American Express Chargeback Reason Code P03: Processing Errors

chargeback reason code p03Merchants who receive a chargeback for a transaction placed with an American Express card may encounter reason code P03, which indicates a transaction that was not processed correctly by the merchant. The actual underlying cause of this chargeback is usually either friendly fraud or merchant error. Merchants who believe they have received an invalid chargeback under reason code P03 may be able to represent the transaction and reverse the chargeback with the right compelling evidence.

What is American Express Chargeback Reason Code P03?

American Express chargeback reason code P03 falls under the “Processing Errors” category. The shorthand description is “Credit Processed as Charge.” This means that the cardholder is asking for a chargeback on the basis that the merchant processed a transaction that was supposed to be a refund—a credit of funds back to their account—but the merchant ran it as a regular transaction that took funds from their account instead.

It’s generally a good idea to be generous about providing refunds and credits when customers are unhappy with a purchase.

A refund is always less costly and leads to a better customer experience than a chargeback. However, merchants must take care when processing refunds to run the transaction as a credit. An error such as this can lead to an unwinnable chargeback and a justifiably annoyed customer.

What Scenarios Might Lead to This Chargeback?

The typical cause of this chargeback is merchant error. The merchant is attempting to process a credit transaction, but for some reason—because they are distracted or unfamiliar with the process, perhaps—they run a regular transaction instead, which charges the customer account instead of putting money back into it. Once the customer reviews their statement and sees an additional charge instead of the refund they were expecting to receive, they will surely call American Express and demand a reversal.

You may also see this reason code used in rather brazen attempts at friendly fraud, where a cardholder claims that an ordinary transaction was supposed to be a refund instead.

This should be easy to disprove—as long as you maintain complete transaction records.

Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes

What are the Important Timeframes?

The acquirer and/or merchant have 20 days to respond to this chargeback after it is filed. No special timeframes apply to the cardholder.

How Can Merchants Fight this Chargeback Code?

Merchants can fight this chargeback if the cardholder’s claims are false, or if subsequent transactions have made their account whole. To beat this chargeback, your response must include one of the following items:

  • If the transaction was valid—in other words, if it really was supposed to be a charge and not a refund—provide evidence that refutes the cardholder’s claim, such as a purchase receipt, invoice, or other documentation related to the sale.
  • If you have already processed a refund to reverse the erroneous transaction, provide documentation that proves you have credited the cardholder’s account and returned all funds due to them.

How Can Merchants Prevent this Chargeback Code?

Careful transaction processing can avoid this chargeback (when it isn’t friendly fraud, at least). Be sure to train any employees who might process refunds in the proper procedures to ensure that no mistakes are made. Up-to-date payment processing software should make it easy to verify what mode you are processing a transaction in and provide immediate confirmation when it is completed.

These tips can help you avoid transaction processing errors:

  • Be careful not to accidentally process transactions that should be voided or canceled.
  • Adhere to any promises you make to provide a customer with a credit or refund.
  • Fulfill all qualified cancellations or refund requests promptly so that the cardholder will see it on their next statement.
  • If you notice a duplicate transaction, issue a credit to reverse it as quickly as possible.
  • Double check all transaction receipts before they are deposited.

About American Express Chargeback Reason Codes

Reason codes are alphanumeric codes that provide the justification for granting a chargeback. Pursuant to the Fair Credit Billing Act of 1974, cardholders have the right to dispute unauthorized or erroneous charges and issuing banks must reverse a disputed transaction of the cardholder’s claim is valid.

When a cardholder contacts their issuing bank to dispute a transaction and receive a chargeback, the dispute is assigned a reason code that most closely matches the substance of the cardholder’s claims. The reason code provides the merchant and other stakeholders in the dispute with a concise explanation for why a chargeback has been granted.

Each card network—Visa, Mastercard, American Express, and Discover—defines and maintains their own unique set of reason codes, which are applied to disputes by the banks that issue credit and debit cards under their brands.

As both a card network and an issuer, American Express specifies 34 reason codes under the categories of Fraud, Authorization, Processing Errors, Card Member Disputes, and Inquiry/Miscellaneous. Each American Express reason code consists of one or more letters, indicating the category, and a number that identifies the specific dispute reason.

Understanding chargeback reason codes is one of the most essential parts of effective chargeback management. Identifying the chargeback reason code and the evidence required to fight it is the first step in chargeback representment, and analyzing your chargeback reason codes can provide you with insights into what types of disputes are causing you the most trouble. With this information, you can determine the root causes of your chargebacks and take action to prevent them from reoccurring.