Chargeback management software: What it is and how to choose the right solution

Key takeaways

• Manual processes are no longer enough to manage growing chargeback volumes. Chargeback management software can help you manage disputes more efficiently, with less effort and fewer errors. 

• Using artificial intelligence (AI) to automate chargeback management can reduce resolution time and improve your chances of winning disputes.

• When evaluating chargeback management software, look for one that prevents chargebacks and supports dispute management. It should integrate easily with your existing systems and come with strong security and compliance.

It starts with a single dispute. Maybe it’s a confused customer who doesn’t recognise a transaction, or someone claiming fraud to avoid paying for a product they received. For businesses, chargebacks are manageable when there’s just a few, but it gets trickier when the volume grows.

With global chargeback volume expected to reach 337 million by 2026, a 42% increase from 2023, businesses may find it harder to protect their revenue from fraud, disputes, and chargeback fees. The cost of chargebacks goes beyond the upfront fee – businesses may also lose the original transaction amount, face increased scrutiny from card networks and payment processors, and pay higher processing fees. 

For those managing chargebacks manually, this also means more time spent and more room for errors. From reviewing transactions and gathering evidence to complying with regulations set by card issuers and payment processors, every chargeback eats into your team’s resources. It’s no surprise that over 65% of merchants want AI and automation in their chargeback management process to help recover revenue and increase efficiency.

This is where chargeback management software comes in. These solutions automate repetitive tasks, improve accuracy, and help businesses manage disputes easily.

Let’s explore what chargeback management software is and how automation and AI can help you ‌manage disputes faster and more accurately.

Why businesses seek chargeback management solutions

As your transaction volume grows, so does your exposure to chargebacks and disputes, especially due to true fraud and friendly fraud. While true fraud involves actual theft, friendly fraud occurs when a customer disputes a transaction despite having authorised it – either due to confusion or a deliberate attempt to get a refund for something they knowingly purchased. Recent research by Merchant Risk Council showed that 62% of merchants reported an increase in friendly fraud cases, and these merchants spend around US$35 to manage friendly fraud for every US$100 disputed. Businesses need solutions that protect them against fraudulent chargebacks, whether it’s due to true fraud or friendly fraud.

When a customer disputes a transaction, it triggers a complex process involving the cardholder, card issuer, merchant, and payment networks. Each dispute requires careful review of transaction details, customer statements, and supporting evidence. Disputes need to follow precise formatting and submission protocols set by card networks like Visa and Mastercard, with tight submission deadlines.

When a chargeback happens, customers are often refunded first – before you've had a chance to respond. That means your funds are tied up while the dispute is being reviewed, which can take weeks or even months. If you're dealing with high dispute volumes or managing them manually, this delay can strain your cash flow, slow down day-to-day operations, and hold back growth.

At the same time, you face strict chargeback thresholds and penalties from card networks. Exceeding these thresholds can mean paying fines and higher processing fees, and even losing the ability to process card payments.

Since chargebacks are often the result of customer confusion, unmet expectations, or unclear refund processes, having a sound process for managing disputes can help you maintain a good customer experience and protect your business’ reputation.

That’s why businesses are turning to chargeback management software to streamline their dispute management workflows. These solutions can help you automatically collect and format supporting evidence, ensuring your responses comply with card network rules. Some chargeback management solutions come with fraud detection capabilities, which can flag high-risk transactions early to prevent fraudulent chargebacks.

What is chargeback management software?

A chargeback management software is a program or tool that automates parts of the chargeback process, so that businesses can manage their chargebacks and disputes more efficiently. Typically, it streamlines ‌documentation, submission, and dispute tracking. Some chargeback management software provides data and insights to help businesses analyse chargeback patterns, identify trends, and manage their chargeback risks.

Benefits of automating chargeback management 

Here are three ways a chargeback management software can help your business:

Reduces manual workload and errors

Traditional chargeback processes often require a substantial amount of time and effort to manage. Teams have to manually review transactions, gather evidence, and submit disputes. Chargeback management software can streamline these tasks, minimising errors and freeing up your team to focus on more strategic initiatives.

Resolves disputes faster

Automated systems can process chargebacks much faster. Streamlining the dispute process lets you respond quickly and more consistently. While customers typically receive refunds early in the process, resolving disputes faster means you can recover your funds sooner if the case is resolved in your favour.

Optimises future payments using data insights

Automated systems can sift through transaction data to identify patterns and trends that can signal potential fraud. That way, businesses can proactively optimise their operational processes, reducing the likelihood of future chargebacks and improving overall efficiency.

Types of chargeback management software

Understanding the different types of chargeback management software can help you find the right fit for your business – depending on your objective, the amount of control you want, and the level of automation your business is ready for.

Prevention-focused software 

These solutions aim to stop chargebacks before they occur. They often come with advanced fraud detection algorithms, real-time transaction monitoring, and pre-chargeback alerts. With these capabilities, you can identify and block suspicious transactions to reduce the chances of a chargeback, especially fraudulent chargebacks. Some fintechs offer pre-chargeback programmes that help you resolve cases before they turn into full chargebacks, saving you from unnecessary fees and keeping your chargeback volume low.

Dispute response and recovery software

This type of software helps you manage chargebacks that have been initiated, focusing on gathering evidence and creating a strong case that comply with card network rules and regulations. Some platforms also provide analytics to help businesses understand the reasons behind chargebacks and improve their processes to prevent future disputes.

Self-managed solutions using SaaS

For businesses who want to retain control and oversight of the chargeback management process, consider software-as-a-service (SaaS) solutions:

• Fully automated solutions handle the end-to-end chargeback process, from fraud detection to dispute resolution. This solution is suitable for businesses with high transaction volumes or those that lack the resources or expertise to manage chargebacks manually.

• Semi-automated solutions streamline repetitive tasks (e.g. pulling transaction details, formatting documents) while enabling manual review for edge cases. This hybrid approach gives businesses some level of control while improving efficiency.

AI-powered chargeback management software can handle high volumes of chargeback disputes with precision, automating the entire process from evidence collection to submission. Fuelled by machine learning, advanced software can even predict which transactions are likely to result in chargebacks and auto-generate dispute responses based on historical success.

Third-party-managed solutions using an external provider

Some businesses prefer to focus on core operations and let a third-party provider handle the end-to-end chargeback process. These providers often come with specialised expertise and can integrate with existing payment systems. However, they can be more costly and may not be suitable for smaller businesses.

The role of card issuers and acquirers in chargebacks and disputes

Card issuers and acquirers are key players in the chargeback process. Understanding their roles and responsibilities, as well as how they interact, can help you manage disputes more effectively.

Card issuers, such as banks or financial institutions, issue credit or debit cards to customers. They represent the cardholder during the dispute process and are the first to act when a chargeback is initiated. Here’s what the issuer does when a cardholder disputes a transaction:

• Initiates the chargeback: The issuer investigates the claim. If the claim is valid, they'll reverse the transaction and credit the cardholder’s account.

• Notifies the acquirer: The issuer sends a chargeback notice to the merchant’s acquirer and requests for funds to be returned.

• Reviews merchant evidence: If the merchant challenges the chargeback, the issuer will review their submitted evidence and decide whether to uphold or overturn the chargeback.

Acquirers are the financial institutions that process payments for your business and support you in managing chargebacks. During a chargeback, the acquirer coordinates the dispute process with you and your issuer. This process includes submitting evidence, monitoring the status, and ensuring compliance with issuer requirements. Here’s what the acquirer does when it receives the chargeback notice from the issuer:

• Debits your merchant account: If the issuer has approved the chargeback, the acquirer temporarily deducts the disputed amount from your account.

• Facilitates your response: The acquirer provides you with the chargeback details so you can submit evidence if you wish to challenge the chargeback.

• Manages communication: The acquirer submits your evidence to the issuer and keeps you updated throughout the process.

Some acquirers, like Airwallex, use automation to help businesses manage disputes more accurately and efficiently. Airwallex’s AI-powered dispute bot automatically sorts cases under the right merchant category, generates responses that comply with card network requirements, and notifies merchants when additional evidence is required. This automation reduces time to resolution and increases the chances of merchants winning their case.

What to look for in a chargeback management solution

Consider these questions when evaluating a potential provider:

1. Does the software come with features that prevent chargebacks? Preventing chargebacks upstream is more cost-effective than disputing them later. Look out for features like fraud detection tools, real-time transaction monitoring, and pre-chargeback alerts.

2. Can the software streamline your dispute management process? Automating time-consuming, repetitive tasks (e.g. gathering transaction data, collecting evidence, submitting disputes) helps you manage chargebacks faster and more accurately. The ability to generate and submit disputes formatted to meet card network requirements is a plus.

3. Can the software integrate with your existing systems and tools? Consider how well they can connect with your current infrastructure and whether they offer APIs or pre-built integrations to simplify the setup process. A solution that integrates with your payment gateway, CRM, and other tools can provide a more comprehensive view of your transactions and make it easier to analyse relevant data.

4. Can the software adapt to your business’ needs? Your chargeback management solution should be able to keep pace with your growth. Look for a scalable solution that can manage increasing transactions and dispute volumes without sacrificing performance. If you’re operating in multiple regions or plan to do so, you need a solution that supports multi-currency transactions.

5. Does the provider have strong security and compliance? Your provider’s security standards directly impact your risk exposure and customer trust. Choose a provider that complies with industry standards like Payment Card Industry Data Security Standard (PCI DSS) and has a robust security framework with features like encryption and multi-factor authentication.

6. Does the provider offer timely customer support? When chargeback volume rises or something goes wrong, having immediate and effective support can help you manage the situation better. A robust solution should offer strong customer support, including 24/7 access to knowledgeable representatives and a comprehensive knowledge base.

Reduce chargebacks and manage disputes faster

Chargeback management doesn’t have to be time-consuming or complex. With the right partner, you can prevent chargebacks and resolve disputes faster while still protecting your margins. Airwallex offers a combination of proactive fraud detection, real-time alerts, and dispute management tools to help you manage chargebacks efficiently.

Our AI-powered fraud engine identifies and blocks suspicious transactions in real-time, reducing the likelihood of chargebacks caused by fraud. Robust security measures like 3D Secure (3DS) add another layer of protection by verifying customer identities at checkout.

When disputes do arise, our pre-chargeback programme helps you resolve them before they turn into full chargebacks. Based on your pre-configured thresholds, we'll review disputes and automatically accept or reject them, saving time and minimising chargeback fees. You can also view, manage, and respond to disputes that require your action (e.g. evidence upload) via our built-in dashboard.

At Airwallex, we use AI to process disputes faster for businesses using our Corporate Cards. Read more about how we’re using AI to process disputes faster.

Frequently asked questions

What are the main benefits of chargeback automation software for eCommerce businesses?

This solution streamlines the chargeback management process with automation, minimising errors and improving efficiency. This saves time, cuts costs, and increases the chances of winning disputes.

How does AI-powered chargeback software improve dispute win rates?

AI-powered software analyses large volumes of data to generate stronger, more accurate dispute responses based on issuer-specific requirements. Using advanced algorithms and machine learning, it identifies patterns, selects the most relevant evidence, and formats responses correctly, boosting win rates over time.

What's the difference between chargeback prevention and chargeback recovery software?

Prevention software stops chargebacks before they happen, using tools like fraud detection engines and pre-chargeback alerts. Recovery software manages disputes after they occur, helping businesses collect evidence and respond effectively.

Can automated chargeback software integrate with my existing payment gateway?

Yes, most automated chargeback solutions are designed to integrate with popular payment gateways via APIs or pre-built connectors. This lets you sync transaction data seamlessly for faster dispute processing.

How do card issuing dispute systems impact the chargeback process for merchants?

Card issuing dispute systems help issuers handle cardholder claims efficiently, which can affect how quickly and fairly disputes are processed. Advanced systems use automation and digital receipts to reduce errors and false claims, which can lead to faster resolutions for merchants.