With the rise of frictionless online retail, chargebacks have become a major concern for online retailers and payment processors.
Unlike traditional refunds, chargebacks allow a customer to go directly to their bank to reverse a transaction. This leaves the merchant or business on the other side of the transaction out of the loop, and potentially out of pocket.
While there will always be some instances where a chargeback is justified, this is not always the case. Indeed, chargebacks have come to be known as ‘friendly fraud’, and they are a growing business. By some estimates chargebacks are growing by around 20% per annum, costing businesses billions in lost revenue and wasted time.
E-commerce and online businesses have little recourse to take when they are subject to a chargeback, and the accrual of chargebacks can ultimately damage relationships between fintech businesses and banks. This makes it more difficult to manage the bottom line, raise credit and function successfully.
There are solutions, however. Artificial intelligence in particular is a powerful tool when it comes to striking back against the chargebacks.
Applying AI to the chargeback problem
Artificial intelligence is reshaping the world of finance and fintech in many ways.
Whether it’s using bots to improve customer service or algorithms to detect fraud – fintech and AI are fundamentally reshaping the wider finance sector. The things which make AI such a formidable tool in other business applications can also help businesses manage chargebacks. But how?
AI is ultimately about data. AI programs take large, complicated and multidimensional data sets and analyse them quickly, in ways that would take a human a great deal more time. A businesses ultimate objective is growth and, as business scales, so will the volume of chargebacks – and chargeback data. As with any other data-set, applying AI to chargeback data can yield impressive results.
Training an AI system to analyse chargeback data and spot the patterns that matter is a key means of building chargeback resilience into your business. Are chargebacks associated with certain products for example? If so, is there a discrepancy between the way your product is being marketed and the product itself which is leading to customer dissatisfaction?
This also raises the question of customer service. Is there a better way to handle queries and complaints from customers in such as way that they don’t become chargebacks? AI has a role to play here too, in terms of automating customer service with chatbots and similar programs, these can ensure legitimate concerns are escalated quickly, while handling more general concerns – all while accumulating data about what it is in your product that is leading to customer interactions.
If there are no obvious product correlations in the data, AI can be trained to look for patterns elsewhere. Do chargebacks occur at a particular time in the month for example, or are they associated with a particular subset of customers? An AI system can help you answer these questions and more quickly and generate actionable intelligence to mitigate chargebacks.
Building the Matrix
Not only can AI empower your business when it comes to taking on fraud, but it can also empower other institutions in your network – whether other fintech businesses, merchants, payment processors or financial institutions. As AI use grows across the entire financial and e-commerce sector, the potential for greater data sharing between institutions will make it increasingly difficult for fraudsters to take advantage of vulnerabilities in a single organisation.
This will bring benefits not just to merchants who are no longer losing revenue and time to chargeback, but also to financial institutions who can spend less time and effort managing chargeback disputes, and more on their core services.
Strike back against chargeback
Chargeback fraud has become one of the primary threats to online businesses, potentially imposing a cap on your growth potential.
Getting smart is the quickest way to beat the fraudsters, and AI is an increasingly vital tool when it comes to interpreting the data and understanding where your fraud vulnerabilities are. While human input will still be vital here, automating parts of your fraud detection and chargeback analysis will have a huge impact in terms of efficiency.
Alongside investing in AI fraud detection for your own business, ensure the payments processors and other partners you work with also have in-built fraud detection capabilities. This will be a key step toward the longer-term goal of building e-commerce and financial ecosystems in which chargebacks – whether legitimate or fraudulent – are no longer the threat they are today.