Global payment fraud losses soared to an alarming $48 billion USD in 2023, placing unprecedented pressure on payment companies to deploy advanced technologies to counteract this growing menace. One of the most formidable tools in this fight is artificial intelligence (AI), which experts at Chargebacks911, a leading chargeback technology platform, identify as crucial in combating emerging payment threats and minimizing disputed transactions.

While initially designed as a consumer protection mechanism, the chargeback process has become a complex challenge for businesses worldwide. When a customer disputes a debit or credit card transaction, the card issuer must decide whether to refund the cardholder—an action known as a chargeback. Though essential for protecting consumers against fraud and unethical merchant practices, this system is increasingly being exploited, causing significant harm to businesses through what is commonly known as “friendly fraud.”

Understanding Friendly Fraud

Friendly fraud occurs when a cardholder disputes a legitimate transaction due to a misunderstanding or attempt to deceive the merchant. According to data from LexisNexis, this practice can inflict severe financial and reputational damage on retailers, costing them nearly four and a half times the value of the reversed transaction.

“Everyone agrees on the necessity of the chargeback mechanism for consumer protection,” says Roger Alexander, a key advisor at Chargebacks911. “However, as consumers demand greater convenience, banks are increasingly relied upon to resolve disputes via chargebacks, which are growing at an alarming rate and devastating merchants. Beyond financial losses, chargebacks can damage relationships with customers and payment processors, leading to higher processing fees and jeopardizing a company’s future.”

Friendly fraud manifests in various forms, and without automated processes, providing the necessary evidence to refute these claims can be tedious and labour-intensive. For instance, if a customer falsely claims that a purchased product was never delivered, the merchant must compile and submit transaction data such as proof-of-delivery photos or recipient signatures. VISA estimates that up to 75% of all chargebacks are likely fraud cases, underscoring the urgent need for better systems to differentiate legitimate claims from friendly fraud.

AI: The Powerhouse Behind Modern Chargeback Management

The rise in chargeback abuse has been challenging to address, primarily due to the limited transaction data accessible to merchants attempting to counter illegitimate claims. Traditional chargeback management involves manually sorting through vast amounts of data, draining time and resources and increasing the likelihood of human error.

In response, major card schemes have introduced various tools to assist merchants in reducing chargebacks without infringing on consumer rights. For example, VISA’s Order Insight allows merchants to offer refunds to customers before a chargeback is issued, potentially resolving disputes more amicably. Additionally, VISA’s Compelling Evidence system streamlines the evidence requirements for disputes. At the same time, Mastercard’s Consumer Clarity and Mastercom Collaboration offer similar real-time data-sharing platforms to enhance the dispute resolution process.

Despite these advancements, a comprehensive solution that could seamlessly integrate all relevant data from the card schemes and the merchants’ systems was missing to create a complete, accurate picture of each chargeback claim. Chargebacks911 sought to fill this gap.

“This is exactly what our technology was built for,” explains Alexander. “Our AI capabilities have long been our ‘secret weapon.’ Since launching our platform, the predictive power and efficiency of machine learning have enabled our clients to drastically reduce the workload associated with analyzing, compiling, and submitting transaction data, significantly decreasing the incidence of illegitimate chargebacks and protecting merchants’ revenue and customer relationships.”

Chargebacks911’s platform aggregates transaction data from multiple sources—including card networks, issuing banks, and merchants’ internal systems—into a learning-based dashboard. This AI-driven dashboard continuously evolves, learning the trustworthy source of chargebacks and suggesting optimizations to close procedural or policy gaps, thereby mitigating first-party fraud.

The Global Impact of AI-Driven Chargeback Solutions

Founded over a decade ago, Chargebacks911 pioneered the field of chargeback remediation. Today, it is a global fintech leader with over 400 subject matter experts, supporting 27 industries in nearly 100 countries. The company manages more than 2.4 billion transactions monthly across all currencies, delivering positive outcomes for merchants, acquirers, and issuers alike.

Implementing AI in chargeback management represents a significant leap forward in protecting businesses from payment fraud’s costly and damaging effects. By automating data aggregation and analysis, AI saves time reduces errors and empowers merchants to defend themselves more effectively against fraudulent chargebacks.

As AI advances, its role in securing transactions and enhancing the integrity of the global payment system will only grow more critical. For merchants and payment processors alike, embracing AI-driven solutions is no longer just an option—it is a necessity for survival in an increasingly digital and fraud-prone world.

For more information on how Chargebacks911 is leveraging AI to revolutionize chargeback prevention, visit www.chargebacks911.com.

Written by: Yves Thomas

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