5 Steps to Better Dispute Management in Financial Services

Sumit Malhotra

SVP, Head of Banking & Financial Services

Every dispute is a source of customer friction. There’s been a significant rise in the volume of disputes across financial services with the growth of digital transactions. Non-cash transaction volumes are growing at 14% annually, the highest in a decade [1]. Disputes cost financial institutions a lot of money. Each year, an estimate of 25 million transactions are disputed in the U.S. alone [2]. The top 15 American banks spend approximately $3 billion each year on dispute processing [3]. While the customer churn due to a dispute impacts the topline, the related processing and new customer acquisition costs impact the bottom line.

Here are five things banks and financial institutions can do to improve the dispute management process:

1. Keep your customer informed

Customers concerned about their liability expect immediate answers. However, many steps in a dispute resolution process require collaboration. For example, in the case of chargeback requests, customers notify their bank about a transaction they did not authorize. The issuing bank contacts the merchant bank for proof of transaction. While this is in progress, customers have come to expect updates at every step. Any slip-ups lead to delays and customer dissatisfaction. The bank initiates arbitration if the customer is unhappy with the response. Naturally, they need to engage with the customer throughout. Customers expect consistency in communication when switching between the contact center and a digital channel. 

2. Break down process silos

Siloed processes, disconnected functions, disparate IT systems and multiple stakeholders stand in the way of dispute resolution. The process usually involves a complex network of institutions working together. For example, with a credit history dispute, it can involve multiple institutions—the credit scoring company, the bank where the customer is requesting a loan, the institution wrongly registering defaults against the customer, etc. Banks deal with a huge number of such credit history disputes of all different types. They must break down process silos to facilitate data flow within and between institutions.

5 Steps to Better Dispute Management in Financial Services

3. Stop letting legacy lock-in hold you back

While technology rapidly grew financial services, it created its own set of challenges. Banks were at the forefront of embracing digitization. Over the decades it has led to a complex technology landscape. IT systems adopted at different time periods often struggle to work together effectively. Some large financial institutions still function with proprietary core systems established several decades ago. Intelligent automation can augment existing systems to address this legacy lock-in and take advantage of investments already made. 

4. Avoid costly manual errors

Dispute management is typically a time-intensive, manual process. The lack of ready information degrades the speed and accuracy of the dispute settlement. Unintentional errors while storing, retrieving, or verifying customer information can occur at any stage. Take the example of billing: failure to send a statement, charges on unauthorized services, wrong charges against authorized services, or miscalculations, etc. are usually a result of the same kind of manual errors that led to the original customer dispute. Further, new errors made by the dispute research team—or by any stakeholder—can only harm an already strained customer relationship.

5 Steps to Better Dispute Management in Financial Services

5. Comply with regulations, but don’t let them define the customer experience

Regulation and consumer protection laws further amplify the pressure. It puts undue pressure on research teams and back-office processes. Financial institutions must ensure compliance with federal and state regulations at every step of the dispute resolution process. Resolution timeframes typically vary based on the type of dispute—from 30 days to 90 or more. Unfortunately, ensuring compliance can sometimes take a bank’s focus away from customer satisfaction and experience excellence. Added consumer protections introduced during the Covid-19 pandemic seem to have resulted in an increased risk of fraud. And new regulations meant combat fraud have led to additional processes and further delays. 

With a fast and effective dispute management process, financial institutions (FIs) can build customer trust and reduce operational expenditure. Financial Institutions must seize the opportunity presented by technology and design thinking to simplify and automate the dispute management process. Many disputes can be accelerated using a ‘zero-touch’ process, which is removing the need for human intervention by the financial institution. With the right use of technology, financial institutions can convert disputing customers to brand advocates.