Dublin-based financial software company Peregrine Systems is playing to a captive audience. The six-year-old company is the only producer of credit card charge-back software carrying Visa's endorsement. Now the global financial services industry wants a slice of the action, and Peregrine is preparing for a Nasdaq listing within the next two years.

Disputed credit card payments have burgeoned in parallel with increases in cashless transactions. Cardholders often query transactions detailed on their monthly statements for a number of reasons, including processing errors, fraud, or documentation and authorisation related disputes.

Once the complaint is registered with the card issuer and a specific dispute procedure is initiated, the charge-back process begins. The cost of these procedures runs to billions of pounds each year, as the charge-back process is one of the most complex and time consuming aspects of banking.

Mr Bill O'Connor, who co-founded Peregrine Systems with Mr Brian Caulfield, realised in the early 1990s that knowledge-based systems were ideally suited to automating this process. Working as a consultant with AIB, he set about developing a software system which incorporated the expert knowledge necessary to administer a charge-back and was capable of making intelligent decisions about the appropriate course to take.

According to Mr O'Connor: "Paper-based charge-back processing takes intensive training for personnel to be competent. Generally it traps good workers in intricate clerical and paralegal tasks. The knowledge-based software means these people can be released to areas of real benefit to the company."

While working with AIB, Mr O'Connor moved to Peregrine Systems and soon brought the company's two products - ICS and MERCS, designed for card issuers and acquirers respectively - to market. AIB purchased the software in 1996 and implemented the ICS system in 1997. Now, Peregrine estimates its products incur average productivity increases of 250 per cent in the charge-back process.

The system allows an average of 50 charge-backs per day rising sometimes to 200, compared with a paper-based industry average of 12 to 14 per day. It has also cut the induction period for new staff from one year to two weeks. The advantage and saving to banks was immediately apparent, though it took some time to start the ball rolling.

"Banks are extremely wary institutions, but once the big players started to come on board there was a domino effect," says Mr O'Connor.

Employing a pinpointed marketing strategy, Peregrine knew it would only capture its estimated potential global market - worth about £1 billion - if it had the endorsement of a major partner. This partner came in the guise of a marketing and distribution deal signed with Visa International in February, 1997. Since then Peregrine's client list has become something of a star-studded lineup including Barclaycard UK and Germany, the Royal Bank of Scotland, Bank of Ireland and, more recently, Telekurs in Switzerland, IZB in Germany and Woolwich in Britain. Averaging one new deal each month, Peregrine has experienced compound growth of 75 per cent for each of the last two years, and with 50 per cent of this year's targets already on the order book in the three months since June, Mr O'Connor expects growth to increase by 100 per cent this year. The two products, MERCS and ICS, also guarantee good return business for Peregrine as Visa and Mastercard change the chargeback rules twice a year. Peregrine must update its products accordingly. "At the end of the day we are selling banks knowledge which becomes a corporate asset, the fact that it comes as software is incidental. Knowledge-based systems have huge commercial benefits and while we are very lucky with the niche we ended up in, we realised early on we had the solution to a worldwide problem," says Mr O'Connor.

Peregrine now hopes to raise finance through venture capital or private placements to fund a staff increase from 28 to 42. Recruitment has just begun to sustain growth into new markets, particularly the US. Now Peregrine is in advance discussions with a large third-party company which conducts card processing functions for a number of financial institutions. Again, it is ensuring it has a major partner on side before it starts cold-calling customers.

The obvious next step for Peregrine is a Nasdaq listing which the company is tentatively hoping to achieve in the next two years. Mr O'Connor is confident business will continue to grow.

"The payment systems sector is one of the most recession-proof businesses in the world, experiencing growth of about 25 per cent annually in the developed world and around 250 per cent in less developed economies. The implications of the euro will be very good for us as the volume of card transactions is set to increase. No conceivable recession is going to reverse the trend away from cash transactions to card transactions," says Mr O'Connor.

In order to keep pace with rapid developments in the financial services area, Mr O'Connor says it is crucial the company develops products which can support the euro, multi-currency transactions and electronic commerce. Emerging opportunities dictate that Peregrine continues to innovate - it currently spends about 35 per cent of annual revenues on research and development. Mr O'Connor highlights the skills shortage as a major threat to Peregrine's continued growth. In particular, he says, senior development personnel are proving increasingly difficult to find.

Venture capitalists are now eager to invest in Peregrine - in contrast to the difficulties encountered five years ago - and Mr O'Connor believes Enterprise Ireland and the Trade Board have been central in shifting attitudes towards the software industry as a key growth area.