Payment Processing Errors

Table of Contents

1. What Are Payment Processing Errors?
2. What Are the Most Common Payment Processing Errors?
3. What Can Merchants Do To Avoid Payment Processing Errors?

There are a variety of possible causes of chargebacks, and while all of them come with the same chargeback fees and the same increase to the merchant's chargeback ratio, every kind of chargeback is different when it comes to recovery and prevention.

Chargebacks caused by payment processing errors can be especially damaging to merchants. These chargebacks can't be reversed through representment except in rare cases where the bank or card network incorrectly identified a processing error. Fortunately, these chargebacks are also some of the easiest to prevent.

In order to ensure that credit card payments are secure, accurate, and trustworthy, the payment process involves a lot of steps in which the merchant, payment processor, banks, and card network communicate to authenticate the identity of the cardholder and verify the details of the transaction.

Most of this is set up to happen automatically when a payment card is processed using the point of sale terminal or checkout software.

In most cases, as long as the merchant is using up-to-date hardware and software, the vast majority of payments will be free from error without the merchant having to take any special care.

Merchant error is most likely to occur when something doesn’t go as expected and the merchant manually intervenes in the process in some way. The physical condition of the card, the status of the cardholder’s account, the configuration of the merchant’s terminal, and various other factors can lead to payments being stalled or declined.

Depending on the reason for the decline, sometimes these payments can be attempted again and processed successfully. But when merchants bypass security protocols, override settings, or manually key in transactions in order to get an uncooperative transaction to go through, the chances of processing errors massively increase. Merchants may be skirting or violating the payment processing rules without knowing it, leaving them vulnerable to a chargeback at some future date.

Chargebacks with authorization-related reason codes often result from processing errors as well.

The processing error in these cases is usually that the transaction was processed without properly obtaining an authorization response.

The card networks all have established rules for payment processing that must be followed by any merchant who accepts their cards. When a transaction is processed in violation of those rules, it's subject to a chargeback. The chargeback may result from a cardholder dispute or it may be initiated by the issuing bank.

Credit Processed as Charge

This error occurs when the merchant uses the wrong transaction type and mistakenly processes a credit transaction as a charge. Instead of issuing a refund, the merchant ends up charging the customer a second time. This type of error often leads to two chargebacks being filed: one for the incorrectly processed charge and one for the original transaction that was supposed to be refunded.

Currency Discrepancy

Merchants who process transactions using more than one type of currency must be careful to make sure they’re using the currency type that the customer agreed to pay with. If you use Dynamic Currency Conversion, the cardholder must provide explicit consent for you to use this service. 

Declined/No Authorization

One of the most important parts of transaction processing is obtaining authorization for the payment, but it’s not uncommon for merchants to try to bypass or override authorization due to extenuating circumstances such as an emergency, a long history with the customer, or even just a strong desire to leave a good impression. This is always dangerous, as the merchant will have no valid defense if the transaction is ever disputed, regardless of the reason.

Duplicate Charge

Sometimes merchants may accidentally run a transaction twice, submit a batch more than once, or unknowingly process a credit card payment after the customer asked to cancel it and used another method of payment. Any of these situations can lead to a chargeback on the basis that the cardholder was erroneously charged more than once for a single transaction.

Submitting a duplicate transaction batch can be especially problematic. If the merchant fails to notice the error in time, they're likely to receive a chargeback for almost every transaction in the batch.

Expired Card

While most systems will conduct an automatic check to make sure the card isn't expired, it's important for merchants to make sure that the expiration date is always checked and verified when processing payments. Even though the card may have been reissued with the same account number, failure to provide the current expiration date throws the door wide open to later disputes.

Incorrect Amount

If the transaction amount doesn’t match the amount that the customer agreed to pay, the cardholder has grounds to dispute the transaction as invalid. This is rarely an issue with automated payment processing systems, but it can occur when transactions are manually keyed in or when the amount is adjusted without notifying the customer first.

Late Presentment

Credit card transactions are a multi-step process, and sometimes a transaction might not be completed and submitted immediately after it's authorized. When a transaction is submitted after the deadline for doing so has already passed, that's called a late presentment. Such charges are always subject to chargebacks.

The first and most crucial thing is to understand the payment processing rules provided by your acquirer or payment processor.

Make sure your terminals and software are set up to request and submit all of the information required to follow the rules and obtain proper authorization.

Once this is done, the most serious danger of payment processing errors is when you intervene to facilitate a transaction that isn’t going through for some reason. Many cardholders are in the habit of trying to talk merchants into re-running worn, dirty, or possibly expired cards. Their intentions aren’t necessarily nefarious, but bending the rules to get a transaction posted always puts the merchant at risk.

While true emergencies do exist and it’s up to the merchant how much risk they want to take on to preserve any given sale, you should always exercise caution in these circumstances. Employees should be kept up to date with any relevant changes in payment processing rules and should have clear guidelines for what to do when something goes wrong.

The following tips can help you avoid some of the common pitfalls of processing:

• Always obtain authorization prior to completing a transaction.
• Finish processing transactions promptly, well within the allowed time frame.
• When processing non-standard transactions such as credits, proceed slowly and double-check that you're using the correct transaction type.
• If you need to cancel a transaction in progress, make sure to void it completely to prevent accidental duplicate processing.

Merchant error chargebacks can be frustrating—after all, there’s no one else to blame them on. The good news is that you have a greater degree of control over these chargebacks.

If an analysis of your chargeback data reveals a high number of chargebacks due to processing errors and other mistakes, carefully review your policies and procedures to find ways to minimize the chances of these errors reoccurring.

By eliminating merchant error chargebacks as best you can, you can focus your resources on fighting fraud and other more elusive problems.

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