AI-Powered Chargeback Management: Reduce Disputes & Recover Revenue

May 2, 2025

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The rapid expansion of online transactions and the ease of online purchasing have brought numerous benefits but also some unintended consequences, one of the most pressing being chargeback disputes.

In fact, according to the recent 2025 State of Chargebacks report, the global volume of chargebacks is projected to increase to 324 million in 2028. As financial institutions are central to managing, mediating, and resolving chargeback disputes between merchants and consumers, this report underscores the need to rethink how they overcome the inevitable problem of chargeback disputes that will only increase in the future.

The traditional manual systems just won't cut it anymore. It's time to evolve with more innovative, scalable, AI-powered solutions that reduce risk, recover revenue more efficiently, and uphold trust across the overall payment network.

In this article, we'll explore what chargeback management is and how a financial institution can use chargeback management software that can automate the whole process.

What is Chargeback Management?

Chargeback management is a systematic process that involves identifying, analyzing, investigating, and resolving chargebacks initiated by customers, with the goal of minimizing financial losses, ensuring regulatory compliance, maintaining customer trust, and upholding your financial institution’s reputation.

Chargeback is a consumer protection mechanism that occurs when a cardholder contacts your financial institution to dispute a transaction, typically because they were cancelled or believed to be fraudulent or unauthorized. Once the dispute is raised, it’s the responsibility of your institution to investigate the claim.

If the dispute is upheld, as an issuer, your institution is required to reverse the transaction by pulling funds from the merchant's account and returning them to the customer.

The primary goal of a chargeback dispute management system is to reduce turn around time for customer refunds, spot fraudulent patterns, flag suspicious transactions before they become disputes, optimize existing processes and controls to prevent future disputes, and safeguard customer relationships.

The Importance of an Effective Chargeback Management System

An efficient chargeback management system is essential for the financial stability of banks and fintechs. It helps mitigate the economic impact caused due to loss of processing fees and operational costs associated with dispute handling. More importantly, it equips you to resolve disputes effectively, enhances chances of recovering lost revenue, and ultimately improves profitability.

Here are the reasons why an effective chargeback management system is significant.

Prevents revenue loss: A chargeback management system minimizes financial loss by reducing disputed transactions and eliminating unnecessary chargeback-related fees and penalties. It also enables banks and fintechs to challenge illegitimate claims effectively, which increases the likelihood of recovering lost revenue from wrongful disputes.
Preserves customer relationship: The system facilitates fair dispute resolution that respects customer's concerns. This demonstrates your commitment to your customer's satisfaction, which enhances trust and loyalty, thereby maintaining a positive reputation.
Protects reputation: For financial institutions, a high volume of unresolved or mishandled chargebacks can signal weak controls, poor customer service, or systemic inefficiencies. On the other hand, if your chargeback management system is effective, it demonstrates operational maturity, regulatory compliance, and customer-centric responsiveness.
Promotes a proactive approach: By analyzing chargeback trends, you can uncover the root cause behind recurring chargeback issues and implement operational improvements. This proactive strategy reduces future disputes and protects against financial setbacks.

What is Chargeback Fee?

A chargeback fee is a penalty imposed on a merchant when a customer raises a transaction dispute, and your financial institution authorizes the reversal of funds. This fee is imposed to cover the administrative costs associated with managing the whole chargeback process.

The exact amount of the fees can depend on your institution’s policies, the nature of the dispute, and the terms of the acquiring agreement. Moreover, high chargeback rates can, over time, result in higher processing fees and stricter contractual terms. Your institution can also be labelled as high-risk, leading to higher fees and penalties from card networks.

Chargeback Management System Process

Given below is a step-by-step guide to the chargeback management system process.

1. Dispute Initiation

A cardholder can raise a transaction dispute with their issuer, which can be your bank or fintech. The reason could be suspected fraud, a product not received, quality issues, billing error, buyer's remorse, or even friendly fraud.

2. Issuer Review

Once the dispute is initiated, your financial institution will review the transaction details and send it to the card network. The card network passes on the chargeback details to the acquirer or merchant's bank for evidence. Now, it's the merchant’s turn to produce relevant data to support the fact that the transaction occurred.

They may provide receipts, delivery proof, communication logs, and terms and conditions accepted. This proves that the transaction was valid and the customer's dispute is invalid.

3. Representment

In the next step, the merchants’ acquirer bank has to thoroughly review the evidence they present. If the transaction seems valid, the evidence is further passed on to the card network, which passes it to your financial institution as you are the issuer bank in this case.

Your bank can either accept the evidence, side with the merchant or you can continue with the pre-arbitration process to proceed with the case.

This pre-arbitration stage is like a review stage, during which both parties may provide any additional details before proceeding with the case.

4. Final Resolution

This is the final stage of the process. If no agreement is reached in the pre-arbitration phase, the card network makes the final decision.

They can either agree with the proof and close the case in the merchant's favor or if they find the evidence lacking, they will rule against the merchant. In that case, they will end up paying the chargeback amount along with the chargeback fee and arbitration fees.

What are Some Best Chargeback Management Software?

One major reason behind the high chargeback rate is the inefficient manual processing. It involves time-consuming evidence collection, inconsistent communication across teams, and limited visibility into root causes, all of which lead to delays, errors, and revenue losses that can be easily prevented.

Moreover, the fragmented nature of traditional systems further compounds the issue, making it nearly impossible to detect fraud patterns or implement proactive strategies due to a lack of visibility.

However, using chargeback management software that leverages AI to automate the process can significantly enhance the efficiency of the process.

These chargeback management software platforms provide centralized workflows, which can accelerate evidence compilation, improve fraud detection through data intelligence, and enable standardized communication across all stakeholders.

Simply put, automation transforms chargeback management from a reactive burden into a strategic advantage.

Some of the best chargeback management software include:

1. Osfin.ai

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Osfin.ai is a financial operations platform that can automate and streamline various financial processes such as chargeback dispute management, reconciliation, and accounting. It offers lightning-fast data processing and can seamlessly integrate data from various sources.

With its 100% accuracy rates, easy adaptability, and real-time visibility, Osfin.ai efficiently automates your chargeback management workflow at significantly lower chargeback rates.

Additionally, its adherence to major regulatory standards such as SOC 2, GDPR, PCI DSS, PCI SSF and ISO 27001 and use of 256-bit SSL encryption ensures that all your financial data is highly secured.

No matter the size of your financial institution or the volume of data involved to resolve the chargeback disputes, Osfin.ai simplifies the entire process with AI-powered solutions, real-time analytics, and seamless integrations which empowers your operation’s team to resolve cases faster, reduce revenue loss, and focus on strategic growth.

Key Features of Osfin.ai

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2. Chargebacks911

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Chargebacks911 is a dedicated chargeback management software tool. It offers end-to-end services that address both sides of the chargeback issue, prevention and representment. This platform is purpose-built to help merchants identify, manage, and prevent chargebacks with greater speed, precision, and control.

Its key features include automated workflows, high win rates through AI enhanced representments, and real-time alerts to stop chargebacks before they are filed.

3. Chargeback Gurus

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Chargeback Gurus is a leading provider of chargeback management software, offering financial institutions innovative solutions to prevent chargebacks, recover revenue, and gain actionable insights through advanced analytics and AI. The platform's enhanced analytics feature offers banks and fintechs insights into their chargeback management strategies.

The platform provides tailored strategies that align with your business needs and requirements. With years of experience, Chargeback Gurus offers a track record of success and valuable industry insights.

4. Kount

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Kount is a fraud detection and chargeback management software platform that uses AI-powered solutions. The software offers customizable automation features, allowing your financial institution to tailor workflows according to your needs. This flexibility ensures efficient handling of chargebacks while maintaining control over the process.

Kount provides real-time analytics that offer insights into chargeback trends. This helps you understand the root causes and implement strategies to mitigate future occurrences.

What are Some Chargeback Management Examples?

Let’s look at some real-world chargeback management examples to better understand the automation concept.

Example 1

Merchant A is involved in the business of selling furniture. One customer initiates chargeback, claiming the product didn’t match the description or photos. As an acquiring bank facilitating the transaction, your financial institution is responsible for initiating the dispute resolution process and ensuring that all necessary evidence is gathered and submitted within the required timeframe.

Using a chargeback management software, your institution can integrate with the merchant’s CRM to retrieve and analyze supporting documentation. The following action can be taken:

3D product previews and AR try-ons, which were logged via the company’s system, are submitted as proof.
Customer interaction log, email confirmations, order details, delivery communications, any chat, or support history is pulled from the merchants CRM.
This proves the customer’s awareness of the order, purchase terms, and fulfillment process.
Based on the consolidated evidence, your institution can submit a strong rebuttal to the issuing bank. The chargeback is reversed in favor of your merchant client.

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In this example, we saw how an automated chargeback management can help your financial institution to defend a legitimate transaction, safeguard merchant interests, and uphold operational efficiency. This can further reinforce the reputation of your institution as a proactive and trusted financial partner.

Example 2

Company XY operates in the e-commerce business space. One of their customers has complained that they haven’t received their order even though from XY’s end the order is delivered. As the acquiring bank of the company, it’s your institution's responsibility to initiate standard investigation which you can simplify using an automated chargeback management platform in the following way:

The system quickly retrieves and analyzes delivery logs, timestamps, and GPS data from the merchant’s backend.
Upon review, it flags inconsistencies. There is no verifiable proof of delivery, missing courier confirmation, and lack of location data.
The automated chargeback management system builds the case, but this time, the evidence supports the cardholder’s claim. The chargeback is upheld, and the company is debited accordingly.

This is a classic case of e-commerce chargeback management, where e-commerce businesses use tools and strategies to handle and prevent chargeback disputes initiated by customers.

In this e-commerce chargeback management example, we saw how automation ensured an unbiased, data-driven investigation that correctly identified the merchant's fault and protected the cardholder. Moreover, it upheld your bank’s commitment to fair dispute resolution, ensuring compliance and fostering better customer relationships.

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Example 3

Company C has started to notice a sudden spike in its chargeback ratio. To manage this chargeback problem, company C takes the following actions:

Chargeback management software triggers real-time alerts and generates root cause analysis.
The analysis reveals that a faulty promo code was causing confusion among customers and was the reason for many chargebacks. Instead of applying on certain products it was applied on all the products.
Upon realizing this, company C pauses the campaign, and corrects the promo code. This prevents further chargebacks.

In this chargeback management example, we saw how real-time monitoring and root cause analysis powered by automation enabled Company C to swiftly detect and address the faulty promo code issue. Company C took immediate corrective action and prevented revenue loss, protecting its reputation, and reducing future chargebacks.

Conclusion

Chargeback management is a crucial process for your financial institution. From preserving financial stability and mitigating revenue loss to strengthening institutional credibility and fostering trust with both merchants and cardholders, it’s a key driver of long-term financial resilience and risk control.

Given the increasing instances of chargebacks, it's essential to take necessary steps to streamline the whole process. This can be achieved by using automated chargeback management software that can optimize the process by enhancing efficiency, ensuring accurate dispute handling, and ultimately protecting revenue and reputation.

Osfin.ai is one such software solution that can automate your chargeback management system with precision and efficiency. It offers real-time fraud detection, automated dispute resolution, and data-driven insights, thereby improving chargeback prevention and reducing revenue losses.

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FAQs

1. What is chargeback?

A chargeback is a process that involves transaction reversal which is initiated by a cardholder’s bank, typically due to fraud, dissatisfaction, or error in the purchase process. It can adversely affect the reputation of your financial institution and cause increased loss of revenue.

2. Why is it important to keep the chargeback ratio low?

When your financial institution’s chargeback ratio is low, it reduces financial risk, maintains compliance with card network regulations, avoids penalties, and preserves customer relationships. Additionally, it protects institutional reputation and ensures smooth, cost-effective payment processing across the ecosystem.

3. What are the benefits of a chargeback management system?

A chargeback management system prevents revenue loss, accelerates the dispute resolution process, and enhances customer trust. However, the process is limited due to manual processing which can be overcome by using an automated chargeback management system.

4. How chargeback management software simplifies the chargeback dispute resolution?

Chargeback management software streamlines the dispute process by automating evidence collection, organizing documentation, tracking deadlines, and submitting responses to relevant stakeholders. It uses AI to detect fraud patterns, generates tailored representation templates, and sends timely alerts to address disputes early.