What is online mediation and how to use it

Mediation has been a popular alternative to lawsuits to resolve disputes, especially those involving small amounts of money. For businesses, conflicts between state and international laws have made dispute resolution costly, no matter how big the transaction.

St. Louis retiree David Hubert couldn’t have been happier to score a replica of a $3,000 Charles Eames leather chair on eBay – for only $450. When it arrived, he tore open the box, pulled away the bubble wrap, and immediately sunk into the chair to ease his bad back. “As soon as I sat in it, I could tell…whoa, this isn’t right,” he says.

“It had a bad mildew smell – I mean, a really bad mildew smell.” Distraught, Hubert emailed the seller to demand that he either pay to clean the chair or take it back. The seller refused. “He basically stonewalled me,” Hubert says. So Hubert filed a grievance with SquareTrade, a San Francisco-based startup that helps resolve disputes on eBay.

A SquareTrade online mediator – a real person who corresponds with both parties via email – immediately began negotiations. After a week of back-and-forth, the seller finally agreed to send Hubert $150 to have the chair cleaned. Hubert and the seller never were in contact. “I think it went really smoothly,” Hubert says.

With $657 billion changing hands through Internet transactions worldwide, it comes as little surprise that a raft of new dot-coms plans to move the mediation process further online. Everyone expects online mediation to grow as the number of transactions conducted online continues to grow. “Regardless of the market fluctuations and a fair amount of blood on the street, e-commerce is here to stay and is growing at a steady pace,” says Steven Abernethy, president and CEO of SquareTrade. “There is a wealth of commerce online to keep us and others busy for a while.”

The American Arbitration Association estimates that dispute resolution is a $300 million-a-year industry, but there’s no way to know how much of that would migrate online. “I’m not sure it would necessarily shift,” says association spokesperson Toni Griffin. “Online transactions may simply generate more disputes, which would grow the whole market.” American Arbitration-the largest dispute resolution company with 440,000 cases per year as of 2015 and $465 million in annual revenue-recently announced its own online mediation business.

Online mediators agree that easier dispute resolution will drive faster adoption of e-commerce by businesses and consumers, many of whom may now avoid online transactions for fear of getting hosed. According to Forrester Research, two-thirds of businesses say they would not conduct an online transaction with a party they don’t already know.

What they can’t agree on is how to use technology to resolve disputes. Some companies, such as SquareTrade, eResolution, or Online Resolution, have had experience resolving disputes. They are mediating disputes online simply by substituting an online chat session or email for the conference table or telephone. But a few upstarts say these companies aren’t harnessing new technologies that allow mediation to be automated.

“This is not as simple as slapping up a Website,” sniffs Charles Brofman, president and CEO of Mount Kisco, N.Y.-based Cybersettle.com. He doesn’t mediate disputes but offers an automated blind bid system to negotiate settlements when liability has already been established.

Here’s how it works: The aggrieved party enters a demand; the liable party enters the most it will pay (Neither side sees the other’s entry, hence the term blind bid.) If the numbers are within 30 percent of each other, the software automatically splits it down the middle and settles the claim. For each dispute, the parties get three tries, after which they must start over if their entries still haven’t come within 30 percent. The company says the site can handle as many as 40,000 simultaneous sessions per second.

Brofman says he has signed insurance companies to flat-rate subscription plans in which Cybersettle offers discounts for a certain number of claims per year. “This system just takes all of the ego and personality and whittles it down to what it should have been – settling the claim,” he says. That’s especially important, he says, for international disputes in which cultural differences can muddy an otherwise objective claims process.

Rival clickNsettle.com offers a service similar to Cybersettle’s, but doesn’t limit parties to three bids per cycle. Instead, it uses a monetary disincentive to stop parties from gaming the process. ClickNsettle doesn’t set a bid limit, but charges a small fee for every settlement offer made. CEO Roy Israel says the fees are just annoying enough to keep parties from wasting bids on outlandish demands. “It eliminates the ridiculous,” he says. “It keeps someone from asking for millions of dollars. It causes people to get real-real quick. No one wants to waste $100 on bids that don’t go anywhere.”

Israel criticizes Cybersettle’s three-bid process, calling it inflexible because it “artificially terminates” the process even when parties haven’t settled. And as you might expect, Brofman is equally skeptical of clickNsettle’s unlimited bid system. “If you go to infinity, people just try to game the system,” he says. “And once insurance companies realize you can game the system, they’re not going to use it.”

His clickNsettle.com was called National Arbitration and Mediation for eight years before adopting a dot-com moniker last year. “We’re not just an Internet startup trying to capitalize on dot-com hysteria,” Israel says. “We’re a mediation business evolving into a Web-enabled business.” In fact, its existing mediation infrastructure allows the company to give users the option of moving disputes offline if necessary.

The question is whether either Cybersettle or clickNsettle – or any of the other mediation sites – will catch on. “I’m skeptical of these automated mechanisms,” says Forrester analyst Charles Rutstein. “It’s a little too ‘Let’s-let-the-machines-do-it.'”
He wonders whether all the messaging back-and-forth makes sense for many disputes that could be easily settled using traditional means. “Just pick up the friggin’ phone,” he says.