As the old quote goes, “Everything happens for a reason” – and that includes chargebacks.
That’s because when a customer raises a credit card dispute against your business, they have to select a reason for it.
Perhaps the goods didn’t arrive or weren’t sold as advertised; maybe the item was faulty, and a requested refund never materialized; the purchase could even have been made on a lost or stolen card, or the customer–facing an unfamiliar billing descriptor – might simply have failed to recognize the charge on their statement. (And, lurking beneath all these reasons, there’s still the looming, ever-present possibility of chargeback fraud.)
When the customer’s bank passes on this dispute, it’ll assign a chargeback reason code. These two- to four-digit codes are small but mighty – because they can help you understand not only why you’re receiving chargebacks but how to prevent them going forward.
To this end, we’re explaining exactly what chargeback reasons are – and why they matter – below. Then, we’ll list out every chargeback reason code from Visa, Mastercard, and American Express and explain how you can use these codes to win chargebacks. And mitigate against the frustrating, costly fees credit card disputes can have on your business.
A chargeback reason code is an alphanumeric code – typically two to four digits long – provided by the issuing bank when you, the merchant, receive a chargeback.
Chargeback reason codes are the bank’s attempt at translating the customer’s justification for raising a credit card dispute, via the language of a standardized list of reasons, into something your business can work with. Which, as we’ll see shortly, is vital when it comes to understanding why a chargeback has been raised against you, whether it could be chargeback of friendly fraud, and – most importantly – whether to fight it or not.
Each major card scheme – Visa, Mastercard, American Express, and Discover – has its own set of chargeback reason codes, which we’ll explore in more detail below.
Chargeback reason codes are necessary because they give you vital clues as to why your business has received a chargeback. By neatly grouping each credit card dispute you receive into a category, reason codes help you get to grips with the root cause of chargebacks.
With this information, you can optimize your business and payment strategy to reduce the number of chargebacks you receive. For example:
What’s more, chargeback reason codes help you ascertain whether or not to dispute a chargeback. (The representment process is, after all, tiresome, tedious, and time-consuming – and you can’t fight everything). If you do choose to stand your corner and contest the dispute, however, chargeback reason codes can give you an idea as to what kind of evidence you’ll need to make your case.
If, for example, a chargeback arrives with a reason code that indicates the customer never received the goods they paid for, you know you’ll need shipment tracking information as evidence that you shipped the items. If the customer reports misrepresentment – claiming that the goods didn’t arrive as advertised – you could supply a picture taken of the packaged goods before they were shipped as proof of their quality and likeness to what was advertised.
Ultimately, taking the time to delve deeper into chargeback reason codes can help you address customer concerns, improve how your company operates, and prevent future chargebacks. It can also help you bolster your business against fraud and – by understanding and adhering to chargeback policy and best practices – stay on the right side of card scheme compliance.
As we touched on earlier, each card scheme or brand (Visa, Mastercard, Discover, and American Express) records chargeback reason codes in a similar way – just not the same.
Depending on the card your customer pays with, the dispute they raise will be attached to a different code depending on the scheme their bank operates with. This means that, despite being made for the exact same reason, four disputes can have completely different codes.
What’s more, each scheme groups chargebacks into similar categories, such as:
These categories aren’t always consistent – or consistently named – across card schemes, though they are generally applicable to all.
Now, let’s break down each of the top card scheme’s chargeback reason codes.
Visa has the most chargeback reason codes, and, thanks to its system’s use of (sometimes several) decimal points, it can be a little harder to read and understand. That said, Visa’s chargeback reason codes are neatly separated into five different categories, which makes them easier to parse and process.
These codes are assigned when the cardholder claims the transaction was fraudulent. The customer could, for example, have had their physical card stolen or seen their card details exposed in a data breach or phishing scheme.
Credit card authorization is a crucial part of the payment process and involves ensuring that the card the customer is using to pay with has sufficient funds to complete the transaction.
Chargebacks of this ilk could include transactions where authorization was declined or not given or where an expired card was used.
Processing errors could include failing to process funds in the correct currency, entering an incorrect amount, or debiting payment for the same purchase more than once.
A point of interaction error is one that occurs at the point where the payment is initiated and processed. (This could be a traditional point-of-sale system, a mobile payment app, or an online payment gateway.)
Consumer dispute-related chargeback reason codes are when the cardholder, dissatisfied with some element of the service or products they’ve received with your business, initiates a dispute. These could contest the quality of the goods and services you’ve provided or how they were delivered or presented, and whether that matches up to the way you advertised them.
Mastercard’s chargeback reason codes are four digits long and always begin with the number pairing ‘48’. We’ve listed them out in full below.
Handily, American Express codes are just three characters long, with a letter – which corresponds to the category the chargeback reason code belongs to – preceding two digits.
Chargeback reason codes can help you win disputes because they give you strong clues as to what kind of evidence you’ll need to make a successful case.
So, after reviewing the chargeback reason code, the next step is to gather the relevant documentation with which to tackle the representment process.
This evidence could include:
Along with this evidence, you’ll need to provide a clear, concise, and compelling written rebuttal that states why the chargeback isn’t valid. You can only respond to a chargeback based on the reason code the issuing bank has provided – so ensure your response is tailored to that code accordingly. This means adjusting your response to the language of the reason code: addressing its specific criteria, and explaining how your evidence aligns with that criteria.
For more information about how to win credit card disputes and the representment process, our dedicated explainer article will help.
Reason codes are a crucial cog in your business’s chargeback-fighting machinery. However, they’re not perfect – namely, because they often fail to account for ‘friendly fraud’.
Often, chargebacks aren’t legitimate. A customer may, for instance, initiate a chargeback: claiming fraud, when in fact, their real motivation is to claim something for free or to recoup their money after experiencing buyer’s remorse.
Instead of requesting a refund – which may not be allowed or available, and in any case, requires the goods to be returned – these fraudsters simply initiate a chargeback, confident they’ll get to keep both their money and their ill-gotten “purchase.” (For more information about chargebacks and refunds – and their big differences – our guide will help.)
Since there are no dedicated reason codes for these illegitimate chargebacks, they end up bundled together under the same umbrella of justification as actually fraudulent transactions – making them even harder for you, as a merchant, to distinguish and deal with.
Essentially, then, the best way to win a chargeback is to simply not receive a chargeback in the first place. But how?
As we’ve explored here, chargeback reason codes are a useful tool when it comes to fighting chargebacks. But, if you’d prefer to try to prevent them altogether (as much as that’s even possible), Checkout.com can help.
Our Fraud Detection Pro solution harnesses AI-driven machine learning algorithms and advanced rules to reduce false declines and friction and increase the success and security of the payments you accept. With Checkout.com on your side, you can strengthen your business against fraud and mitigate against the likelihood of chargebacks – and the financial and reputational havoc they can wreak on your brand and business.
When chargebacks do occur, though, Fraud Detection Pro – by working in parallel with our disputes product – is equipped to handle disputes, sniff out fraud, and help you with every aspect of chargeback representment and resolution. This includes Rapid Disputes Resolution (RDR), which helps you automatically resolve transaction disputes without them being classed as chargebacks by Visa (and thus impacting your status as a trustworthy merchant).
Want to learn more about Fraud Detection Pro, and how it works? Get in touch with our team of chargeback experts today for a friendly, no-obligation conversation.