The rise in e-commerce fraud, combined with consumers’ increasing willingness to file chargebacks, has left issuers and acquirers scrambling to shore up their dispute management processes. With a complicated process that varies depending on the payment network involved, chargebacks have become a huge operational challenge for many merchants.

In a recent PaymentsJournal podcast, Cheryl Fitzgarrald and Kate Knudsen, Senior Program Directors at BHMI, and Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research, discussed why chargebacks are an increasing concern for so many merchants—and what they can do to combat the problem.

PaymentsJournalNew Approaches to the Persistent Problem of ChargebacksPaymentsJournal New Approaches to the Persistent Problem of ChargebacksPaymentsJournaljQuery(document).ready(function ($){var settings_ap67749506 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"67749506",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_444107_29",settings_ap67749506); }catch(err){ console.warn("cannot init player", err); } });

What Makes Chargebacks So Complex?

A chargeback allows consumers to dispute a transaction and request a refund for a variety of reasons, such as fraud, unauthorized charges, or dissatisfaction with goods or services. When a consumer initiates a chargeback, a detailed workflow process for handling the payment dispute unfurls. This process is meant to provide a standard method for dispute claim management.

One of the main reasons chargebacks tend to get complicated is the number of parties involved. There’s the cardholder, the issuer, and the merchant that sold the goods or services being disputed. There’s also the acquirer, which acquires the payments on behalf of the merchant. Finally, there are the card networks, such as Visa and Mastercard, that oversee the entire process.

“Most of our clients support a wide range of payment networks, from the global giants like Visa and Mastercard to regional players within the client’s own country,” Knudsen said. “Each of these networks comes with its own set of dispute regulations. And in the U.S., we’ve got federal regulations, like Reg E and Reg Z, to keep in check too. These regulations tend to be very stringent and lay out the requirements, process, and timelines for handling disputes.”

That means handling chargebacks can require not just a group of trained personnel but also flexibility.

“We’ve got a dedicated team focused on tracking every mandate from the networks and integrating them into our dispute workflows,” Knudsen said. “It’s a constant cycle of review and modification. We’re always poring over that mandate documentation and identifying the necessary changes to our work...

Successful companies must constantly change to preserve their success, but digital transformation may be the most radical overhaul most of us will ever see. For organizations to make this transformation a success, getting employees on board and fully engaged is a requirement. 

As the head of Corporate Strategic Planning and Management for Wells Fargo, Amy Downey understands the optimal ways of steering a company’s strategic direction and organizational design. In a recent PaymentsJournal podcast, Downey spoke with Emmett Higdon, Director of Digital Banking for Javelin Strategy & Research, about how to maximize employee engagement amid a digital transformation.  

PaymentsJournalTurning the Ship Around: Insights for Navigating Digital Transformations PaymentsJournal Turning the Ship Around: Insights for Navigating Digital Transformations PaymentsJournaljQuery(document).ready(function ($){var settings_ap24595489 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"24595489",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_444060_29",settings_ap24595489); }catch(err){ console.warn("cannot init player", err); } });

The Scope of Digital Transformation 

Digital transformation is a multifaceted concept, but a more suitable characterization may be: effectively aligning with customers’ preferences. It necessitates alignment across all facets of a business, ensuring consumers and the companies serving them anticipate an on-demand, hyper-personalized approach to banking services. In that light, digital transformation revolves around adapting an organization’s processes to create a sense of customization for each individual. 

Employee engagement is a critical part of that transformation.  

“I read an article in the Harvard Business Review called ‘How Companies Can Improve Employee Engagement’* that outlined two ways that employees want to engage,” Downey said. “One is they want to know that their work is connected to a larger purpose. And secondly, they want to make sure that their work is enjoyable and not very stressful.” 

Sometimes people think of digital transformation as involving just the IT department, but it affects every division in an organization. “I often tell my banking clients, let’s stop calling it digital banking,” Higdon said. “It’s just banking. Banking today is digital. And we need to transform every aspect of how we go to market with consumers today to meet the enormous expectations that they have.” 

Act with Urgency

Banking will always involve human interaction. Decades ago, many assumed that we eventually would not have branches because ATMs represented the future. But branches and bankers are still very much around. People want to talk to people,

While fintechs and banks may have once been seen as competitors, their relationship has grown over the years. With market shifts and evolving customer needs, new models of working together have emerged, expanding customers’ options and opening doors for new ways of fintechs and banks to work together in mutually beneficial ways.

A recent PaymentsJournal podcast looked at the state of these partnerships and how they’re driving embedded payments growth. The episode features Bryan Schneider, Product Head for a Fintech Strategy and Partnerships for U.S. Bank who recently helped launch the bank’s Connected Partnership Network, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research. They discussed how innovations like open banking have fueled cooperation between banks and fintechs.

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Opening doors through open banking

Historically, banks aimed to serve as a one-stop shop for meeting their customers’ needs by building in-house solutions or partnering with third-parties to white label their solutions. While this approach enables banks to meet many broad customer application needs, it can often cast aside the specific front-office or back-office functionality needed to meet unique industry workflows or use cases. Fintechs have successfully helped fill such voids by creating specific user experiences, workflows and connectivity to address the market needs. In some cases, this has meant even competing with banks by delivering their solution with fully integrated payment capabilities traditionally provided by their bank. But buying behavior has changed, and customers demand more control over choosing their desired banking and technology partners. Gone are the days of either-or, says Schneider. Open banking has opened new doors.

Powered by interoperability and collaboration between banks and fintechs, embedded banking revolves around creating a streamlined process for companies to originate everything in one place versus having to log into multiple systems. It puts the control back in the hands of the customer, and the expertise in the hands of the most capable banking and technology partners.

 “It might seem ideal to be all things to all clients, but the reality is that it’s nearly impossible, as evidenced by the massive ecosystem of general fintech and software solutions in the market,” Schneider said. “They support these different partnership models with more of a plug-and-play experience,

As businesses strive for innovation, efficiency, and scalability, the path to digitization is fraught with challenges. It’s a journey that requires addressing outdated processes, adopting new technologies, and most important, gaining buy-in from leadership and colleagues.

In a recent PaymentsJournal podcast, Reetika Grewal, Executive Vice President and Head of Digital Transformation at Wells Fargo, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, delved into how Wells Fargo is helping its clients with digitization and optimizing digital experiences for customers, as well as what makes fintech partnerships successful.

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Key Focuses for 2024

Businesses face many challenges in running their operations smoothly. Prioritizing efficiency and productivity is crucial, and can be achieved through the automation of manual tasks, streamlined workflows, and enhanced accuracy in record-keeping. Leveraging advanced software for data analytics empowers businesses to make informed decisions and gain valuable insights.

“At a very simplistic level, companies need great software to help run their business,” Grewal said. “That is one of our core missions, and that’s what we rolled out last year with Wells Fargo Vantage.

“It’s a singular place where a company can go and find that dashboard of the activity on their accounts, determining what things need their attention.” It also gives them opportunities to  manage their users, tailor their online experience, and manage anything new with their company.

Access to data is a significant competitive advantage, enabling businesses to tailor solutions to customers’ needs effectively. Without proper integration, however, this valuable data remains inaccessible, undermining competitiveness and impeding growth prospects.

“Something that midsize companies struggle with is not having partners that have the comprehensive set of tools to integrate those other systems as the business grows,” Bodine said.

Exploring the Digitalization Journey

Wells Fargo has adopted a client-first mindset, creating resources that help the company tailor the company’s experience—and address client pain points.

“We have built a library of personas that covers a variety of company sizes and compa...

With the Clearing House’s RTP network and the Federal Reserve’s FedNow, the demand for instant payments continues to grow from consumers and small businesses. How can businesses best accelerate this process?

Debbie Smart, Senior Product Marketer at Q2, and Keith Gray, Vice President of Strategic Partnerships at the Clearing House, sat down with Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, for a PaymentsJournal podcast and explored the landscape for instant payments. Although the path can be different for different institutions, it’s clear that customers have come to expect real-time payments. Late adopters beware.

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Payroll: A Critical Use Case

From the beginning, account-to-account payments have been driving many of the real-time use cases. The growth of providers like Zelle and Chuck has fueled the expansion of business-to-consumer payments.

One application that has been frequently overlooked is payroll, including daily payroll and earned wage access. These functions are already key users of the RTP network—and they’re growing every day.

“Who would have thought that six years ago when we launched this that a lot of people would prefer getting paid every day for what they do?” Smart said. “Now all of the rideshare companies and the companies like Grubhub are using RTP to push money out to their contractors.”

Exploring Business-to-Business Payments

On the commercial side, especially with business-to-business (B2B) payments, the most significant value is in the data. The rich messaging on the new payment rails doesn’t exist in the older payment rails. Commercial customers are increasingly excited about the possibilities as they learn more about this.

Another important usage involves paper checks. A third of all B2B payments are still made with a check. But 78% of the time, when a business pays another business via ACH, the identity information or remittance information doesn’t go along with the transaction. It goes in an email or via U.S. mail, which makes it time-consuming for these businesses to complete reconciliation. Part of the excitement around the power of instant payments lies with the ability to have that remittance information from the start.

It’s not just the immediacy of the payment.

As anti-money-laundering challenges escalate and new liability shifts loom on the horizon for 2024, fintechs must be prepared. Proactive measures are crucial for establishing a firm foothold in the fintech landscape. Reactive approaches will only leave businesses vulnerable to attacks and financial losses.

In a recent PaymentsJournal podcast, Matt Herren, Director of Product Management at CSI, and Jennifer Pitt, Senior Analyst of Fraud and Cybersecurity at Javelin Strategy & Research, delved into how the regulatory landscape has evolved, the importance of security for growth, and the proactive vs. reactive approach to risk mitigation.

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The Evolution of Regulation

From the start, fintechs functioned within a less stringent regulatory environment. However, even then, they were obligated to adhere to anti-money-laundering (AML) and know-your-customer (KYC) regulations. As fintechs expand in scale and impact, new regulatory frameworks have emerged to address issues such as data privacy and security.

“The regulatory landscape for fintechs is in an emerging evolutionary state right now,” Herren said. “It might be less stringent than banks, but as they grow—and their services become more complex—it’s an inevitability to be subjected to additional levels of scrutiny.”  

FinCEN publications, issued by the Financial Crimes Enforcement Network, regularly communicate new or revised regulations for financial institutions to remain in compliance with AML and Combating the Financing of Terrorism (CFT) rules. Some regulations, including the Customer Due Diligence (CCD) rule, have included FIs and non-banks. This requires FIs and fintechs to authenticate the identities of their customers to stop money laundering and terrorist financing.

“We’re also going to see a shift toward the FRAML (fraud and anti-money-laundering) framework,” Pitt said. “The convergence of fraud and money laundering are often intertwined with money mules or predicate crimes. Regulatory aspects of fintechs are going to have to incorporate a FRAML framework—not only with the actual fintech products but also investigations on both fintech providers and financial providers.”

Shifting Fraud Liability

Faster payments have brought about heightened concern regarding fraud risks, allowing malicious actors to exploit vulnerabilities. Although new fintechs seek rapid customer expansion,

The term “fraud” has become a catch-all for some financial institutions, which sometimes downplay these occurrences as mere nuisances rather than genuine threats. However, the stark reality is that fraud has given rise to a multitude of attack methods, each carrying its own nuances and varying degrees of impact on customers and financial institutions.  

In an age of escalating cyberattacks, the proverb “knowledge is power” holds truer than ever.  A financial institution’s familiarity with various fraudulent tactics becomes central to its ability to prepare for and safeguard against potential threats. By delving into the intricacies of these attacks, institutions can strategically invest in the right fraud prevention solutions that address particular types of fraud.

According to a Javelin Strategy & Research webinar, Cybersecurity: 2024 Trends and Predictions, more serious fraud attacks are set to wreak havoc for FIs in 2024 in the form of deepfakes and other artificial-intelligence-related scams. FIs that don’t take these types of attacks seriously could face reputational and monetary damage.

Sunil Madhu, CEO and Founder of Instnt, and Tracy Kitten, Director of Fraud & Security at Javelin Strategy & Research, further delved into this topic during a recent PaymentsJournal podcast. They discussed the current types of fraud that face financial institutions, why first-party fraud is complex to resolve, and what steps FIs can take to resolve first-party fraud.

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Understanding the Various Types of Fraud

The pandemic brought on an acceleration toward digitalization, and this opened the door for cybercriminals to leverage the latest in tech innovation to detect vulnerabilities in their targets and launch attacks. These attacks have been especially felt within the banking sector.

Madhu outlined the types of fraud having the biggest impacts on financial institutions today:

Synthetic ID fraud: This is also referred to as synthetic identity theft. Fraudsters create a fake identity by using real and fictitious personal information. Criminals begin by stealing a real Social Security number through the dark web or other data breach, then create a fictitious name, date of birth, and address. This new “synthetic” identity is then used to open credit cards...

As real-time payments expand globally, financial institutions confront the challenge of modernizing their legacy systems to meet the digital expectations of their customers. The positive aspect is that there’s no need to overhaul core systems. Instead, modern software can relieve core banking systems from real-time demands.

During a recent PaymentsJournal podcast, Carlos Netto, Co-Founder and CEO of Matera, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, delve into the success of Brazil’s Pix and what U.S FIs can glean from other countries that have successfully ramped up their instant payment efforts.

PaymentsJournalBeyond Rip and Replace: Alternatives for Modernizing Core BankingPaymentsJournal Beyond Rip and Replace: Alternatives for Modernizing Core BankingPaymentsJournaljQuery(document).ready(function ($){var settings_ap31421500 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"31421500",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_439660_29",settings_ap31421500); }catch(err){ console.warn("cannot init player", err); } });

The Unexpected Impact of Pix

Pix, Brazil’s instant payments system, has enjoyed remarkable success since its November 2020 launch. That’s attributed to several factors. For one, certain financial institutions were mandated by the central bank to participate, and the regulator played a role in developing the system’s technical aspects. This ensured uniform standards, encouraging widespread adoption.  Pix’s free availability to all users also differentiated it from traditional banks, which typically restricted fund transfers to business hours.

“Pix is used by people to send money to friends, pay in stores, or by reading a QR code,” Netto said. “It’s not only a rail but also a way to move money from one bank account to another bank account.

“Pix and related technology enable every use case. We have QR codes so consumers can pay businesses instantly. We have the directory so we can send money to our friends. And there’s a standard UI so every bank providing Pix has to offer it in the same way so it’s easy for everyone to use. It enabled Pix to grow fast. Faster than we were expecting. It moved from zero to five billion monthly transactions in three years.”

The surge in transactions due to Pix has had a significant impact on core banking systems. With transactions moving directly between demand deposit accounts (DDA) without intermediaries, traditional core banking systems were not equipped to handle such high volumes.

This has led to Matera’s latest challenge, developing a core banking system that can handle a high volume of transactions brought about by Pix’s success.

How Matera Supports Its Clients

Open banking continues to spread worldwide and is heading for the United States, in what some have been calling its “smartphone moment.” The infrastructure is falling into place to support open banking, and the Consumer Financial Protection Bureau has begun safeguarding the consumer protections necessary for this to happen.

In a recent PaymentsJournal podcast, Amit Shastri, Senior Director of Product Management at Worldpay from FIS, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the various payment rails that will facilitate open banking and what the benefits could be for banks, merchants, and consumers.

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The Taxonomy of Open Banking

It’s important to understand the terminologies used in open banking, a new topic for many people. There are key differences between account-to-account (A2A) payments and open banking. A2A payments rely on legacy banking systems and often involve manual user steps, resulting in a suboptimal user experience. Open banking is not limited to the bank’s technology but can be seamlessly integrated into other apps with a stronger focus on conversion rates and experiences. A2A payments tend to lack interoperability across regions, whereas open-banking payments have the potential to be integrated into cross-border payments. In short: Although all open-banking payments are A2A payments, the reverse is not true.

In the United States, open banking is centered on the API-based connectivity that enables the sharing of bank account and balance information. U.S. consumers have become familiar with linking their bank accounts as part of the checkout process, then leveraging that connection to make payments again and again.

The term “real-time payments,” or RTP, refers to the underlying infrastructure that enables instant or near-instant transfer of payments between two parties. RTP operates 24 hours a day, weekends, and bank holidays. Open banking is effectively the overlay of services on these RTP rails, and it has the potential to revolutionize payments for consumers, retailers, small businesses, corporations, and governments. 

Where Open Banking Stands

According to Shastri, open banking accounted for nearly $525 billion of e-commerce transaction value in 2022 and is expected to see a 13% compound annual growth rate through 2026. Some of the key successes of open banking around the world are seen in Brazil, which has a payment scheme driven by the Central Bank of Brazil, and in India with UPI,

Businesses often recognize that their success hinges on their ability to scale and expand. However, many businesses don’t anticipate the tightening of their profit margins on this journey to expansion.

At first glance, it may seem counterintuitive. After all, one would expect that increased growth translates to higher revenue and greater profitability. Yet the reality is that business growth comes with inevitable challenges. Chief among them are the mounting operational costs that chip away at hard-earned profits.

In a recent PaymentsJournal podcast, Nicholas Botha, Payments Sector Lead at AutoRek, and Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, delved into what businesses must do to mitigate operational lag, how automation is revolutionizing reconciliations, and what the payment sector’s outlook is for 2024.

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Addressing Operational Lag and Margin Challenges

Efficiency and keeping operational costs low are paramount considerations for any business. When an organization starts to grow, managing the increase in transaction volume becomes essential.

“What we’re seeing is a lean towards more operational efficiencies—automation, new technology, cloud infrastructure—and that’s there to support this growth at an affordable rate,” Botha said. “This ultimately increases firm’s margins as they grow, and that’s how they can increase their revenues as they scale up.”

A company’s success ultimately depends on how well it optimizes its processes. Leveraging data is another key element businesses should prioritize.

“Rather than just dumping these transactions into the proverbial shoebox, one of the things I see about AutoRek is being able to help organize that and manage the process flow,” Riley said. “That seems to be very important, too, from an operational perspective.

“Certainly, squeezing the dollars and making it efficient makes sense, but also being able to use that data as a competitive weapon.”  

The Need for Automated Reconciliations

Most small payments companies initially rely on manual reconciliation processes that are typically straightforward. However, as these companies aim to scale, this once-simple process gains complexity, leading to time-consuming procedures and undue pressure on operations teams.