How to prevent chargebacks, and what to do if you’ve had one

How to prevent chargebacks, and what to do if you’ve had one

What to do if you’ve received a chargeback

Chargebacks can be a real problem for your business. If a transaction is charged back, you could lose both the money and the goods or services that you’ve provided – plus any time spent on administration, selling or delivery.

That’s why it’s important to provide all the requested evidence quickly, to maximise the chances of the chargeback being overturned, and to minimise your associated costs.  

How long do I have to respond to a chargeback notification letter?

You should reply within 14 days from the date of our chargeback notification letter.

Chargeback rules and time restrictions are set by the Card Scheme Regulators and are very stringent. Therefore, if you want to challenge a chargeback, it’s essential you provide the requested information to help us (your acquirer) to defend your case.

If you respond in good time, in certain circumstances, we may be able to defend the chargeback for you – even if your chargeback notification says that you’ve already been debited.

Where should I send my reply to?

Your chargeback notification letter will show you how and where to send your response.

Should I just refund my customer for the disputed transaction?

No. It’s important that you don’t refund the cardholder in the case of a chargeback, because if the chargeback case is successful, it could result in your account being debited twice.

If you’ve already refunded the money, please send us evidence of this so we can defend the case on your behalf.

How to respond to retrieval requests

These procedures will help ensure the process is as quick and straightforward as possible:

  1. Make sure the copy of signed authority (PDQ slip or imprinted voucher) is clear and legible, if applicable
  2. Don’t send the original voucher to us, as we may not be able to return it to you
  3. Include the expiry date on the card
  4. Always reply in writing (rather than by phone) – we require written confirmation for any decisions you make regarding the retrieval request
  5. Please provide a contact name and phone number so we can get in touch if there are any problems or we need more information
  6. Send all replies and evidence before the date specified in the letter or fax  
  7. Always quote the case ID on all correspondence
  8. Details that need to be clearly readable are: cardholder name; account number; expiry date; merchant's name, number and location; details of goods or services provided; proof of delivery (if applicable); and signature (if one was taken) 
  9. Always retain copies of transactions for your own reference, even if you are handing the original over to a third party – such as the police

How to deal with different types of chargebacks

The way to defend chargebacks varies depending on reason code found in your chargeback letter.

Chargeback reason codes fall under three main groups:

Fraud

Authorisation

Consumer disputes, including processing errors

Next, we give you an idea of what you can provide in defence when you receive a chargeback falling into one of these groups, and also best practices to prevent them.

Please note: if you’ve already refunded the customer, you can defend all the below chargebacks by providing evidence of this refund. 

  • Fraud

    Why would these types of chargebacks be raised?

    Typically, a fraud chargeback will be raised because the cardholder claims that they did not authorise or participate in the transaction.

    For these reason codes, the cardholder must confirm to their issuer (usually the bank who issued the card to the customer) that they did not authorise the disputed transactions. They might provide a signed disclaimer as evidence.

    To defend a fraudulent chargeback, you have to prove that the genuine cardholder authorised or participated in the disputed transaction.

    What evidence can you provide so we can defend the chargeback?                 

    Card-present – face-to-face transactions

    If the transaction was processed using a non-PIN enabled card, you can send a signed and swiped or Chip & signature voucher, providing it's signed, authorised, and clear.

    If it’s a genuine fall-back transaction, we can defend with a voucher, providing it's signed, authorised, and clear.

    Card-not-present – mail, telephone order, or manually keyed transactions

    Unfortunately, we can’t defend these transactions for you. This is as per the terms set out in your Merchant Procedure Guide.

    Card-not-present – online sales / eCommerce

    We try to defend transactions which had full and attempted authentication at source, however on some occasions we may contact you if we require proof of authentication from your eCommerce system.

    If 3-D Secure authentication had failed, not been attempted, or not processed during an outage, we can’t defend any chargebacks. This is because in these instances, the risk liability falls back on you – as per the terms set out in your Merchant Procedure Guide.
     

    How to prevent this kind of chargeback in the future

    Card-present – face to face transactions

    Always follow the instruction from your terminal.

    If the card looks like it’s been tampered with, or your card machine can’t read the card, you should request another form of payment.

    Payments should not be manually key entered in a ‘customer present’ environment.

    Card-not-present – mail, telephone order, or manually keyed transactions

    We cannot defend these chargebacks, so you take payments using this method at your own risk.

    You might want to use alternative payment solutions, such as an online payment gateway, pay-by-link, or phone payments.

    Card-not-present – online sales / eCommerce

    Ensure authentication is enabled on your website. Full and attempted authentication offers protection against fraud-related chargebacks, but it may not always prevent fraud.

    It’s important that you take steps to validate your customer, and prevent fraud. Find out more about fraud prevention

  • Authorisation

    Why would these types of chargebacks be raised?

    Typically, a Card Issuer will raise a chargeback because the payment was processed without valid authorisation, and the customer’s account was not able to support the payment. This could be due to insufficient funds, or that the account has been closed.

    Authorisation – what can you provide in defence?

    If we (your acquirer) authorised the transaction, then we’ll try to defend these chargebacks at source. In this case, therefore, we’ll only contact you if we need extra information.

    If a different payment processing company authorised the transaction, we’ll need a copy of the authorisation log proving that the full amount of the transaction was approved and that an authorisation code was obtained.

    How to prevent this kind of chargeback in the future                 

    Ensure payments are authorised online when required. For more information see your merchant procedure guide.           

  • Consumer disputes, including processing errors

    Why would these types of chargebacks be raised?

    Typically, a chargeback will be raised under these reason codes when a cardholder believes that they didn’t receive the goods or services that they purchased. Alternatively, there might have been an error when processing the payment, i.e. duplication, non-receipt of refund, alternation of amount, or payments continue after the instruction has been cancelled.

    What can you provide in defence?
     
    Goods and services not received, not as described, or damaged:

    Signed proof of delivery

    Details that confirm that the services were either definitely available, or used by the cardholder

    Proof that the goods or services provided were as advertised or described before the sale

    Alteration of amount, or incorrect currency:

    Provide evidence that the customer had agreed to the amount charged – usually this would be a copy of the invoice or signed order form

    Proof that the customer agreed to the currency the payment was processed in

    Duplication:

    Provide evidence that both payments are correct by providing a breakdown of both charges and proof that they were both authorised by the cardholder

    Non-receipt of refund:

    Provide proof that the refund has been processed, or evidence to show that the cardholder is not entitled to a refund. If it’s a point of sale refund, check your day’s trading receipts to ensure that your terminal processed the refund.

    Cancelled recurring payment:

    In this instance, we are unable to defend this chargeback; you will need to contact the customer directly for payment.

    Late presentment:

    The transaction receipt, or other record with a transaction date, that disproves late presentment and obtained the required authorisation


    How to prevent this kind of chargeback in the future

    Goods and services not received, not as described or damaged:

    Ensure that goods are delivered to the cardholder’s address, and a signature is obtained, whenever possible.

    Make sure you never release goods to a third party, even if they claim to have been sent by the cardholder (for example, a taxi).

    Ensure that any information you provide to customers is clear and accurate – whether on your website, by mail, or on your business premises.

    Ensure your customers fully understand what they are buying before the sale happens. If you have to make a substitution, make sure you communicate this to the customer in advance and confirm that they are happy and want to proceed with the purchase.

    Alteration of amount or incorrect currency:

    Ensure that all necessary charges are detailed in the transaction at the point of sale, in the presence of the cardholder. If you need to add further charges, you should create a new transaction and make sure you get the cardholder's permission to process it.

    Non-receipt of refund:

    Always ensure that refunds are issued back to the credit or debit card used for the transaction – don't refund by cash or cheque. You should also ensure that such refunds are processed within three working days. Once you have accepted returned goods, make sure you process the refund promptly.

    Cancelled recurring payment:

    Make sure you get authorisation for all transactions, as this will highlight any cardholders who have changed their account numbers.

    Make sure the customer understands that they’re agreeing to recurring payments coming out of their account; when the first payment will come out; and when subsequent payments will come out (e.g. at the end of a free trial, if applicable).

    Make the cancellation process clear and easy for a cardholder to understand. This will reduce the chances of them contacting the issuer and initiating a chargeback.

    Late presentment:

    Ensure payments are processed within the required timeframes. For more information see merchant procedure guide.          

Reason codes

Visa, MasterCard and Maestro each have their own set of reason codes for chargeback cases. These codes tell you why the transaction is disputed. Each reason code has its own regulations set by the relevant card scheme.

  • VISA

    V30

    Services not provided, or merchandise not received – the cardholder is stating they did not receive the goods or services they paid for.

    V41

    Cancelled recurring or Instalment Transaction.

    V53

    Not as described or defective merchandise – the cardholder is stating that the service/goods that they received were either:

    • Defective
    • Counterfeit
    • Not what was originally described to them by the merchant
    • Cardholder is disputing the quality of the merchandise or service
    • Cardholder claims the terms of the sale were misrepresented by the merchant. 

    V57

    Fraudulent multiple transactions – the cardholder acknowledges participation in one transaction with the merchant, however they deny authorisation of any further changes 

    V62

    Illegible fulfilment (of retrieval cause) – the Card Issuing Company received the merchant’s transaction. A counterfeit card may have been used.  

    V70

    Card recovery bulletin or exception file.

    V71

    Declined authorisation – the Card Issuing Company is stating that the merchant processed the transaction despite having obtained a Decline authorisation response. 

    V72

    No authorisation – the Card Issuing Company is stating that the authorisation code was required for the transaction but that it was not obtained. 

    V73

    Expired card – the Card Issuing Company is stating that the transaction was processed with an expired card. 

    V74

    Late presentment – the Card Issuing Company is stating that the transaction was not processed within the required time frame for settlement. 

    V75

    Transaction not recognised – the cardholder is claiming that they do not recognise the transaction on their statement. 

    V76

    Incorrect currency or transaction code – the Card Issuing Company is stating that the transaction was not processed in the correct currency, or the cardholder was not advised that dynamic currency conversion would occur or the cardholder has been charged a conversion difference when an incorrect charge has been reversed. 

    V77

    Non-matching or invalid account number – the Card Issuing Company is stating that an incorrect card number was charged for the transaction. 

    V78

    Service code violation – the Card Issuing Company is stating that an authorisation code was not obtained. 

    V80

    Incorrect transaction amount or account number – the cardholder is stating that the amount of the transaction is higher than the amount that they agreed to be charged for, or were quoted for; or a transaction was processed using an incorrect account number. 

    V81

    Fraud – ‘card present’ environment – the cardholder denies participating in or authorising the transaction that was undertaken in a ‘card present’ environment. 

    V82

    Duplicate processing – the cardholder is stating that the same transaction was processing more than once to their account. 

    V83

    Fraud – ‘card absent’ environment – the cardholder denies participating in or authorising the transaction that was undertaken in a ‘card absent’ environment. 

    V85

    Credit not processed – the cardholder is stating that the refund due to them has not been processed. 

    V86

    Paid by other means – the cardholder is stating that the transaction was paid for by other means, and has provided evidence to support the alternative payment. 

    V90

    Non-receipt of cash or load transaction value at ATM or load device. 

    V93

    Risk identification service. 

  • MasterCard

    M07

    Card recovery bulletin

    M08

    Transaction not authorised – the Card Issuing Company is stating that an authorisation code was required for the transaction, but it was not obtained. 

    M12

    Non-matching or invalid account number – the Card Issuing Company is stating that an incorrect card number was charged for the transaction.

    M31

    Transaction amount differs – the cardholder is stating that the amount of the transaction is higher than the amount that they agreed to be charged for, were quoted for, or that they paid for the transaction by other means. 

    M34

    Transaction duplication – the cardholder is stating that the same transaction was processed more than once to their account, or there is a dispute with an ATM transaction.

    M37

    Fraudulent transaction – the cardholder denies participating in or authorising the card-present/card-not-present transaction.

    M40

    Fraudulent processing of transactions – the cardholder acknowledges participation in one transaction with the merchant. However, they deny authorisation of any further changes with the same merchant. 

    M41

    Cancelled recurring or Instalment Transaction or Digital Goods Transaction or Cardholder disputes the fees relating to payday loans. 

    M42

    Late presentment – the Card Issuing Company is stating that the transaction was not processed within the required time frame for settlement. 

    M46

    Correct transaction currency not provided – the Card Issuing Company is stating that the transaction was not processing in the correct currency

    M49

    Questionable merchant activity. 

    M53

    Not as describe – the cardholder is stating that the service/goods that they received were either defective, or not what was originally described to them by the merchant. 

    M55

    Goods or service not provided – the cardholder is stating that they did not receive the goods or services they paid for. 

    M59

    Addendum and no-show. The cardholder is stating that they did not authorise an addendum charge to their original transaction, or the cardholder cancelled the reservation and has been charged a ‘no show’ transaction.

    RS3

    ATM dispute

    RS5

    Guaranteed Reservation Service – the cardholder cancelled the reservation, or the merchant did not meet the terms of the booking as agreed at the time of booking (see Mastercard regulations for full list).

    RS7 

    Addendum dispute – the cardholder is stating that they did not authorise an addendum charge to their original transaction 

    M60

    Credit not posted – the cardholder is stating that the refund due to them has not been processed. 

    M63

    Cardholder does not recognise the transaction on their statement.

    M70

    Chip liability shift – the cardholder denies authorising or participating in the disputed transaction; a counterfeit card may have been used at a non Chip-capable terminal. 

    M71

    Chip/PIN liability shift. The cardholder denies authorising or participating in the disputed transaction. The card may be lost, stolen.

    Please also note:

    MasterCard have simplified how chargebacks are reported by combining a number of reason codes into a single code.

    Code 08 has been renamed “Authorisation Related chargebacks”, and will be used for the following issues:

    • 07 Warning bulletin
    • 08 Requested/Required authorisation not obtained
    • 12 Account number not on file

    Code 53 has been renamed Cardholder Dispute and will be raised for the following issues:

    • 41 cancelled Recurring and Digital Goods Transactions
    • 53 Cardholder Dispute – defective merchandise/not as described
    • 55 Goods or Services not provided
    • 59 Addendum and No Show
    • 60 Credit not processed

    Code 34 – will be renamed Point of Interaction Error and will be used for the following issues:

    • 31 Transaction Amount Differs
    • 34 Duplicate Processing
    • 42 Late Presentment
    • 46 Correct Transaction Currency Code Not Provided

    Issuers have the option of using the existing chargeback reason codes or the renamed code covering a variety of issues. Eventually the existing chargeback reason codes will not be used and will be removed from this guide.

     

  • Maestro

    08

    Transaction not authorised – the Card Issuing Company is stating that an authorisation code was required for the transaction, but it was not obtained.

    31

    Incorrect Transaction amount - the cardholder is stating that the amount of the transaction is higher than the amount that they agreed to be charged for, were quoted for, or that they paid for the transaction by other means.

    34

    Duplicate Processing of Transaction - the cardholder is stating that the same transaction was processed more than once to their account, or there is a dispute with an ATM transaction.

    37

    No Cardholder Authorisation - the cardholder denies participating in or authorising the card-present/card-not-present transaction.

    41

    Cancelled recurring or Instalment Transaction or Digital Goods Transaction or Cardholder disputes the fees relating to payday loans.

    46

    Currency errors - the Card Issuing Company is stating that the transaction was not processing in the correct currency

    55

    Goods or Service Not Received – the cardholder is stating that they did not receive the goods or services they paid for.

    59

    ATM dispute – the cardholder did not receive, or received only in part, funds charged to his or her account as a result of an automated cash disbursement. 

    60

    Credit not received - the cardholder is stating that the refund due to them has not been processed.

    70 

    Chip liability shift – the cardholder denies authorising or participating in the disputed transaction. A counterfeit card may have been used at a non-Chip capable terminal.

    80

    Late presentment – an intra-European transaction is presented more than seven calendar days after the transaction date and the account is permanently closed. 

Want to learn more?