

For front-line and dispute intake, a dispute administration tool should include online dispute forms, automated questionnaires and possible integration with signature pads—as well as the ability to easily look up existing disputes. To increase back office efficiency, FIs need the ability to automate timeline management, easily attach supporting documentation to cases, and automate transaction posting and letter generation.

At the same time, an automated dispute management system needs to support compliance efforts by serving as a system of record that provides reporting and audit trails of all dispute-related activity—as well as automated processing to ensure disputes are resolved in a compliant time frame.

Rounding out the wish list for a dispute resolution tool would be management oversight features—including identifying high frequency disputers, alerts for high dispute volume, the ability to perform fraud analysis on breaches and loss reporting.

With these kinds of features and controls in place, FIs can easily scale their efforts to match the pace of fraud. But it’s tempting to wait—to assume that security technology will outpace cybercrime in coming years, or hope that breaches will only impact other financial institutions. It’s tempting, because doing nothing is easy. Except, in this case, doing nothing about fraud and dispute workloads results in doing a lot—a lot of overtime, stress, expense and concern over compliance and customer service. It’s anything but easy.

Future-minded banks and credit unions will embrace new technologies that reduce cost, support compliance and help them get a handle on the growing challenge of dispute resolution management. FIs that aren’t actively pursuing better tools and processes should ask themselves what exactly they're waiting for. The time for automation is now.

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