Chargeback reasons are the specific code or explanation that a payment network assigns to a chargeback. It’s important for merchants to understand chargeback reasons, because each reason code comes with a specific time limit for a response and a standard for how much evidence you need to dispute it.
When you understand the common chargeback reasons, you can easily prepare a representment package by making sure you have the right tools and documentation in advance. This information can even help you prevent chargebacks before they happen.
Fraud-Related Chargeback Reasons
Friendly fraud
1) Buyer commits “cyber shoplifting”
Less-than-moral buyers will take advantage of the process by committing what’s known as “cyber shoplifting.” This is when buyers purchase a product and then decide to file a chargeback because they don’t want to honour the return policy, they don’t want to wait for a refund to be processed, or they just never intended to pay for the product in the first place.
Criminal fraud
2) Buyer uses stolen credit card information
While buyers are protected from fraudulent transactions, merchants are not, and they will have to take on the lost revenue plus the chargeback fee. This is most common for card-not-present merchants.
3) Fraudulent affiliate purchases
Legitimate affiliate marketers make a commission whenever their audience buys a product through one of their affiliate links. Fraudulent affiliate marketers use stolen credit cards to purchase items using their affiliate links, allowing them to pocket the commission while the actual cardholder files for a chargeback. They may also create fake traffic.
4) Cardholder doesn’t recognize the transaction
If a cardholder doesn’t recognize a transaction, it’s usually due to criminal fraud (which is when someone uses stolen credit card information). That said, another common reason is that the cardholders doesn’t recognize the billing information on the statement. If you’re a merchant, it’s important to have clear billing descriptors that include your “doing business as” name, aka DBA name, to avoid chargebacks due to confusion.
5) Second-party fraud
Typically, fraudsters steal credit card information from unsuspecting cardholders. Second-party fraud is more grassroots. In this situation, fraudsters work with real cardholders to make purchases. The real cardholder then files a chargeback claim. The fraudster gets the product, the cardholder gets their money back, but the merchant winds up taking on the cost of the goods plus the chargeback fee.
Service-Related Reasons for a Chargeback
Dissatisfaction with product or service quality
6) Merchant sold damaged goods
Mistakes happen, and sometimes, merchants send an incomplete product. A part or a promised add-on may be missing. Ideally, customers would speak to the merchant directly, however, it’s usually faster for them to file a chargeback.
7) Buyer wants to cancel their subscription
Purchasing a subscription and then forgetting to cancel is a common occurrence. A cardholder may opt to file a chargeback instead of trying to get a refund from the subscription service.
8) Merchant provided an inaccurate product description
When a buyer receives an item and it isn’t what they were expecting, they are supposed to contact the merchant first to see if they can get the correct item sent to them. But if the merchant is hard to reach, they may skip a conversation entirely and file a chargeback directly with their bank.
9) Customer received counterfeit goods
When a customer buys from what they assume is a legitimate reseller of a large brand name and receives a knock-off instead, they’ll file a chargeback. In this case, the buyer is less likely to take it up with the merchant directly since they’ve already experienced a breach of trust.
10) Merchant didn’t clearly communicate their fees
Merchants sometimes add on fees such as missed delivery fees. If the cardholder receives their bill and the surcharges weren’t communicated to them, they may file a dispute. Payment networks may also levy chargebacks against merchants that put surcharges above a specific threshold.
Failure to meet delivery expectations
11) Goods and services were only partially provided
Partial deliveries usually happen for one of two reasons. The first is that the merchant thought they had fulfilled the order correctly. The second is that they didn’t have the originally ordered product available and decided to provide a replacement without checking with the customer first.
12) Merchant didn’t send the goods fast enough
If a merchant takes too long to send the purchased goods, this could be a chargeback reason. The standard amount of time is 10 days, so if the merchant is selling something that will take longer to ship, they need to ensure that this is clearly stated in the terms and conditions.
Merchant business practices
13)Appointment or service cancellation
One of the issues that business owners face is customers making a reservation (e.g., for a hair appointment, at a restaurant) and then failing to show up and not cancelling ahead of time. This prevents the business from keeping that slot open for another potential customer. As a result, businesses have started taking customers’ credit card details in order to book a reservation and charging the card on file if the customer is a no show. If this isn’t clearly communicated to customers, it could be considered a legitimate reason for a chargeback.
Processing Errors That Cause Chargebacks
Duplicate charges or incorrect billing amounts
14) Merchant charged the incorrect amount
When an order is entered manually, the wrong amount may be entered. If the customer only notices after the fact and doesn’t have the time or inclination to take it up with the merchant, they can file a chargeback to recoup the funds.
15) Customer was double charged
When a customer’s card is declined, the merchant may try the purchase again. In some cases, both the first (declined) transaction and the second transaction go through. The customer winds up getting two charges on their credit card.
16) Merchant charged the wrong currency
There are two reasons why a merchant may charge the wrong currency. In the first instance, they may enter the wrong currency code causing a mismatch with the currency on the card network. In the second instance, the customer may have opted out of Dynamic Currency Conversion (DCC). If they travel to another country and make a purchase they may file a chargeback if they think they were charged an exchange fee markup.
Failure to process refunds promptly
17) Merchant denied the customer’s refund request
There are scenarios where a refund policy is unclear, but the merchant denies the request for a refund. In this case, the customer can file a chargeback claim instead. On the other hand, the merchant may have been happy to give a refund, but too busy to process it in a timely manner. If the cardholder grows impatient and files a chargeback claim, the merchant will have to take two hits: to their revenue and in the form of a chargeback fee. Using a chargeback management platform that automatically processes refunds (before they become chargebacks) can help.
Failure to follow banks and card networks’ processes
18) Merchant doesn’t respond to bank’s inquiry
When a bank reaches out about a dispute, they expect a timely response from merchants. If they don’t get a response within the chargeback time limit, they will rule in favour of the cardholder.
Authorization issues
19) Bank didn’t provide valid authorization
The authorization process works as follows. When a customer makes a purchase, the merchant’s bank (the acquiring bank) sends a message to the cardholder’s bank (the issuing bank) to make sure the card hasn’t expired or that the customer is still within their credit limit. At times, there are technical glitches and the transaction goes through, allowing the customer to obtain the goods. When everything is settled up later, the merchant may experience a chargeback.
20) Expired authorization
Authorizations can expire if the merchant is busy and doesn’t get a chance to complete their batching and processing in time.
How to Prevent Chargebacks
Clear communication of policies
It’s harder for cardholders to win chargeback claims against you if you can prove that you clearly represented your business. Write clear return, refund, and shipping policies that state how returns are handled, if and how long after purchase a customer can request a refund, and how long it takes for items to arrive. It’s also important to include details about any surcharges. If you can prove the customer agreed to these terms when making a purchase, you’ll build a stronger representment package.
Providing excellent customer service to resolve issues before they escalate
One of the reasons customers have amped up their use of the chargeback process is their frustration with online customer support. If it’s too difficult to get in touch with someone, a customer will take their grievances to their bank and file a chargeback instead. On the other hand, if you amp up your customer service, provide helpful advice on how to make the most of your products, and are respectful and responsive, your customers may turn to your brand more than they do to their bank.
Using fraud detection tools to identify high-risk transactions
As your business grows, it becomes a bigger target for fraud. It’s a smart idea to invest in automated fraud detection tools that can spot anomalous activity and save your business from cyber crime.
Ensuring accurate billing and timely refunds
Make sure you offer accurate and clear billing. And when you do agree to a refund, be sure to process it in a timely manner. Cardholders can get impatient waiting and simply file a chargeback. With a chargeback management platform, you can access preventative tools that automatically alerts you to a dispute and allows you to send a refund before it turns into a chargeback.
Best Practices for Dispute Resolution
Responding to chargebacks with compelling evidence
Keep your response to a chargeback concise and packed with evidence. This includes showing proof of authorization, proof of delivery or proof of service in the form of user logs for subscription services, your terms and conditions, and your refund policy.
Leveraging chargeback representment services
You can save time by using a chargeback management platform that automatically gathers all of your documentation, prompts you to provide any missing info, and then puts together a representment package on your behalf.
Monitoring chargeback ratios and addressing recurring issues
It’s important to stay on top of your chargeback ratios since this can jeopardize your standing with the payment networks. This also helps you identify your most common types of chargebacks, so you can come up with preventative measures (e.g., a clearer refund policy) or understand the kind of evidence you should be gathering.
An ounce of prevention is worth a pound of chargeback cure
The payment networks are designed to keep transactions honest, so if you are doing everything right, you can keep your money and avoid fines. This means spending time on chargeback prevention strategies and investing in automated tools that help you streamline dispute resolution and grow with confidence.
You can book a call with a member of the ChargebackStop team here to learn more.
