When we think of chargebacks, it’s easy to assume they’re solely an issue for retailers, particularly e-commerce merchants who face high volumes of online fraud. Yet, chargebacks are a growing problem for financial institutions (FIs) as well. In recent years, FIs have taken on significant responsibilities related to transaction disputes and chargeback management—functions that go beyond simply processing these requests. They’re now responsible for preventing fraudulent chargebacks, resolving legitimate customer disputes efficiently, and minimising associated costs.
Chargebacks can carry steep financial implications for FIs. Handling disputes is labour-intensive, requiring extensive investigation and often resulting in costly fees. Perhaps more importantly, high chargeback rates affect FI customer satisfaction – the businesses that rely on you won’t take kindly to being told that.
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Even more problematic is the growing prevalence of “friendly fraud,” where consumers initiate chargebacks on legitimate purchases.
While FIs must address customer needs, the rise in these types of disputes places a considerable burden on their resources, stretching staff and slowing response times. As the scale and complexity of chargebacks increase, it’s becoming clear that FIs need more advanced solutions.
The case for AI-powered chargeback solutions
Given the scale of the challenge, artificial intelligence (AI) is now being leveraged to manage the chargeback problem effectively. Specifically, AI-driven chargeback management and prevention solutions offer FIs the means to streamline the dispute resolution process, identify fraudulent chargebacks faster, and manage these cases at scale.
AI can analyse large datasets in real-time, recognise patterns across transactions, and detect anomalies that often signal fraud or friendly fraud. This insight enables FIs to take a more proactive approach, addressing potential chargeback issues early, and thereby reducing costs.
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By GlobalDataAn AI-based system is not only faster than traditional manual processes but also learns and adapts to evolving fraud tactics. Machine-learning algorithms can continually update to detect new trends and patterns in chargebacks, making the system more resilient and reliable over time.
For FIs, an AI solution can reduce operational burdens, free up human resources for more complex tasks, and provide data-driven insights that inform broader risk management strategies. The overall impact is that financial institutions can maintain better control over chargeback processes, improve their bottom line, and enhance their reputational standing with clients and partners.
AI has always been a part of financial services
AI isn’t new to the financial services sector. Though recent discussions around generative AI have sparked public interest, FIs have been using AI-based technologies for years to improve decision-making and risk assessment. From credit scoring models to anti-money laundering (AML) systems and fraud detection, AI has long played a foundational role in helping FIs manage risks and streamline operations.
These legacy AI systems have proven their worth by enabling FIs to handle vast amounts of data quickly and accurately. The difference now is that AI-driven chargeback solutions, like those offered by Fi911, apply similar principles to the chargeback process, with specialised models focused on identifying and addressing chargeback-related risks.
By integrating AI-driven chargeback remediation tools, FIs are expanding AI’s role from general risk management into the more niche yet increasingly vital area of dispute resolution.
As AI technology continues to evolve, FIs have an opportunity to stay ahead of emerging challenges and differentiate themselves within a highly competitive market. By incorporating AI-powered chargeback management solutions, they can not only protect themselves from fraud and financial loss but also enhance customer experience through faster, more accurate dispute resolutions.
All in all, chargebacks represent a significant and growing problem for financial institutions, not just retailers. By deploying technological solutions, FIs can better address these challenges, improving both efficiency and customer satisfaction. While generative AI may have grabbed recent headlines, AI has been a mainstay in the financial services sector for years, proving invaluable across various applications, including the critical function of chargeback management.
Payments industry veteran Roger Alexander is a key adviser to Chargebacks911
