What is this article about?
The growing importance of dispute management in the payments industry and the need for digitalisation and AI to improve efficiency and customer experience.
Why is it important?
It highlights how efficient dispute resolution can be a competitive advantage for banks, improving customer trust and reducing operational costs in the face of increasing e-commerce transactions.
What’s next?
Banks will likely adopt more digital and rule-based AI solutions to streamline dispute management, enhancing operational efficiency and customer satisfaction.
The rising importance of dispute management is undeniable. Efficient resolution processes are now a critical factor in the payments industry, enhancing consumer confidence and protecting against fraud and merchant-related issues.
In a market defined by competition, robust dispute management is not just about cost recovery but serves as a key differentiator. As e-commerce continues to expand, the corresponding increase in disputes pressures banks to optimise their processes. Banks that effectively integrate dispute resolution into their payment offerings can set themselves apart in the eyes of consumers who prioritise security.
However, traditional dispute management remains hampered by manual, inefficient processes. The typical workflow—from customer reports to case review and network submission—relies heavily on labour-intensive methods, demanding large, dedicated teams. The absence of automation and digitalisation exacerbates these inefficiencies, resulting in suboptimal customer experiences and increased operational costs. This often deters banks from promoting their dispute resolution capabilities despite the security they provide to cardholders.
Rivero co-founder Fatemah Nikayin tells Payments Intelligence, “The process is very manual and costly. They usually have huge teams of people working on receiving and processing these requests, and submitting them to the network and the other side.”
Nikayin claims this is the main reason for banks’ lack of promotion in leveraging dispute management as a competitive advantage and a key feature of their payment cards.
One of the key challenges banks face in promoting dispute resolution as a core feature of their payment cards is the manual and costly nature of the traditional dispute management process. As Nikayin explains, the process of handling a dispute typically involves the cardholder contacting the bank, filling out forms, and then waiting for the bank to investigate and resolve the issue. This manual approach requires a large team of people to receive, process, and submit the dispute cases to the payment networks, which can be a significant operational expense for banks.
“It seems that the dispute resolution feature is a key advantage of card payments, as it provides consumers with a sense of security. It’s unfortunate that banks in the UK do not actively promote this feature, leading to a lack of awareness among consumers. In contrast, companies like PayPal actively promote their consumer protection framework, which may explain why some people choose to use their services instead,” she explains.
Nikayin believes that banks must process the increasing volumes of disputes much faster and more efficiently, allowing them to promote it as a unique offering to their cards.
Furthermore, banks are often reluctant to actively promote dispute resolution because it can increase the volume of disputes they receive, which in turn increases their risk exposure.
Nikayin adds: “With better promotion, consumers will have a fantastic customer experience if they have a problem with a transaction and get their money back quickly. This will give consumers peace of mind, making them more likely to use the card for future large purchases.”
The liability rules set by payment networks, such as Visa and Mastercard, mean that banks must pay back the cardholder’s money in legitimate dispute cases, even if they can recover the funds from the merchant’s acquiring bank. This financial risk associated with dispute resolution can make banks hesitant to actively market this feature to their customers, as it may lead to more disputes and higher operational costs.
According to FIS Business Development Specialist Thara Brooks, the complexity of the market and technology involved in dispute processing can make it opaque, confusing, onerous, and time-consuming for the customer; this is mainly due to the “multi-party models managed through fragmented and wieldy internal systems.”
She says that customers are also not adequately educated on “how, where, when, and for what reasons” a legitimate dispute can be raised and managed through to resolution.
According to Craig McClure, director of relationship management at Chargebacks911 and Fi911, traditional dispute management’s hindrance is the lack of ability to scale new solutions. He adds, “As transaction volumes grow, legacy systems struggle to keep up. Scaling manual processes means dedicating more resources and manpower, which takes significant capital.”
The absence of automation and digitalisation in traditional dispute management processes results in significant operational inefficiencies and subpar customer experiences. The manual, labour-intensive nature of these processes—from receiving customer disputes to case review and submission—creates unnecessary delays and increases the risk of errors, placing a heavy burden on bank operations teams.
This outdated approach not only inflates costs but also undermines customer satisfaction, as the lack of a streamlined, digital-first system often leads to frustrating delays in resolution. For banks, this inefficiency represents a missed opportunity to distinguish themselves through effective dispute resolution in a competitive market.
McClure explains: “Without automation, the dispute management process costs a significant amount of time, effort, oversight, and resources. Moreover, traditional systems often lack data gathering, reporting and analytics capabilities, which are critical in identifying trends, measuring performance, and implementing improvements.
“Data is key in today’s environment, and if you’re a company facilitating thousands–or more–of transaction disputes a month, gathering and analysing each piece of data manually is practically impossible without a significant investment in time and money.”
Chargeback window | Response windom | |
|---|---|---|
Visa | 120 days (75 for certain issues) | Merchants typically have 20 days to respond to a Visa chargeback.
The issuing bank has 20 days to initiate a pre-arbitration chargeback after receiving representment |
Mastercard | 120 days (45 for certain issues) | Mastercard allows merchants to have 45 days to respond at each stage of the chargeback process |
“The current process is quite inefficient for handling issues quickly. If information is missing, there is no direct communication with the cardholder, and the channels currently in place cannot gather relevant information and intelligently guide agents. As a result, agents often have to spend time figuring out reason codes and other details for disputes,” Nikayin explains.
When it comes to the use of AI in dispute management, it’s important to distinguish between rule-based AI and large language models. Nikayin explains that while large language models like ChatGPT may seem like an attractive option for customer-facing applications, they are not well-suited for the payments and banking industry due to the high degree of regulation and the need for predictable and reproducible outcomes.
In industries with strict rules and regulations, such as payments, the use of large language models can be problematic. These models can produce inconsistent and unpredictable responses, which can lead to liability issues for banks.
This became particularly evident after Air Canada’s AI chatbot embroiled the company in a tribunal with a passenger in 2022. The airline’s chatbot assured a passenger they could book a full-fare flight for a bereavement and then claim a discount.
Air Canada denied the discount, stating the chatbot had provided incorrect information before arguing that its chatbot was a “separate legal entity responsible for its own actions” and that the passenger should have checked the correct policy by following the link provided by the chatbot. This issue was addressed in a decision by the civil resolutions tribunal, leading to a compensation payout by the airline to the passenger after it was deemed liable.
Type of complaints | Number of complaints from within the UK | Number of complaints from outside the UK | Total number of complaints |
|---|---|---|---|
Banking | 89,380 | 3,792 | 93,172 |
Insurance | 36,897 | 1,458 | 38,355 |
Investments | 5,137 | 952 | 6,089 |
Source: Financial Ombudsman Service
As a solution, Nikayin advocates the use of rule-based AI in customer-facing dispute management. This approach involves developing a chatbot or virtual assistant that is programmed with the specific rules and regulations governing dispute resolution, as defined by payment networks like Visa and Mastercard.
“When using chatbots based on large language models, it’s hard to control the predictability and reproducibility of outcomes, which poses a liability for a bank. But if we talk about AI as general machine intelligent, which can also be rule base, then, yes, it’s a great idea.”
By leveraging this rule-based approach, banks can ensure that the information collected from customers is accurate and complete and that the subsequent case processing is efficient and compliant.
Brooks agrees that large language models are not a sensible solution to the problem, posing what she calls a “number of risks” when compared to rule-based AI systems. For example, LLM offers a “risk of hallucinations and inconsistent responses to similar queries”, as well as “amplifying biases in the data that could erode customer experience and trust.”
The key advantage of rule-based AI in this context is the predictability and reproducibility of the outcomes. Unlike large language models, which can generate variable responses, a rule-based system will consistently apply the same logic and decision-making process, ensuring that customers receive a reliable and consistent experience. This, in turn, helps to build trust and confidence in the bank’s dispute resolution capabilities, which can be a significant differentiator in the highly competitive payments landscape.
Digitalising the end-to-end dispute management process is crucial for banks to streamline their operations and enhance customer experience. By leveraging digital technologies, banks can create a seamless, self-service experience for cardholders, where they can initiate a dispute directly through their banking app or online portal. This eliminates the need for manual form-filling and back-and-forth communication, allowing the bank to collect all the necessary information upfront.
Nikayin explains: “When the bank agent sees a new case, they open it and review all the information, including the reason code for the chargeback. This allows them to process it quickly. Sometimes, banks can set up automated rules so that the case can be submitted to the payment network without any human involvement in the back office. It’s all about efficiency and improving the customer experience through self-service.”
On the backend, the digitalised process enables automated case creation, routing, and submission to the relevant payment networks, reducing the workload on the bank’s dispute resolution team. With a fully digitalised system, banks can process disputes more efficiently, improve turnaround times, and provide their customers with a superior dispute management experience, ultimately strengthening customer loyalty and trust in the bank’s payment services.
Digitalisation of the dispute resolution process can significantly reduce operational costs and enhance the customer experience for banks. By automating the dispute intake and case creation process, banks can eliminate the need for manual employee data entry and processing, reducing labour costs.
The streamlined workflows and rule-based decision-making enabled by digital solutions also allow banks to handle more disputes with fewer resources, further driving down operational expenses. Beyond the cost savings, digitalisation can also greatly improve the customer experience. Customers can now initiate disputes directly through a digital platform, such as a mobile banking app, providing a more convenient and self-service experience.
The rule-based chatbot can guide customers through the dispute process, collecting all the necessary information upfront to ensure a complete and accurate case submission. This not only enhances the customer experience but also leads to faster dispute resolution times, as the bank can quickly process the case without the need for additional information requests.
Customers can also track the status of their disputes through the digital platform, providing transparency and reducing the need for follow-up calls or emails. Ultimately, the improved efficiency and faster resolution times enabled by digitalisation can significantly enhance customer satisfaction and loyalty, as customers receive their money back more quickly and with a seamless experience. Brooks testifies to an increase in the willingness of banks to adopt AI solutions as awareness of AI increases. She tells Payments Intelligence: “Banks are assessing new use cases, and dispute management is a prime candidate for realising gains in cost, efficiency, accuracy, and CX.”
Integrating AI into dispute management promises to transform the payments industry by enhancing efficiency, reducing operational costs, and improving customer satisfaction. The traditional manual processes are costly and time-consuming and lead to poor customer experiences.
By embracing digitalisation and rule-based AI, banks can streamline dispute resolution, providing a seamless, self-service experience for customers and ensuring predictable, consistent outcomes. This transformation will allow banks to actively promote dispute management as a key feature of their payment cards, giving consumers the security and protection they desire while positioning banks as leaders in the competitive payments market. As the volume of e-commerce transactions continues to rise, the need for efficient and effective dispute management will only grow, making AI an essential component of the future payments landscape and dispute processing in particular.
However, despite the numerous benefits, McClure expresses concern over the current technological challenges associated with AI. He explains: “While the benefits of AI are abundantly apparent, there are also challenges with this technology. AI is dependent on parameters that we establish for it, so if our parameters are flawed, so are the results. For example, if a business is using a fraud filter to help protect itself against fraudulent activity, and the parameters they’ve set in place are too strict, their fraud filter could actually prevent valid transactions from going through, known as a false decline. Not only does this prevent a valid sale, but it can also turn away a customer from shopping at your business in the future due to the bad experience.”
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