The Chargeback Transaction

This is a transcript of The Axway Podcast of the same name.

ANNOUNCER: From Phoenix, Arizona, this is The Axway Podcast. Here’s your host, Mike Pallagi.

PALLAGI: Today we’re talking about chargeback transactions. They can represent upwards of fifty percent of contracted sales that go through wholesalers, so they require special attention. They need a solution that helps manufacturers consistently and effectively identify and resolve issues in submitted chargeback data. So I asked Atif Chaughtai, Axway’s director of solution marketing for the Healthcare industry, to tell me a little bit about them.

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CHAUGHTAI: Actually, if you look at the chargeback transactions, oftentimes they are related to financial industry, which might be having to do with credit card. But in pharmaceutical, specifically the supply chain area of pharmaceutical drug supply, the pharma company, especially manufacturers, deal with a wide variety of players in their supply chain, which include distributors, a wholesale distributor, dispensers, hospitals, and a slew of other actors that are involved in the whole supply chain. Because these drugs often fall under insurance or medical assistance programs, the insurance and government agency are also involved in those payments for these drugs. So with so many parties and transactions in this whole process, pharmaceutical companies often lead to something called a chargeback.

PALLAGI: So I wondered about a scenario in which a chargeback would need to happen. Atif gave me two.

CHAUGHTAI: In the first situation, a wholesaler buys the drugs from some drug manufacturer for a certain contract price, and sells them to consumers. Now, by the time the drugs have been delivered to the consumer, the price might have changed from the manufacturer’s side. What ends up happening is the wholesaler, who bought the drugs from the manufacturer, now essentially might have sold the drugs cheaper than for what they had originally bought. In those cases, they would submit a chargeback to the manufacturer to get a refund for the difference. That’s one scenario. A second scenario is a chargeback is a result of a failed transaction, and that’s when the consumer ended up returning the drugs or a whole bunch of consumers are returning the drugs for certain kind of recall or other situation that have arisen because of that particular drug. In that case the distributor charges back through the manufacturer.

PALLAGI: Atif told me that a chargeback transaction can represent upwards of  fifty percent of contracted sales that go through the wholesaler, and that it’s because of that huge percentage that they require special attention.

CHAUGHTAI: Wholesalers can potentially claim a chargeback for a product that was also never shipped or that was shipped to a non-contracted customer, therefore ineligible for chargeback. Then, in another situation, there is something called negative chargeback, where wholesaler invoices and ships the product to contracted customers, and subsequently issues a credit memo for any returned goods or billing errors or any other problems that might have happened during that transaction.

PALLAGI: So even though the manufacturer submits the chargeback claim at the time of the initial invoice, the wholesaler might fail to issue that negative chargeback, and what ends up happening is that there’s a risk that the wholesaler may veto the return product, and improperly request additional chargebacks…

CHAUGHTAI: …which is termed as double dipping in the industry.

PALLAGI: So what’s the answer? What does Atif recommend for companies dealing with chargeback transactions?

CHAUGHTAI: A track and trace type of solution, which essentially its purpose is to be that repository of all your supply chain events data, to give you visibility into your supply chain. Now there are specific standards out there for interoperability, such as GS1, EPCIS, or HDMA ASN. Those are all two different ways of communicating between the trading partners during your supply chain, which allows you to exchange data between them, and essentially, by virtue of exchanging data, you can get visibility into what’s going on downstream. Now specifically through GS1 EPCIS specification, which enables trading partner collaboration through secure standard-based queries, can allow you to generate on-demand pedigree type of information, shipment verification, or in real time, check for chargeback claims that are coming.

PALLAGI: For example, if you’ve shipped a product to a manufacturer who is submitting a chargeback for, say, 100 quantities, your EPCIS repository will call and tell you and verify that yes, it was 100 quantities of that particular product that was shipped…

CHAUGHTAI: …and if it indicates (double dipping) — previously I explained double dipping — that can also be recorded in the EPCIS repository to look for scenarios where chargebacks have already taken place and somebody else — the same wholesaler mistakenly or intentionally submitting another request for chargeback — could be detected through the centralized EPCIS repository. Essentially analytics, on top of track and trace, plays a big role in visualizing all that data and looking for trends in identifying anomalies, especially in cases where things have happened that you need to track down and adjust as you move forward.

To learn more about the DQSA and whether a cloud global traceability and compliance service is right for your business, please click here.

Time to consider MFT to mitigate the risk of data breaches and non-compliance with regulatory mandates

This a guest post by Saurabh Sharma, a Senior Analyst with Ovum IT and a member of Ovum’s Infrastructure Solutions team.

File transfer may seem to be a rather innocuous process from the perspective of business users, but IT keeps worrying about where the associated data will reside in the end and who would be able to access this data. Enterprise mobility and the emergence of cloud services have driven the uptake of ad hoc approaches to file transfer, which are well suited to the “working style” of business users. An often-neglected aspect is the lack of data security, governance, and reporting capabilities, which render file transfer protocol (FTP) and other traditional approaches to file transfer obsolete, especially from the perspective of customer service-level agreements (SLAs) and stringent regulatory compliance mandates.

A recent Ovum primary research survey revealed some interesting and not-so-innocuous trends and figures:

  • On average, 32% of business-critical processes involve file transfers and about 4% of FTP-based file transfers fail.
  • The average total cost of a data loss/breach incident is $350 per breached record (or $3 million, on an overall basis).
  • About a quarter of survey respondents revealed that their organization failed a security audit in the last 3 years.
  • 17% indicated “no confidence” in passing a compliance audit with the existing file transfer solutions.
  • There is little inclination to shift towards a “cloud-only” model for delivery of file transfer capabilities, with only 11% relying on software-as-a-service-based (SaaS-based) file transfer solutions for all of their file transfer needs.

These figures reveal the extent of vulnerability enterprises are exposed to when mission-critical data is knowingly or unknowingly shared with external parties without any appropriate data security and governance provisions. Clearly, to mitigate data breaches, enterprises need a more robust approach to file transfer. Managed file transfer (MFT) fits the bill for such requirements and can effectively meet stringent regulatory compliance mandates.

One might argue that with 80% of the IT budget being used for “keeping the lights on,” it is rather difficult to secure funding for a comprehensive MFT solution. However, given the level of business risk associated with data breaches and non-compliance to regulatory mandates, IT can effectively build a strong business case that specifies how a shift to MFT will add business value.

A comprehensive MFT solution will provide off-the-shelf integration with common middleware platforms and security products and end-to-end visibility into, and monitoring of, file transfers. It will help ensure rapid onboarding of new customers and partners, as well as governing interactions with trading partners. Clearly, there are “more than enough” reasons to abandon “islands” of file transfer infrastructure and shift to a comprehensive MFT solution.

Many IT leaders have so far failed to see the big picture and do not pay due attention to the need to govern the flow of data within, at, and beyond the edge of the enterprise. What enterprises need is a central governance layer on top of the different components of the existing middleware stack, and this could be realized with a suitable combination of MFT, B2B integration, and API management solutions. For IT leaders, there is a clear call for action to safeguard mission-critical data against unauthorized access, irrespective of the means used for transfer of this data, both within and outside the enterprise. Moreover, it is never too late to start bridging the gaps between enterprise integration infrastructure and data security and governance frameworks.

Saurabh is a Senior Analyst with Ovum IT and is a member of Ovum’s Infrastructure Solutions team. His research covers integration infrastructure and enterprise integration strategies that span across application-to-application (A2A), B2B, and cloud service integration. He also focuses on other associated disciplines such as API management, integration and solution architectures, and communications integration.

To review the whitepaper titled “The Imperative for Effective Data Flow Governance in Response to Data Security, Risk Mitigation, and Compliance Requirements,” please click here.