Understanding Chargeback Reason Codes

When preventing and fighting chargebacks, it’s important merchants know their cause. If merchants don’t understand the reason for a chargeback, they cannot determine whether to fight it and what evidence to submit or whether to let it go.

This is where reason codes come to the rescue. While reason codes don’t give all the details about a chargeback, they are crucial in fighting chargebacks successfully, and merchants should become  familiar with them.

What is a reason code?

A reason code is an alphanumeric string of text an issuing bank attaches to a chargeback dispute to explain its cause. Major card networks including Visa, MasterCard, Discover and American Express have different reason code systems. Some payment service providers like PayPal and Stripe have their own reason codes as well. However, issuing banks categorize disputes based on the card network.

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:

• Authorization
• Consumer Disputes
• Fraud
• Processing Errors

American Express and Discover include other categories as well, such as “Inquiry/Miscellaneous” and “Service Dispute.”

Authorization

Authorization disputes are associated with authorization problems. For instance, in transactions where authorization was needed but wasn’t received. This category also includes disputes cases where authorization requests got a decline response, but the merchant completed the transaction. 

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Consumer Disputes

This category represents chargebacks a cardholder initiates regarding merchant, service, or product issues. Consumer Disputes are also known are Card Member Disputes, Service Chargebacks, and Cardholder Disputes. Reasons for filing a dispute under this category vary but may include canceled recurring billing and goods not received.

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Fraud

Disputes in this category are associated with fraudulent transactions. Reason codes for EMV, no cardholder authorization, card present and card not present fraud are under this Fraud category.

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Processing Errors

Also known as Point-of-Interaction Errors, Processing Errors includes disputes related to duplicate processing, late presentment, invalid card numbers, incorrect charge amounts and credit processed as a charge.

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Reason codes used in friendly fraud

Reason codes were created to help merchants better understand why their customers file disputes. In theory, this works, but the codes don’t necessarily give the whole story in reality.

This is because some customers abuse the chargeback process to commit friendly fraud. When a customer is honest about a dispute, the reason code is relevant. But in the case of friendly fraud, the reason code is a disguise for the real motive.

Some reason codes that don’t paint a clear picture and cardholders can hide behind include:

• 13.1 (Merchandise Not Received) – does this mean the package got lost in shipping? Or is the cardholder cyber shoplifting? 
• 4837 (No Cardholder Authorization) – did the cardholder forget the transaction? Or did a fraudster break through security defenses?
• 13.7 Cancelled Services/Merchandise – is the merchant cancellation policy difficult to locate? Or did the cardholder forget to cancel?

Get proactive

Chargeback reason codes can be confusing and complicated. As such, it’s best to work with a professional chargeback mitigation company. Justt offers an end-to-end solution to help you identify the true causes behind chargeback reason codes, and fight false chargebacks.

Contact us to find out more

Chargeback Reason Codes FAQs