Understanding Chargeback Reason Codes

To prevent and reverse chargebacks, merchants must first learn what caused them. Without this key information, it is impossible to determine whether to fight or accept them, which evidence types could secure a successful reversal, or what operational changes must be made to your own systems to reduce future chargeback volumes.

Chargeback reason codes are a big piece of this puzzle. While reason codes can be manipulated by cardholders, and will leave out dispute details, they are your first indicator regarding what you have been charged with, and what must be disproven or amended. As such, knowledge of reason codes is crucial for fighting chargebacks successfully, and merchants should aim to become familiar with them.

What Is a Reason Code?

A reason code is an alphanumeric string of text that an issuing bank attaches to a chargeback dispute to explain its cause. Major card networks including Visa, MasterCard, Discover and American Express, alongside some PSPs like PayPal and Stripe, each have different reason code systems. Issuing banks assign these codes to chargebacks based on the card network or PSP that facilitated the transaction, as well as the details of the dispute claim.

Four Reason Code Categories

Reason code categories have evolved over the years, and more changes are expected in the future. The two largest card networks, Visa and MasterCard, group theirs into four categories, each of which contains several distinct reason codes:

• Authorization
• Consumer/Card Member Disputes
• Fraud
• Processing Errors

American Express and Discover include other categories as well, such as “Inquiry/Miscellaneous” (Amex) and “Legacy Reason Code” (Discover).”

Authorization

Authorization disputes are typically associated with transactions where authorization was not given by the issuer or cardholder.. This category includes, “Declined Authorization” (Visa, 11.2), where a merchant processes a transaction despite the issuer declining to authorize, and “Account Number Not on File” (Mastercard, 4808), where a transaction was processed despite the account number no longer being on file.

Consumer Disputes

This category includes chargebacks initiated by cardholders, and relating to issues with a merchant, service, or product. Consumer Disputes are also known as Card Member Disputes, Service Chargebacks, and Cardholder Disputes. Reasons for filing a dispute under this category vary but may include “Canceled Recurring Billing” (Mastercard, 4853) and “Goods Not Received” (Discover, RG).

Fraud

Disputes in this category are associated with cardholders’ claims that a transaction occurred due to true fraud. Fraud reason codes include “No Cardmember Authorization” (Amex, F24), “Card-Present Fraud” (Visa, 10.3), and “Chip Liability Shift” (Mastercard, 4870”.

Processing Errors

Also known as “Point-of-Interaction Errors”, processing error reason codes are assigned to disputes related to duplicate processing, late presentment, invalid card numbers, incorrect charge amounts, and credit processed as a charge. A few examples include “Authorization Non-Compliance” (Discover, AT), and “Incorrect Currency” (Visa 12.3).

Beyond Reason Codes: Friendly Fraud and Reason Code Abuse

While reason codes were created to help merchants better understand why their customers file disputes, they are frequently manipulated by bad actors to game the system.

When a customer is honest about a dispute, the reason code is relevant and legitimate. But in cases of friendly fraud, cardholders use irrelevant reason codes to initiate illegitimate disputes. Unfortunately, friendly fraud chargebacks make up the vast majority of disputes – up to 75%, according to Visa research. This means that most reason codes are also illegitimate, so maintaining vigilance is essential.

Importantly, some reason code categories are far more vulnerable to friendly fraud than others. For instance, since disputes under the “Authorization” category are almost always initiated by the issuing bank, rather than the cardholder, they are much less likely to be illegitimate.

On the other hand, consumer disputes and fraud chargebacks are highly susceptible to friendly fraud. This is due to the ease with which a cardholder can claim that a service was not properly rendered, or that a transaction was unauthorized. A few reason codes that friendly fraudsters often hide behind include:

• Merchandise Not Received: Does this mean the package got lost in shipping? Or is the cardholder cyber shoplifting?
• No Cardholder Authorization: Did the cardholder forget the transaction? Or did a fraudster break through security defenses?
• 13.7 Cancelled Services/Merchandise:Was the cardholder charged for a cancelled subscription? Or did the cardholder forget to cancel?

Respond to All Your Chargebacks With Justt

Chargeback reason codes can be confusing and complicated – but with Justt, you don’t have to be an expert. Justt’s end-to-end automated chargeback solution instantly identifies reason code abuse and reverses friendly chargebacks with forensically-tailored responses.

Better yet, the system conducts advanced A/B testing on each dispute outcome, so every response is informed by the millions of chargebacks that preceded it – and your win rates and revenue continue to rise. Who needs a better reason than that?

Eager to see what Justt can do for your revenue? Schedule a demo today.

Chargeback Reason Codes FAQs

What are chargeback reason codes?

Chargeback reason codes are alphanumeric strings of text provided by an issuing bank to describe the reason a dispute was initiated. Different card networks have different dispute code systems.

How many chargeback reason codes are there?

Between the four major card networks, there are 151 unique reason codes.

What evidence do I need to fight a chargeback?

Different chargeback reason codes need different evidence. The most common compelling evidence used include:

• Purchase receipts
• Shipping records and confirmation of deliveries
• IP address
• Communication with the customer
• Record of identity verification methods the customer used

What happens if a merchant does not respond to a dispute?

If a merchant doesn’t respond, the cardholder wins the chargeback, while the merchant permanently loses their revenue, and may face costly chargeback fees.

What is chargeback arbitration?

Chargeback arbitration is the final stage of chargeback resolution where the losing party (the merchant or cardholder) challenges the issuing bank’s decision by submitting more evidence to the card network. Although card networks have similar regulations for chargeback arbitration, the steps, terminologies, and time frames vary.