Leveraging Dispute Management for Competitive Advantage

Credit unions face an increasingly competitive marketplace, and in this environment they are well served to differentiate themselves through improved member services. Although it is often overlooked as a means to gain competitive advantage, the dispute management process is one of the most significant opportunities to achieve tangible benefits. These potential benefits include:

Strengthened Trust: A quick resolution to a transaction dispute – and provisional funds when appropriate – can turn a negative member incident into a loyalty-building experience. Loyal members tend to feel that their credit union “has their back” – but it often takes a dispute for them to reach a higher level of comfort and trust.

Reduced Operating Costs: McKinsey estimated that the top 15 U.S. financial institutions spend approximately $3 billion each year, combined, on disputes processing. About 50 million to 100 million disputes occur annually in the U.S., with a cost per dispute ranging from $10 to $50. Implementing the next-generation operating model can reduce these operating expenses by as much as 25-40%.

Improving Resolution Quality: Given the complexities in the dispute-research process and the pressure to resolve disputes quickly, quality often suffers. In fact, McKinsey has seen situations in which 10% of dispute outcomes were incorrect (both in favor of and against customers). Simplifying and automating the process leads to better decisions.

Making Dispute Management a ‘Game Changer’

For credit unions to use their dispute management system as a game changer in the digital payments revolution, the following key issues must be addressed:

• Transaction Cost: The cost per transaction must be an acceptable figure, in order to sustain speedy resolution of all consumer disputes, even when it involves small amounts.
• Convenience: On paper, most dispute management systems appear to be simple and user friendly. However, how they actually operate is what matters most. The entire process – from logging in a dispute, to response and resolution across all products and services – must work to enhance customer experience.
• Security: Data privacy, transaction security and member trust in the entire dispute resolutions process are critical issues, and must be ensured and communicated effectively.
• Member Education: Credit unions need to engage in a continuous process of education and engagement with members. The effectiveness of dispute resolution must be evaluated at every member touchpoint.
• Revenue Trigger Management: Credit union costs often spiral for several reasons, including the siloed nature of their systems; duplication of infrastructure, people and processes; outdated technology that requires constant maintenance and strategic change due to new demands; and regulatory convergence. In the past, a significant proportion of these costs were borne by members. This cannot continue, however, as regulators and consumer watchdog organizations monitor charge structures far more diligently, and demand greater transparency in charges to reflect the true costs.
• Technology Trigger Management: Most financial systems were designed and built either prior to the advent of digital payments, or at a time when the growth of digital services was not anticipated to reach the levels that we are experiencing today, or will experience in the future. The consequence is that current systems are starting to show their obsolescence. This is a cause of great concern, as credit unions that fail to provide guaranteed responses through digital channels will suffer consequences that include the associated loss of revenue, penalty costs and most importantly, the loss of members.
• Next Generation Technology: Any dispute management system needs to open up to include external interfaces and across member services, such as loyalty, rewards, cashback, discounts, etc. Ideally, credit unions should adopt a “sandbox” model that enables any service provider to integrate through APIs. This can also lead to adoption of next generation technologies such as distributed ledgers (or blockchain.)

A Starting Point for Change Management

Similar to all types of organizational change, the most logical starting point for development of appropriate strategies and tactics to overhaul a credit union’s dispute management capability begins with an analysis of current conditions. These audits should be comprehensive and examine every aspect of the dispute resolution process.

This 10 question self-diagnostic can provide a very small sampling of the level of detail that needs to be applied in evaluating a credit union’s dispute-related sophistication:

1. Can you quickly and easily authenticate members, enter transactions and validate the nature of claims in a configurable manner for all member card/ACH debit disputes and claims?

2. Are all claims transmitted for processing in a centralized, efficient manner that ensures continuity of business?

3. Are you able to seamlessly manage sudden or seasonal spikes in claims volume, without increasing or reducing FTEs?

4. Is the workload of your claims analysts assigned and managed in an efficient manner, with the ability to rebalance claims from a central dashboard?

5. Can you reliably track critical alerts and consistently meet regulatory timeline requirements?

6. Do you have the ongoing, comprehensive overview of every case and its current status?

7. Can you post credits/debits to the appropriate accounts, issue member letters and generate accurate audit reports in an automated manner?

8. Are you able to generate an audit trail that includes when the claim was entered, when provisional credit was due and when it was generated, which letters were sent, when the case was due to be closed and when it was actually closed?

9. Does your team maintain a schedule for multiple follow-ups to expedite closure of signed affidavits/Written Statement of Unauthorized Debit (WSUD) forms?

10. Are you able to issue prompt provisional credit for all claims, to ensure higher member satisfaction?

Implementation of the Strategy

In these complex economic times, credit unions are often prohibited from pursuing expansionist strategies and instead must focus on improving the core business. This entails elimination of tasks that are beyond the scope of their core competencies, demanding increased accountability from vendor partners and addressing revenue deficiencies.

Improving on dispute management processes and systems cannot be limited to reducing costs and overhead. If a credit union does not have the time, money or skill to accomplish a related task internally, or if there is a function that’s a burden or detrimentally affecting other parts of the business, outsourcing can be a logical response. And in the current digital environment, there are a variety of reasons to evaluate the benefits of outsourcing dispute operations to a third-party solution provider. These advantages can include:

• Improved speed, service and operational efficiency;
• Immunization from costly “technology chasing”;
• Reduced overhead, training costs and operating expense;
• Ability to focus scarce resources on mission-critical projects; and
• Increased efficiency through consolidation and centralization.

The overriding reality for credit unions is that the inexorable rise of online commerce must be addressed. The market has seen considerable investment over the past decade as financial institutions of all types strive to accommodate regulatory changes, which often has resulted in opportunistic integration, and increased merger and acquisition activity. The operating infrastructure across the industry, however, is far from homogenized.

As credit unions and members move to more efficient, cost effective and faster electronic channels, there is a tangible need for financial institutions to invest in “future-proof” dispute management solutions in order to remain viable.

Ultimately, credit unions must learn from the current disruptors, including fintechs. They will need to apply relentless focus on improving their dispute management infrastructure – and those efforts will also address the demands related to open banking, faster payments and open APIs.

Sriram Natarajan is President of the New York, N.Y-based Quinte Financial Technologies, which provides information technologies and operational support for credit unions and banks.