Chargeback Reason Codes: Tips for Merchants

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Chargebacks are a common part of the eCommerce world, but merchants often don’t understand why they happen. Chargeback reason codes can help you understand the causes and then help you win. This is an important factor when it comes to preventing and fighting chargebacks. By understanding chargeback reason codes, sellers know what they should do: cancel or fight chargebacks, what paperwork to submit for an appeal, etc.

While reason codes can help fight chargebacks, they are unfortunately not perfect. And while they can tell the seller why the buyer submitted the dispute to the bank, they may be wrong. Therefore, the most up-to-date information about the chargeback, as well as a strategy for dealing with it, will come from the process of identifying the real reasons for the filing.

Nevertheless, knowing the chargeback reason code will help you fight chargebacks more effectively. This article discusses what reason codes are, how they help fight chargebacks, and the key reason codes of key card networks in the US.

What Is a Chargeback Reason Code?

To better understand how to deal with chargebacks, it’s important to properly read the reason codes, which are a combination of numbers and letters. Each U.S. card network has its own list of chargeback reason codes. One of these codes is listed when a customer initiates a chargeback request.

The process itself for opening a chargeback dispute by the buyer is as follows: the cardholder contacts his issuing bank, and the bank representative asks a specific list of questions about the transaction and the reasons for the dispute. In addition, the bank representative may request the buyer for any supporting information and proof that the payment should be canceled. If the issuing bank decides the claim is legal, it grants the aggrieved party provisional credit. The bank also sends the chargeback through the credit card network to the acquiring bank.

Not too long ago, banks didn’t do much investigation and had no trouble returning chargebacks to their customers. Recently, however, new rules for major card networks went into effect that require banks to obtain additional information and evidence before approving chargebacks. This is due to an increase in customer violations.

However, despite the stricter rules, many banks continue to approve customer chargebacks without requiring too much proof. This means only one thing: sellers will continue to face a large number of chargebacks for a variety of reasons.

When a merchant receives a notice from the issuing bank about a chargeback, it will contain a reason code for the payment. This code is selected from a list of chargeback reason codes that are set by the specific card network. By understanding the reason code, you should begin reviewing a chargeback and choosing a strategy to deal with it.

Some merchants try to fight chargebacks themselves. But many sellers use chargeback software for their businesses. This software combines several tools to reduce the chargeback rate and save revenue from chargebacks. Moreover, chargeback management software can monitor your rates, prevent and resolve disputes.

How Do Reason Codes Help Fight Chargebacks?

Every time you receive a chargeback notification, you should look up the reason code in the message and compare it with your transaction records. The information you get will help you understand what documents to prepare and how to build a chargeback defense properly. In addition, understanding the reason for the complaint will help you understand the drawbacks of your online store services and prevent further chargebacks.

After checking the chargeback reason code, the next step is to gather evidence and documents that can confirm that the reason for the chargeback stated by the buyer is not true. Draft a rebuttal letter that summarizes the problem and your evidence, then send it to the issuing bank for further review.

The bank is required to review your appeal and decide whether to reverse or uphold the current chargeback. It is important to provide evidence that is directly related to the reason code, otherwise, unnecessary documentation can only confuse the case.

Understanding the chargeback reason code will help the retailer avoid similar problems in the future. For example, if an online store regularly receives chargebacks with a reason code that the item does not match the description on the site, the seller can correct the information in the store, thereby reducing the number of such requests. The situation is similar to reason codes regarding poor delivery of an order. If such chargebacks are frequent in the store, it’s worth thinking about changing the delivery service.

Chargeback Reason Codes Types

There are four major credit card networks in the U.S. market today, Visa, Mastercard, American Express, and Discover. Each of these networks has its own set of reason codes as well as individual numbering.

However, all networks have the same reason codes divided into the same categories: authorization, fraud, processing errors, and consumer disputes. Each of those categories has subcategories that contain specific chargeback reason codes. They will help the merchant to find the chargeback reason and fight against it effectively.

Know the Reasons Behind Your Chargebacks

An important criterion in the fight against chargebacks and preserving a seller’s reputation is identifying, understanding, and handling complaints according to a chargeback protection strategy in your company. In addition, a proper reading of the chargeback reason codes will allow the merchant to eliminate the key causes of chargebacks that appear due to the merchant’s fault.

The best practice for fighting against chargeback today is to use reliable chargeback management software for online business. Such services as Chargebackhit alert you about potential chargebacks, help resolve disputes or even recover revenue lost due to them in some cases.

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