Between October 2020 and September 2021, Visa’s Rapid Dispute Resolution (RDR) system successfully resolved 500,000 disputes, amounting to $20 million in pre-dispute liability.
What is Rapid Dispute Resolution (RDR)?
Rapid Dispute Resolution is a technology-driven process that allows merchants to resolve transaction disputes before they escalate into chargebacks.
RDR intercepts disputes at the earliest stage, typically when a customer contacts their bank, and allows the merchant to issue a proactive refund or response, often in real-time.
It’s fast, cost-effective, and protects businesses from potentially losing access to their payment processor due to excessive chargebacks.
Merchants accepted 85% of eligible RDR cases, indicating a high level of trust and reliance on the system’s automated decision-making capabilities.
An Outdated Chargeback System
The chargeback process was first introduced in the 1970s as part of the Fair Credit Billing Act in the United States.
The act aimed to protect consumers from fraudulent charges on their credit cards. It worked well, but oftentimes worked in favor of the cardholder leaving merchants with limited opportunities for recourse and the loss of money.
As more people made online purchases in the 2000s, chargebacks became an even bigger problem, particularly for high-risk businesses and merchants.
Fraudulent chargebacks, also known as “friendly fraud,” and customer disputes increased, overwhelming the resolution system.
The Introduction of Rapid Dispute Resolution
Verifi introduced Rapid Dispute Resolution (RDR) in collaboration with Visa as part of its broader Visa Resolve Online (VROL) platform.
RDR was designed as a preemptive solution; a way for merchants to intercept disputes before they escalate.
Instead of entering a formal chargeback process, eligible transactions could be automatically refunded based on predefined rules.
There were four key motivations for Visa’s product launch: reducing the volume of chargebacks, cutting operational costs, improving customer satisfaction through speedier resolutions, and helping merchants save money and manage their chargebacks.
Since Visa’s Rapid Dispute Resolution was released, Mastercard and other payment processors have announced their own versions. Mastercard has the Collaboration Dispute, while other processors are leveraging AI tools to help merchants resolve disputes early.
How Rapid Dispute Resolution Works
RDR is powered by automated technology, including algorithms and machine learning, which help analyze dispute patterns and determine when and how to resolve issues preemptively.
The workflow for most dispute resolution software goes something like this:
1. Dispute Initiation
A customer contacts their bank to dispute a charge. This can be done over the phone, online, or through the payment processor’s app.
2. Network Interception
Through networks like Visa (via Visa RDR) and Mastercard, the dispute is flagged before a chargeback is officially filed. This prevents unnecessary chargebacks that can affect your business accounts.
3. Merchant Notification
The merchant, through their payment service provider or gateway, is instantly alerted.
4. Automated Decisioning
Based on pre-set rules (e.g., transaction size, customer history), the system either approves a refund or declines resolution.
5. Resolution Outcome
If approved, a refund is issued, and no chargeback occurs. The case is closed. If not approved, a dispute is created, and from there, everything moves as if it is a traditional chargeback.
The automation alone saves businesses time.
Traditional chargeback processes typically take between 45-90 days to resolve, whereas RDR automates dispute resolution, enabling near-instantaneous decisions. Sometimes decisions are made within seconds.
Benefits of Rapid Dispute Resolution
The primary benefit of rapid dispute resolution is its ability to reduce the number of chargebacks. Unfortunately, the data is somewhat mixed, as some sources report an average reduction of 65% in chargebacks, while others claim a reduction of up to 90%.
While the exact numbers are unclear, any percentage reduction is a boon to businesses, especially those labeled high-risk.
Why Are Chargebacks a Problem for High-Risk Businesses?
Chargebacks negatively affect your payment processor accounts no matter what type of business you run, but they’re particularly dangerous if you’ve been labeled high-risk.
High-risk merchant accounts can be at risk of shutdown much easier than traditional businesses, so if suddenly a high rate of chargebacks pops up on your account, you’ll be more likely to be blocked or shut out of your payment processors.
Mainstream payment processors don’t like to take risks on high-risk merchants, so it’s important not to give them any additional reasons to cancel your account.
Protect Your Merchant Account’s Health
High chargeback rates lead to higher processing fees, reserve requirements, frozen funds, and, worst of all, terminated accounts. The higher the chargeback ratio, the more likely you are to be penalized.
Now, you should know that Mastercard and Visa calculate your chargeback ratio differently, but if you’re implementing RDR or similar software, that shouldn’t be an issue.
RDR protects your business’s reputation while not putting your merchant account at risk.
Improved Customer Satisfaction
Happy customers stay customers. While there is always the possibility of a customer filing a dispute illegitimately, more often than not, customers initiate disputes due to an accident or mistake.
Knowing that businesses have your back and are willing to end disputes quickly encourages them to become lifelong customers.
One study reported that 84% of customers recommend brands based on the excellent customer service they receive. Solving chargeback disputes swiftly without fuss enhances the customer experience.
Save Money Longterm with RDR
Chargebacks are expensive. Some research reports that chargeback costs businesses across the United States billions per year in total. Each dispute not only costs businesses anywhere from $20 to $100 per dispute, but also factors in lost inventory and/or time spent compiling evidence.
While it may seem like “giving in,” the overall financial impact is almost always more favorable than letting the chargeback process unfold.
Additionally, you now have more time to focus on increasing sales, improving conversions, or attracting new customers, as you no longer have to spend your time on chargeback dispute procedures.
Potential Risks
Like everything else, there are risks involved with RDR. Some payment processors may not even offer a version of RDR to protect high-risk businesses from fraud.
Merchants might over-refund to avoid chargebacks, or customers may exploit the system, knowing they will receive instant refunds. Effective rule-setting and regular audits can help prevent these issues.
When getting started with RDR, work with your payment processor to identify integration with compatible gateways, establish refund rules and thresholds, and align internal policies with automated decision-making.
Rapid Dispute Resolution and High-Risk Businesses
High-risk industries like kratom businesses, peptides merchants, and travel merchant accounts all face unique challenges that make finding a payment processor difficult.
Incidents such as higher fraud rates, legal scrutiny, and complex billing cycles all lead to mainstream processors keeping high-risk merchants on high alert.
With heavier scrutiny, one or two months of excessive chargebacks can lead to blacklisting or even business closure. RDR provides a critical safety valve that protects high-risk merchant accounts from being frozen or shut down.
Limitless Payment Solutions and High-Risk Merchants
Limitless Payment Solutions (LPS) works exclusively with high-risk merchants and offers RDR as part of its comprehensive payment-processing services.
Our team is ready to help ensure your high-risk merchant account is protected with RDR services.
Limitless Payment Solutions’ extensive industry experience enables us to strike a balance between chargeback prevention and long-term compliance with our processors.
The Future of Dispute Resolution
If it hasn’t already, expect RDR to become the standard rather than a luxury for most merchant accounts.
AI-Driven Accuracy and Speed
Artificial intelligence and machine learning are transforming the way disputes are handled.
AI-powered decision engines now evaluate transaction patterns, customer histories, and fraud indicators in real time, making dispute outcomes more accurate, less prone to human error, and faster than ever before.
AI is expected to power 95% of all customer interactions by 2025, according to Servion Global Solutions.
This includes actions like dispute-handling.
Visa’s RDR platform already leverages machine learning to identify transactions likely to be disputed, triggering automatic refunds when predetermined merchant rules are met.
Real-Time Fraud Response with Adaptive Rules
Future RDR systems will incorporate dynamic rule engines that evolve in response to real-time fraud data. This means merchants won’t have to adjust their dispute policies manually.
Instead, systems will learn and adapt independently.
Global Regulatory Integration
With increasing regulatory scrutiny on transparency and fair business practices, RDR is poised to become part of broader compliance frameworks.
The European Union’s PSD2 regulation and the U.S. CFPB’s emphasis on consumer protection are prompting financial institutions to enhance dispute resolution timelines and transparency.
Experts predict that automated resolution systems, such as RDR, could become an industry standard, particularly in regions with robust consumer rights frameworks.
Digital Transactions reported that 78% of merchants saw fewer chargebacks after Visa implemented updated dispute policies in 2021.
Need a High-Risk Merchant Account? Apply Today with Limitless Payment Solutions!
If you’re ready to stop letting chargebacks eat into your bottom line, it’s time to partner with a provider who understands the unique challenges of high-risk industries.
At Limitless Payment Solutions, we specialize in helping businesses in markets like kratom, peptides, and travel protect their merchant accounts and stay profitable.
Don’t wait for another dispute to cost you time and money. Apply today and see how Limitless helps your business thrive with smarter, faster, and more reliable payment solutions.