Costly Payment Processing Errors and How to Avoid Them
Fraud may be the leading cause of chargebacks, but merchants can’t afford to ignore the chargebacks that result from their own payment processing errors. As is the case with true fraud, merchants usually have legitimate liability for these chargebacks, which means they can’t be fought through the representment process after the fact—all you can do is avoid getting stuck with them in the first place.
What are some of the payment processing errors that merchants are likely to run into, and how can merchants prevent the kind of mistakes that can lead to chargebacks?
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 provided to the terminal or checkout software. 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—and sometimes the problem is temporary, and trying the card later will result in a successfully authorized transaction.
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 increase that they may be skirting or violating their payment processing rules, leaving them vulnerable to a chargeback at some future date.
What are Payment Processing Errors?
Every card network includes processing errors (sometimes called point-of-interaction errors) as a chargeback reason code category. Chargebacks with authorization-related reason codes often result from processing errors as well.
The card networks all have established rules for payment processing that must be followed, and when a transaction is processed in violation of those rules it is subject to a chargeback. The chargeback may result from a cardholder dispute or be initiated by the issuing bank.
Here are some of the common processing errors that can lead to chargebacks:
Credit Processed as Charge. This error occurs when the merchant uses the wrong transaction type and mistakenly processes a credit transaction as a charge (or vice versa).
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—an emergency, a long history with the customer, or whatever the reason. This is always dangerous, as the merchant will have no valid defense if the transaction is ever disputed.
Duplicate Charge. Inattentive merchants may run an identical transaction twice, submit batches multiple times, or run a credit card payment even though the customer already paid by other means. 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.
Expired Card. Providing and validating the payment card’s expiration date should be part of any transaction process. 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 receipt or invoice 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 adjusted without notifying the customer first.
Late Presentment. Credit card transactions are a multi-step process, and it isn’t always the case that the transaction is completed and submitted immediately after it is authorized. When a transaction is completed outside of the allowable time frame from when it was initiated, it may be considered a late presentment and will be subject to chargebacks.
What Can Merchants Do To Avoid Payment Processing Errors?
The first and most crucial thing is to understand the payment processing rules provided by your acquirer or payment processor, and to set up your terminals and software 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 have to 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 put 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.
The following tips can help you avoid some of the common pitfalls of processing:
- Always obtain authorization prior to completing a transaction.
- Finish processing promptly, well within the allowed timeframe.
- When processing non standard transactions, such as credits, proceed slowly and double check that you are using the correct transaction type.
- If you have to start over a transaction in process, 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.