Are we willing to learn the lessons of Apple Card?

A guest editorial by Fatemeh Nikayin, co-founder and chief growth officer at Rivero

In August 2019, Apple and Goldman Sachs unveiled what they described as a ‘groundbreaking’ credit card. Designed to promote healthier financial habits, the Apple Card aimed to revolutionise the credit card experience. However, little more than five years later, the initiative now stands as a cautionary tale about the complexities of managing projects on this scale, particularly when addressing user complaints.

Last year, the Consumer Financial Protection Bureau (CFPB) imposed an $89m fine on the two businesses. The penalty followed a significant investigation into the card’s operational failings. During the first two years, customers reported over 150,000 billing errors related to the Apple Card, many of which were either inadequately addressed or ignored. In the wake of the ruling, the card’s future looks far less certain than ever.

What went wrong?

The scale of this failure and the fact that it stemmed from two of the most influential companies in their respective fields caught many by surprise. The project highlights a critical flaw in the Apple Card initiative: an ineffective dispute management system, which proved wholly inadequate for handling the scale of the disputes it eventually faced.

During a period of heightened regulatory scrutiny, the risk of other card issuers facing similar measures must be addressed, particularly as many underestimate the critical importance of effective dispute management systems. Moving forward, it is essential to learn the lessons of this failure to ensure it doesn’t happen again.

Tackling misconceptions

Misconceptions about the importance of effective dispute management systems often stem from the outdated belief that they are too costly and time-consuming. In the past, fines related to the issue were seen as an unfortunate but inevitable ‘cost of doing business’.

While this may once have been the case, it fails to account for the rise of modern solutions that can automate these processes efficiently. In recent years, technological advancements such as virtual agent chatbots have enabled a new generation of dispute management systems capable of handling complaints at scale and speed, respecting regulatory requirements with regard to consumer protections set by payment networks (like Visa and Mastercard) and governments. Consequently, fines imposed on Apple and Goldman Sachs should be considered entirely avoidable.

The key to top of wallet

Effective dispute management systems safeguard against hefty compliance fines that can hinder the growth of card programmes and are a crucial tool in helping card issuers achieve the coveted ‘top of wallet’ status in an era of intense competition. Globally, the use of debit and credit cards has grown steadily over the years. Furthermore, the rise of neobanks and other card-issuing entities means consumers now hold more cards than ever before.

And now, in an increasingly competitive landscape achieving ‘top of wallet’ status—the position of being a customer’s preferred card for specific purchases—has become more important than ever. Consumers have multiple cards from different banks or card issuers, and there are several factors influencing their choice. The three main ones are convenience, efficiency, and trust in the card issuer’s ability to handle payment disputes and prevent fraud effectively.

Card issuers have made improvements in the areas of convenience and efficiency. However there is still work to be done to address concerns around payment disputes and fraud. Issuer banks need to reduce friction in the payment dispute process. In the past, this was a difficult task, but modern advancements have now made significant improvements possible.

Taking a step forward

In the wake of high-profile examples like Apple Card, there is no reason for banks not to be utilising dispute management systems that offer exceptional ease of use for end users. Let’s face it, the stress of payment disputes often arises from the complex forms customers and issuing banks must complete to submit a claim. This complexity significantly contributes to delays in the dispute resolution process. This is far from ideal, especially given the wealth of practical, user-friendly solutions now available to streamline customer support.

For example, banks can adopt chatbots to guide customers through dispute-related conversations and gather the most relevant information for their case. At the same time, automation capabilities can be used to enhance systems, enabling dispute teams at banks to efficiently process incoming volumes while adhering to timelines and compliance requirements set by governments and card networks. 

However the usage of chatbots must be implemented with care. In highly regulated industries, such as payments, banks face significant risks and liability issues if they rely solely on large language models (LLMs) for customer-facing services. Put simply, LLMs are great for domains with large datasets where precision and reproducibility are not primary concerns. However, disputes are different. While they might be complex, they are governed by clearly defined rules.

What’s relevant here is that on occasion, LLMs have been known to ‘hallucinate’, inventing rules that do not exist. Ultimately, this puts the card issuer at risk and makes them liable for any errors that might occur. Therefore, it is critical to consider these risks when deploying consumer-facing services. Thankfully, by leveraging rule-based machine intelligence across rule-driven domains like disputes, banks can ensure they’re adhering to strict compliance regulations.

Through this approach, banks can deploy chatbots that operate within rules defined by payment networks and deliver predictable and reproducible results. In doing so, they are able to generate all the benefits of automation and great customer experience without the downsides, bringing efficiency to the process while avoiding liability issues.

A new dawn for dispute management

If card issuers and banks prioritise effective dispute management systems, they can ensure that the foundations of their card programmes are reliable and fit for purpose and corporations like Apple and Goldman Sachs can confidently introduce innovative features essential for driving the industry forward while minimising the compliance risks often associated with such advancements.

Looking ahead and learning from the shortcomings of the Apple Card is crucial. The intent behind the initiative is commendable. Its execution, however, has highlighted a persistent issue within the card-issuing industry. The fines’ high-profile nature and aftermath should serve as a wake-up call, encouraging others to learn from these mistakes rather than repeat them. If this happens, both customers and card issuers stand to benefit significantly.

To learn more about dispute management and attaining top of wallet status read Fatemeh’s previous guest editorial.

Image: Rivero

Guest Editorial This article was produced specially for Fintech Intel by an expert guest contributor.