Understanding Credit Card Chargebacks and Fraud
Credit card chargebacks occur when a customer has a chargeback dispute and decides to question a charge on their credit card statement with their Credit Card Company or issuing bank. While chargebacks happen for a variety of reasons, the most common reason is that a customer no longer wants the service or product sold to them. Here we list a few Chargeback Reason Codes to help you better understand why the chargeback dispute happened in the first place and to assist you with preventing chargebacks before they happen.
While the chargeback process may seem unfair to business owners, it reassures consumers that they can take a chance on a product they are unsure about. If the product doesn’t work for them, they have the power to simply return the product with minimal hassle. The burden is put on the banks to figure out whether the chargeback reason code is legitimate or a case of fraud. Understanding chargebacks and how to help prevent them is detrimental to running your business.
Chargeback fees can differ from bank to bank, and depending on the number of chargebacks you may have, the fees can increase. Additionally the burden of proof is on the business to show that a customer has been legitimately charged for products or services.
If a dispute is decided in favor of the business owner, the bank may continue to hold funds for any chargebacks until the matter is officially closed with the bank.
Why do Chargeback’s Occur?
Chargebacks can happen for a variety of reasons including:
Chargebacks can occur when a customer is unhappy with a product or service purchased because they never received the product or it wasn’t “as advertised.”
Customer does not recognize a purchase listed on the credit card statement.
Customer claims they didn’t approve a purchase.
Customer claims credit card information and identity was stolen and purchase were made fraudulently.
Chargebacks can occur when a customer is billed twice for products or services and entry must be voided.
Understanding chargebacks and the time a customer has to dispute the transaction is important as well. Customers have anywhere from 3-6 months to dispute charges through their credit card company or bank. It can take another 2-4 months for the bank to settle the dispute. Unfortunately, until the matter is officially resolved, the bank will hold on to the funds.
Chargeback Reason Codes for Visa and Mastercard
When a chargeback is issued, most credit card companies have chargeback reason codes to tell you exactly why the chargeback has occurred.
Visa Chargeback Reason Codes
Reason Code 30: Services Not Provided or Merchandise Not Received
Reason Code 41: Cancelled Recurring Transaction
Reason Code 53: Not as Described or Defective Merchandise
Reason Code 57: Fraudulent Multiple Transactions
Reason Code 62: Counterfeit Transactions
Reason Code 71: Declined Authorization
Reason Code 72: No Authorization
Reason Code 73: Expired Card
Reason Code 74: Late Presentment
Reason Code 75: Transaction Not Recognized
Reason Code 76: Incorrect Currency or Transaction Code or Domestic Transaction Processing Violation
Reason Code 77: Non-Matching Account Number
Reason Code 80: Incorrect Transaction Amount or Account Number
Reason Code 81: Fraud-Card-Present Environment
Reason Code 82: Duplicate Processing
Reason Code 83: Fraud-Card-Absent Enviroment
Reason Code 85: Credit Not Processed
Reason Code 83: Paid by Other Means
Here are detailed chargeback management guidelines for Visa merchants.
MasterCard Chargeback Reason Codes
4802: Requested/Required Information Illegible or Missing
4807: Warning Bulletin File
4808: Requested/Required Authorization Not Obtained
4812: Account Number Not On File
4831: Transaction Amount Differs
4834: Duplicate Processing
4837: No Cardholder Authorization
4840: Fraudulent Processing of Transactions
4841: Canceled Recurring Transaction
4842: Late Presentment
4846: Correct Transaction Currency Code Not Provided
4849: Questionable Merchant Activity
4850: Installment Billing Dispute
4853: Cardholder Dispute—Defective Merchandise/Not as Described
4854: Cardholder Dispute—Not Elsewhere Classified (U.S. district just)
4855: Goods or Services Not Recieved
4859: Addendum, No-show, or ATM Dispute
4860: Credit Not Processed
4863: Cardholder Does Not Recognize—Potential Fraud
4870: Chip Liability Shift
4871: Chip/PIN Liability Shift
Can I Prevent Chargebacks?
Understanding Chargebacks and how to prevent them will save you time and money. The chargeback process can cost a lot of money and take months for businesses to resolve the dispute.If a customer is demanding a chargeback, it is best to respond immediately to questions and concerns that the customer may have. In most cases, customers will try to resolve the issue with the business before using their credit card company to resolve purchase issues. If possible, offer alternative product options or discount additional purchases made through your business. If the matter cannot be resolved, it is best to keep in mind that it is almost always cheaper to offer a refund to the customer rather than being forced to process a credit card chargeback. If you don’t respond to the customers demand the bank will automatically put the funds on hold until the claim is processed.
Make sure to keep accurate and clear records of products or services customers purchased from your business. If a customer claims they didn’t receive the product a clear record of the purchase as well as the shipping transaction code may help to prove your case to the bank.
Make sure you have your terms and conditions clearly listed, especially if you are selling online. This is a must when understanding chargebacks and how to help prevent them.
Make sure that your business contact info is consistent. A simple preventative measure against chargebacks is making sure that the name of your business is consistent with the name that will show up on the credit card statement. We’ve often seen many chargebacks as a result of a customer not recognizing a company name and calling to report to their bank about fraudulent charges.
What about Chargeback Fraud?
There are many possible red flags to be aware of when it comes to chargeback fraud. Below are some steps to consider:
Selling Online
Selling online is a great revenue source for many businesses. However, it also puts businesses at greater risk for chargeback fraud as credit cards can be used to purchase products without requiring a signature or proof of identity before purchase. Additionally, it is easy for someone to claim they never received purchases in the mail resulting in a chargeback. To prevent online chargeback fraud we recommend that businesses require signature upon delivery of product to the customer. Keep track of communications and receipts of purchase as well as tracking information from the shopping company.
Suspicious Orders
If you notice unusually large orders, orders for big ticket items, multiple orders made within a short time frame, or rush delivery orders, these may point to fraud. Foreign orders as well as orders with domestic addresses being shipped to foreign locations could also represent fraud. It’s possible that these orders are legitimate, but it’s always good to be especially vigilant in making sure the credit card information is accurate.
With excellent communication and a proactive attitude, most businesses can easily prevent or beat chargebacks!
