How to Avoid Processing Error Chargebacks
There are two ways of looking at merchant error chargebacks. On the one hand, it’s frustrating to be the cause of your own chargebacks. On the other hand, they should be easy to prevent once you figure out why they’re happening.
Many of the merchant errors that result in chargebacks occur during transaction processing, where an errant keystroke or a procedural oversight can lead to an invalid charges being made, which will be disputed as soon as the cardholder or their issuing bank takes notice. What causes processing error chargebacks, and what can merchants do to prevent them?
Friendly fraud can sometimes come disguised as merchant error chargebacks, and whenever you get a chargeback that’s based on false or erroneous claims, you should fight it and represent the charge with the evidence that proves your case. Processing error chargebacks, however, are often valid—they’re based on technical rules that may be difficult to falsify, and they can be initiated by issuing banks before the cardholder is even aware of the problem.
Merchants should always investigate chargebacks to determine whether or not they’re valid, but when they are, there’s no point in trying to fight them. All you can do is accept the chargeback and make whatever operational changes are necessary to remedy the issue that caused it.
To understand why you might be getting processing error chargebacks and how to prevent reoccurrences, you have to carefully analyze your chargeback data. The reason code attached to each chargeback will tell you whether or not it’s considered a processing error.
What Causes Processing Error Chargebacks?
Processing error chargebacks are the result of mistakes that are made when you process a payment card transaction. Sometimes your payment processor will catch these mistakes, but if the error goes unnoticed until the transaction is received by issuing bank or card network, they may use the chargeback process to reverse the transaction and correct the error.
Some processing errors, such as duplicate processing, may appear valid to the financial institutions involved and must be disputed by the cardholder.
Card-not-present transactions, such as ecommerce purchases, are more susceptible to processing error chargebacks. There is little chance for data entry errors when card information is read directly off the EMV chip in card-present environments, but whenever payment credentials have to be keyed in or transcribed there are more opportunities for small mistakes to be made.
Note that while authorization-related chargebacks can definitely be considered as a type of processing error, they have different root causes and may be more likely to be the result of inadequate training or flawed procedures as opposed to data entry errors and other simple mistakes. In terms of planning your chargeback prevention strategy, it’s best to consider authorization chargebacks as their own separate category.
What Are the Different Types of Processing Error Chargebacks?
Each card network gets to define its own set of chargeback reason codes, and each one has a category for processing or “point-of-interaction” errors. While the card networks may use slightly different language to describe their respective reason codes, the following list summarizes the six main types of processing error chargebacks:
|Incorrect Card Number||American Express P01, P22; Discover IN; Mastercard 4808; Visa 12.4, 12.7||• A transaction has been processed against a card number that is invalid because it does not exist, has not been assigned to an active cardholder account, or is otherwise incorrect.|
|Incorrect Transaction||American Express P03, P04; Discover CD; Mastercard 4999; Visa 12.2||• A transaction that was supposed to refund the cardholder by issuing a credit to their account was accidentally processed as a charge, or vice versa.|
|Incorrect Amount||American Express P05, Discover AW; Mastercard 4831, 4834; Visa 12.5||• The transaction amount is incorrect or was altered in the middle of the transaction process.|
|Late Presentment||American Express P07; Discover LP; Mastercard 4834, 4842; Visa 12.1||• The merchant did not submit the transaction within the allowed timeframe after initiating it, or the transaction was submitted when the cardholder’s account was no longer in good standing.|
|Duplicate Processing||American Express P08; Discover DP; Mastercard 4834; Visa 12.6||• Two or more transactions were erroneously processed for a single purchase.|
|Incorrect Currency||American Express P23; Mastercard 4834, 4846; Visa 12.3||• The wrong currency code was used, or currency conversion was used without the cardholder’s permission.|
How Can Merchants Prevent Processing Error Chargebacks?
Processing errors can occur for a wide variety of reasons, so it’s always essential to study the specific circumstances of each chargeback and take direct, appropriate action to make sure you don’t get charged back for the same error a second time. The following advice can help you cut down on the mistakes that typically lead to processing error chargebacks:
- Double check your transactions for correctness before submitting them. Be extra careful when you have to manually key in payment information.
- Review your transaction receipts before depositing them. If you catch a duplicate transaction, issue a refund immediately and get in touch with the cardholder.
- Never change an agreed-upon transaction amount without obtaining the cardholder’s explicit consent first.
- Never use services like Dynamic Currency Conversion without the cardholder’s agreement, and make sure they understand what the final transaction amount will be.
- Know your time limits for presenting transactions, but always strive to get them submitted to your processor within 24 hours.
- Train your staff carefully on the correct procedures for transaction processing, especially in nonstandard situations such as currency conversion and issuing refunds.
Everybody makes mistakes, and the occasional processing error may be inevitable. The important thing is to learn from your mistakes and ensure that you don’t repeat them. That means digging into your chargeback data to identify the different kinds of disputes you’re getting and uncovering their root causes.
When you know the root causes of your chargebacks, you can develop effective strategies for avoiding them.
In the case of processing errors, the solutions are usually pretty straightforward and easy to implement—better training, more careful keying, and awareness of the card network and processor rules that you have to follow. With the right approach, you can fix the issues that cause processing error chargebacks as soon as they crop up, and save your energy and resources for more challenging dispute scenarios.
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