How to Build an Effective Chargeback Management System

Scalable chargeback management systems have become critical as financial institutions (FIs) face growing pressure to resolve chargebacks quickly and accurately. The surge in e-commerce and card-not present (CNP) transactions carry a greater risk of fraud and cardholder disputes, a result of these transactions being made without the physical presence of the cardholder or their credit card for verification.¹ Driven by these higher risk transaction types, chargebacks are projected to rise 23%, from $33.79 billion in 2025 to $41.69 billion by 2028.²

What are Chargebacks?

A chargeback occurs when a cardholder disputes a transaction and asks their FI to reverse the charge, initiating a process between the issuing and acquiring FIs to determine liability. Disputes may involve fraud (e.g., unauthorized transactions) or non-fraud claims (e.g., billing errors, goods not received or canceled recurring payments). Some disputes are resolved early if the FI writes off the charge or the merchant issues a credit. If unresolved, and chargeback rights exist, the dispute moves to first chargeback and may escalate to later stages of representment, pre-arbitration, or arbitration, where the card network determines liability.³

Common Challenges Associated with Chargeback Management

Effective chargeback management is essential for both FIs and merchants to minimize loss and maintain credibility, yet it presents several ongoing challenges that can impact operations, compliance, and customer satisfaction:

• Financial considerations: FIs in the U.S. can spend millions annually on chargeback management, often employing large back-office teams.¹ While some costs are unavoidable, inefficient or manual processes frequently lead to inflated processing fees, excessive write-offs, and missed recovery opportunities—ultimately straining the FI’s bottom line.
• Operational strain and process complexity: Increasing dispute volumes are stressful to FIs and merchants, especially smaller FIs with limited staff and resources. Managing disputes in-house without proper systems can lead to inefficiency and errors. Some FIs resort to using multiple platforms and data sources, but this poses risks of missed deadlines, compliance issues, and inaccurate decisions.
• Customer expectations: Cardholders expect fast, transparent, and digital-first dispute resolution experiences; over half of consumers report they would consider switching financial institutions for easier online dispute handling and more responsive support.¹
• Regulatory compliance: Issuers must follow federal regulations like Regulation E, which protect consumers in electronic fund transfers (e.g., debit card transactions) by requiring issuers to investigate and resolve disputes within specified timelines.⁴

Key Components of an Effective Chargeback Management System

An effective chargeback management system requires the following:

• Claims intake: Dispute resolution begins when the cardholder calls their issuing financial institution to report unrecognized transactions. While most claims arrive via the phone channel, many institutions are shifting to digital intake to streamline workflows. However, even in these digital channels, it is still important to apply appropriate friction to “talk off” or discourage excessive claims.
• Claims processing: After intake, claims move into the back-office processing stage where agents select appropriate chargeback reason code, provide claims updates to cardholders, conduct the movement of funds, and cover chargebacks that are escalated to later stages.
• Systems and reporting: Technology is essential for efficient chargeback management. Integrated case management platforms automate chargeback processes based on pre-set rules, ensuring timely resolutions and compliance.

Emerging Chargeback Management Trends

• Chargeback automation: FIs and merchants are increasingly adopting AI, machine learning (ML), and robotic process automation (RPA) to streamline chargeback management. ML models analyze historical data to predict outcomes, flag invalid claims, and improve decision-making. RPA automates routine tasks like auto-filling claim fields and routing cases to reduce manual workload. While these tools enhance efficiency and scale, human oversight remains essential, especially for complex or later-stage disputes.
• Chargeback prevention and rise of “friendly fraud”: Modern chargeback strategies increasingly focus on preventing chargebacks before they happen. Tactics include stronger authentication such as multi-factor authentication to reduce true fraud, and real-time alerts to resolve disputes before they escalate. “Friendly fraud” — when cardholders dispute legitimate transactions due to confusion or forgetfulness — is also rising. To combat this, FIs now provide enhanced in-app transaction details, including digital receipts and clearer merchant descriptors.

Conclusion

Building a smooth and effective chargeback management system demands a strategic combination of governance, streamlined processes, and compliance with federal regulations. With TransFund’s Full-Service Dispute Management solution, FIs can simplify chargeback management, minimize manual efforts, and allow their teams to focus on other strategic business priorities.

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Sources:

1. Juniper Research, Global Chargeback Management Market, 2025
2. Ethoca, The Chargeback Window of Opportunity Trend Report, 2025
3. Mastercard, The Chargeback Guide, 2025
4. Consumer Financial Protection Bureau, Regulation E, 2025