Chargebacks & Disputes FAQ

What is a bank chargeback?

Before we start talking about bank chargebacks, we want to give a quick refresher on chargebacks:

When a customer decides to dispute a charge made to their debit or credit card, it is referred to as a chargeback. The chargeback initially results in the debit or credit card charge being reversed and the funds that you received for the payment being returned to the customer. Chargebacks were introduced as a form of consumer protection against fraud.

The chargeback process is a lengthy and costly one for you, the merchant. To learn more about the chargeback process, read What is a chargeback, and why do they get issued? The bottom line is, you want to have solutions and systems in place to prevent all kinds of chargebacks from occurring, including bank chargebacks.

What is a bank chargeback?

Chargebacks can be started by either the customer or the bank.

When a customer initiates a chargeback, they typically contact the bank that issues their credit card and this is how and why you as the merchant, end up in a long and lengthy chargeback process.

A bank chargeback occurs when the bank issuing the customer’s credit card detects merchant transaction processing errors. Typically, both the cardholder and the merchant are not aware that this chargeback has been filed or is being processed. This can have large ramifications for you, including the time and cost to investigate the chargeback, managing the customer’s frustration when discovering that their purchase has been cancelled, and in ensuring that this customer is not lost

Why would a bank initiate a chargeback?

Generally, these bank chargebacks occur when an error or problem with the transaction is detected by the bank. The issuing bank sees these as a preventive measure made to protect them from further issues later on.

A bank will begin the chargeback process when one or more of the following transaction errors are detected:

  • Requested/Required Information Illegible or Missing: this can include an address, CCV code, or valid expiry date.
  • Declined Authorization: a transaction was issued for an authorization request that was declined.
  • No Authorization: the authorization process was invalidated and authorization for the purchase was not provided.
  • Expired Card: this is very common and can occur with involuntary chargebacks.
  • Late Presentment: the transaction was received after a determined time period (typically 30 days) and now the account number is blocked or no longer valid.
  • Incorrect Currency, Transaction Code, Domestic Transaction Processing Violation: an incorrect transaction code or the wrong currency code was used.
  • Non-Matching Account Number: the account number used does not match an account number on file with the issuing bank.
  • Incorrect Transaction Amount or Account Number: the wrong amount was manually entered by the merchant or an invalid account number was entered.
  • Duplicate Processing: one transaction was processed with multiple times for the same credit card account number.
  • Merchant Fraud: the credit card issuer suspects fraudulent transactions are being made by the merchant. This can happen when your chargeback ratio exceeds a determined limit.

To track these chargeback reasons and many more not listed here, each card issuer has its own list of chargeback reason codes. If you’ve decided to manage bank chargebacks yourself, you must be aware of these different reason codes and understand how best to defend these chargebacks. Follow these links to learn more about the chargeback reason codes from each credit card company: VisaMasterCardAmerican Express, and Discover.

Why do these chargebacks occur and how can I prevent them?

As you can see the reasons listed above and the brief descriptions of these reasons, often bank chargebacks occur because of simple errors.

This is why you need to have solutions in place that work for you to ensure that you’re processing, authenticating, and authorizing all of your transactions correctly. With a solution like Verifi’s Global Payment Gateway, you can be confident that credit card or debit transaction errors are not an issue for you.

We admit that understanding and preventing chargebacks from occurring is not a simple matter. Now is the perfect time to browse our website and learn more about Verifi’s Solutions and Resources available to your company.

We are on your side and want to see your company thrive. Contact us to learn how we can take the stress out of bank chargebacks and get busy working for you.

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