Chargeback Management Solutions: Not All Automation is Created Equal

In recent years, illegitimate chargebacks have risen to account for over 70% of all credit card fraud, rapidly outpacing merchants' manual efforts to mitigate them. This has resulted in businesses turning to software tools to improve their win rates and reduce the manual effort involved. However, despite an increasingly crowded market, most companies remain unable to offer scalability, win-rate optimization, or hands-free functionality. It is therefore vital to consider the different types of solutions available, alongside their true capabilities.

What is a chargeback management solution?

A chargeback solution is a service or software designed to help merchants manage and fight against chargebacks. These tools facilitate the process of gathering evidence, submitting responses, and/or tracking disputes. While they differ in scope and methods, their primary aims are to optimize chargeback representments in order to reduce financial losses, save time, and improve win rates.

What chargeback solutions need to achieve - and why many of them struggle to do so

Chargeback management solutions aim to mitigate financial costs by maintaining high win rates, recovering revenue that would otherwise be lost to chargebacks. The revenue loss incurred by chargebacks can be devastating, sometimes amounting to 25% of net income, while high rates of lost chargebacks will also result in fees, fines, penalties, and reputational damage from card schemes and acquirers - occasionally resulting in the closure of the merchant’s account. 

The capabilities of chargeback solutions and tools to actually improve win rates depends on numerous factors, such as the detail, presentation, and number of data sources used to create representations - as well as solution provider’s ability to cater to the quirks and demands of card schemes, issuing banks, and payment service providers. With the vast majority of tools using only standardized templates and merchant data, most struggle to significantly alter win rates over the long term.

The other key determiner of win rates is scalability. All but fully automated solutions struggle to scale effectively, meaning that as the volume of chargebacks increases, the quality of dispute handling decreases. This can lead to a lower win rate precisely when you need it most – during high-volume periods or as your business grows. The right solution should be able to adapt to increasing chargeback volumes without compromising on the quality of each dispute response.

Finally, managing chargebacks can be a time-consuming process, diverting valuable resources from core business activities, and accruing considerable labor costs. This includes gathering evidence, preparing responses, and staying informed about the latest regulations and best practices in chargeback management. A comprehensive chargeback solution should reduce (or preferably eliminate) this time investment by automating the process and staying current with regulatory changes. 

4 types of chargeback management solutions

Given the high stakes involved in managing chargebacks, it is no wonder that the chargeback mitigation market is crowded. However, there remains a huge disparity in terms of what different solutions can provide. Let’s take a look at the four categories of chargeback management solutions, and what each of them can offer your business. 

1. Justt - the fully-automated, continuously-optimizing chargeback solution

Justt occupies a unique category within the chargeback mitigation market, offering the only truly hands-free and data-led solution with the potential to consistently improve your win-rate over time. Unlike other options on the market, Justt's fully-automated system is also comprehensively scalable, maintaining consistent quality even during high-volume periods. 

Justt is the only solution that can offer truly automated chargeback management with total scalability. While alternatives struggle with template limitations, manual input requirements, and quality degradation during high volumes, Justt continuously optimizes, adapts to issuer preferences, and leverages multiple data sources, resulting in superior win rates, hands-free.

Some key advantages of Justt include:

• Handling scale and complexity: Because Justt is automated, it does not suffer from any decline in quality when chargeback volumes increase, chargeback regulations change, or a merchant finds themselves dealing with a new category of cases. Since Justt removes the human from the equation, scaling is effortless - the system can handle 100 or 10,000 chargebacks without much needing to change on the merchant’s side.
• Ability to account for granular issuer policies. This is important because issuers typically only examine merchants’ representments for three minutes before making a decision. While all issuers broadly work according to the card scheme rules set out by Visa and Mastercard, each issuer has additional (and often unwritten) policies in how they handle dipsutes - and merchants who can align with these policies have a much greater chance of overturning chargebacks. 
• Dynamic arguments: Template-based chargeback solutions  (most alternatives fall into this category) often fail to account for the dynamic nature of handling chargeback disputes, and the fact that every chargeback is essentially unique, Justt’s system employs A/B testing to create detailed pictures of which arguments are most effective in each scenario, and adjusts its rebuttal letters to cohere exactly to those preferences. This self-optimizing system learns to improve over time, doubling most merchants’ win-rates in a matter of weeks, and continuing to improve thereafter. 
• Access to more data: While the majority of solutions only use merchant data, Justt's system extracts data from 44+ affiliated acquirers, merchants, and third-party sources. These sources are automatically fed into Justt’s machine learning algorithm to create highly informed, nuanced responses for each chargeback. The result is a hands-free solution that both eliminates chargeback-related work for the merchant, while also producing the highest win rates of any solution on the market. 

2. Chargeback Management Tools

Chargeback tools are typically used by in-house teams to accelerate the representment process. While these tools can streamline certain aspects of chargeback management, they come with significant limitations. One issue is that they still require a costly time investment, as each chargeback ultimately needs to be handled by your staff. This reliance on human intervention can lead to inconsistencies in response quality and effectiveness.

Scalability is another major challenge for chargeback tools. As the volume of chargebacks increases, the quality of responses suffers - potentially resulting in several lost chargebacks at the precise moment when you can least afford them. Furthermore, these solutions rely on templates generalized according to reason codes, which leads to a loss of nuance in responses, and an inability to handle more complex chargeback situations. 

Finally, chargeback tools often cannot fully account for card scheme rule changes, requiring merchants to conduct additional research to stay current with regulations. Nor are issuer preferences acknowledged, potentially reducing win rates. Human error remains a significant problem, and these tools generally lack optimization capabilities or third-party data enrichment. 

3. Outsourcing (Manual)

Manual outsourcing solutions aim to alleviate the burden of chargeback management from in-house teams. These services can help organizations scale on a short term basis; but over the long term, face many of the same challenges as internal teams - with some additional drawbacks. As with many other cases of outsourcing core business operations, these solutions can end up being expensive, difficult to scale, and prevent the organization from growing its internal knowledge and capabilities.

The reliance on human operators in manual outsourcing means that these solutions remain error-prone, especially during high-volume periods. Like in-house tools, outsourced manual solutions tend to use template formats that cannot adequately address nuanced cases. This lack of flexibility can lead to inadequate responses, particularly for complex or unusual chargeback scenarios.

Furthermore, manual outsourcing frequently requires input from the merchant, rather than fully alleviating the burden of chargeback-related work. The level of tailoring in these solutions is typically low - which means they cannot account for more granular differences, issuer policies, etc. The manual nature of the work will also typically mean that optimization is slow and less effective than with automation. Quality can also significantly decline during surges, as outsourced teams face the same volume challenges as in-house staff.

4. Outsourcing (Automated)

Most automated outsourcing solutions attempt to bridge the gap between manual tools and hands-free automated solutions like Justt. These services incorporate some level of automation into their processes, aiming to increase efficiency and reduce the workload on human operators. However, merchants should be aware that many ‘automated’ outsourcing solutions fail to specify exactly how they use AI or automation, relying instead on their power as buzzwords. 

While most of these solutions certainly use automated technology to some degree - such as by providing partially-filled templates or connecting to merchant data - internal teams still need to provide screenshots and other information. This requirement can be burdensome, especially at higher volumes. An automation tool that cuts down time spent per chargeback from 30 minutes to 20 minutes will still leave significant challenges during periods where chargebacks increase 2x.

Like chargeback tools and manual outsourcing, automated outsourcing solutions are typically template-based, which means they do not create nuanced representments on a case-by-case basis (which again is a separate ‘lift’ on the merchant’s side). These templates also require regular updates by domain experts, which prohibits effective scaling during volume surges. At the end of the day, these solutions will end up suffering from many of the drawbacks of manual solutions once the merchant meets a certain scale.

Want to learn more about chargeback management solutions?

• Read our Merchant’s Guide to Chargebacks, and How to Avoid Them 
• Find out how Melio achieved an 85.5% success rate for reversing chargebacks
• Schedule a demo with Justt today