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Every chargeback occurs for a reason, but sometimes it’s hard to figure out what that reason is. To make sure that your business runs smoothly, you should understand the reasons behind chargebacks and know how to fix the problem right away.
Credit card companies such as MasterCard and Visa use reason codes to display the reason for a chargeback. The codes are two-digit numbers for Visa and four-digit numbers for MasterCard. Chargebacks can be categorized into three leading causes: friendly fraud, criminal fraud, and merchant error.
Image via Flickr by Sean MacEntee
These are the chargebacks that result from a customer rejecting a credit card charge. In some cases, it’s due to an honest mistake, but in other situations, the customer is trying to take advantage of the merchant. The following are the reason codes for friendly fraud:
Every merchant at some point will experience fraud. It’s important to recognize fraudulent activity so that you can prevent it. These are the codes associated with criminal fraud:
This might come as a surprise, but most chargebacks are due to a merchant’s mistake in the transaction process. Chargebacks that fall into this category can be easily prevented. Here are the codes associated with merchant error chargebacks:
Every best credit card merchants should have a list of chargeback codes on its main website. It’s important to understand the causes behind chargebacks so that you can prevent them from happening in the future. Too many chargebacks might cause your merchant account provider to terminate your account. If certain situations are difficult for you to prevent, a possible solution is to open a high-risk merchant account that will cover the expenses associated with chargebacks.