Understanding chargeback reason codes is essential in preventing and fighting dispute cases
No other word instils fear into the hearts of merchants like “chargeback”. When merchants think of chargebacks, the expression “guilty until proven innocent” comes to mind. The chargeback system was created to protect consumers from fraudulent charges and keep merchants accountable. But if you’ve ever been on the receiving end of a chargeback claim, it can feel more like a personal feud wrapped in a painful, complex, and sometimes confusing process.
Chargebacks can be one of the most challenging and frustrating parts of payment card transactions, which can cost merchants lost revenue and lost time having to gather and present evidence to dispute them. No wonder merchants want to prevent chargebacks from occurring. Proving that a customer has been rightfully charged falls squarely on the customer. When consumers successfully dispute charges, merchants lose both the product or service sold and the revenue from that sale, in addition to bearing increased costs by way of chargeback fees.
Merchants also need to navigate through a lot of confusing terminology, regulations, and procedures involved in the act of processing chargebacks. However, to effectively manage chargebacks and proactively prevent them, it’s important to understand the reason behind each dispute.
Visa and MasterCard have their own set of reason codes to show the cause for a chargeback. These reason codes provide an explanation of the cardholder’s grievance and help merchants understand what led to the chargeback. The codes are two-digit numbers for Visa and MasterCard. Even though each network has its own set of codes, the categories are very similar.
Through careful analysis of chargeback reason codes, merchants can begin identifying trends, weaknesses, and areas of needed improvement so they can implement proactive measures to stop chargebacks from occurring again. Between Visa and MasterCard, there are three common chargeback reason codes, categorised into: customer-related issues, merchant error, and criminal fraud.
Customer-related/”friendly fraud” issues include non-receipt of goods, dissatisfaction, confusion, and failure to recognise the charge.
Prevention tip: Use a recognisable ‘doing business as’ name for card issuers to provide in billing statements. If a customer can recognise your name on their statement, the less likely they are to initiate a dispute. Clearly display your return policies in-store or on your website and include them on sales receipts and invoices. Work with your customers and try to resolve issues before they resort to a dispute. Proactively communicate with customers by keeping them informed and updated about their order status. Provide tracking and delivery notifications, evidence that the customer lives or works at the product’s delivery destination, or other proof that the customer received the product.
Processing errors, including authorisation problems, duplicate charges, faulty swipes, incomplete transaction record or documentation.
Prevention tip: For card present transactions, swipe carefully and make sure you have a legible receipt to prove the card was present. Don’t re-swipe a declined transaction; instead ask the customer for another card or form of payment.
Prevention tip: Obtain signatures. If a customer’s signature on the receipt is significantly different from the one on the back of the card, the transaction may be fraudulent. Examine the card and look for security features.
If you need to outsource your chargeback problem, then choose a specialist who will help you do it well. We’ll work with you to help ensure you have the right chargeback plan in place and be your partner. Because if you’re more successful, then we are too.