New York startup Casap has raised $25 million in new funding to help banks tackle the thorny problem of credit and debit card disputes, aiming to make the process smoother for honest customers and tougher for fraudsters.
If you’ve ever had to dispute a charge on your credit or debit card, there’s a good chance you walked away disgruntled. Americans filed 50,000 complaints with the Consumer Financial Protection Bureau (CFPB) related to card disputes over the past year. Now a three-year-old startup is using AI to make banks better at handling such disputes.
Casap has just raised $25 million in new funding at a $105 million valuation, the company shared exclusively with Forbes. Silicon Valley venture firm Emergence Capital led the financing, and Lightspeed Venture Partners, Primary Venture Partners and SoFi also invested.
The startup’s software acts as a system of record and tracking tool for the surprisingly complex, highly regulated worlds of credit and debit card disputes. The resolution of disputes is a drawn-out, opaque ordeal involving a back-and-forth between a consumer, his or her bank and a merchant. Disputes often take an excruciating 45 to 90 days to resolve and can cause consumers to hate their credit card or debit card bank, at least temporarily.
Before starting Casap, which now has 22 employees, cofounder and CEO Shanthi Shanmugam, 31, spent time in the trenches of financial services customer support. Beginning in 2017, she worked for nearly six years as a product manager at Robinhood, which was once notorious for having bare-bones, shoddy customer service. After the GameStop saga in January 2021, when trading in the gaming company was halted due to a flood of trades from Robinhood users, she led Robinhood’s launch of 24/7 phone support. In 2022, she led the launch of 24/7 chat support. Shanmugam left Robinood the next year to start Casap.
Beyond trying to improve disputes for honest consumers, Casap aims to fight first-party fraud, which means schemes where people commit fraud under their own names. A typical example: Your neighbor has buyer’s remorse over a TV he ordered from Best Buy, so he files a phony dispute saying he never received it. First-party fraud costs businesses an estimated $100 billion a year, according to fraud prevention firm Socure. To help banks, Casap’s software flags how many disputes a customer has previously filed and can send automated emails to serial disputers.
Shanmugam explains what the email might say: “Here are the 10 disputes you filed. Here’s what happened and how much money your bank lost. By the way, did you know it’s illegal to lie about these things?” Shanmugam calls this a “rehabilitation email” and says such notes help nudge consumers towards better behavior.
Casap has more than 15 customers, including publicly traded fintechs, banks and credit unions like Virginia Beach-based Chartway, with $3.5 billion in assets. Shanmugam is signing up financial institutions in about half the time it typically takes to land one, says Carlotta Siniscalco, a Casap investor and partner at Emergence Capital. It’s competing primarily against the big card processors, including FIS, Fiserv and Global Payments-owned TSYS, in addition to 10-year-old, venture-backed company Quavo.
Shanmugam says Casap charges less than half of what incumbents charge for dispute management. Her startup’s annualized revenue is still quite small at less than $10 million, though it has grown 450% over the past year, the CEO says.
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Shanmugam grew up in San Jose and went to college at the University of California, Berkeley, majoring in electrical engineering and computer science. She did a short stint at Meta as a product manager in a rotational program and joined Robinhood in 2017, where she helped to launch its first crypto trading feature and worked on stock watchlists before moving into customer support.
In June 2022, she reconnected with former Meta colleague Saisi Peter, who was then a product manager at digital bank Chime. Peter was working on Chime’s internal tools for managing customer support and disputes. The two saw a pressing need for better tech to manage high-stress customer interactions, since they’re critical to building users’ loyalty. They incorporated Casap in late December 2022 and left their jobs in February 2023 to work on it full time.
Today, credit and debit card disputes are hard to manage largely because they’re governed by strict regulation and decades-old processes. For instance, when a customer files a dispute, a financial institution typically has 10 days by law to respond and issue a provisional credit. If a bank decides the consumer’s claim is valid, it submits a chargeback to Visa or Mastercard’s online systems. Next, the merchant has from 20 to 45 days to respond with its own argument for why the customer shouldn’t get a refund. That’s why the whole thing can take 90 days.
And to add to the pain, while disputes are in motion, they’re a black box. Banks usually outsource dispute management, paying $20 to $40 per dispute, Shanmugam says. When end customers call their bank to ask for an update, banks themselves have little visibility into a dispute’s status, leaving everyone frustrated.
Shanmugam and Peter have designed Casap to work like a fraud investigator. When consumers start a dispute, Casap’s software asks detailed questions, trying to understand what really happened with the transaction and to assess whether the complaining purchaser is being honest. Sometimes Casap encourages consumers to resolve the problem directly with the merchant instead of filing a dispute with their bank, especially if its data shows the person has made other recent purchases at that merchant.
After consumers click submit on a dispute, Casap’s AI analyzes their responses and spits out a probability score for the bank’s operations staff, predicting how likely the merchant will be to cough up the refund. If that probability is high, the bank can instantly issue a refund to the consumer, since it now has more confidence it will be made whole.
As a dispute progresses, the merchant’s side of the story might come back in a tedious, 50-page document. Casap runs the seller’s response through its own AI and generative AI models from OpenAI and Google to summarize and evaluate its validity.
Additionally, Casap takes a cue from Domino’s beloved pizza-delivery tracker and provides a status update page for consumers on where the dispute stands. Rob Keatts, an executive vice president at Chartway, says it used to take the credit union 90 days to resolve disputes. Now with Casap, it takes 23 days on average.
The next product Shanmugam wants to launch is a “FICO score for first-party fraud,” or a way to help banks predict whether a given dispute is fraudulent. To do that, Casap would have to develop a database that links consumers’ history across different financial institutions. The market for that service could be even bigger, since Shanmugam thinks Casap could sell it to both financial institutions and merchants.
So far, not many startups are going after the same market as Casap: helping banks with disputes. Many more have popped up to help merchants with disputes, such as Riskified, Signifyd and Justt, likely because it’s a much bigger pool of customers–there are tens of millions of merchants in America compared with thousands of financial institutions.