The Top 25 Chargeback Reasons: Why Do Cardholders File Disputes in the First Place?
A chargeback can happen when a cardholder disputes a payment card transaction and asks their card-issuing bank to reverse it. It’s an important consumer protection mechanism for credit and debit card transactions
Chargebacks guarantee that a cardholder can retrieve funds lost to fraudsters, identity thieves, or other unauthorized uses of their account. Chargebacks also incentivize merchants to be on their best behavior.
All that aside, disputes can happen for a variety of reasons, and chargebacks are not always filed for the right reasons.
The chargeback triggers outlined below are pretty diverse.
Sometimes, the merchant really is at fault, and the customer deserves their money back. For example, maybe the merchant’s refund policy was unclear, or no one from their organization got back to the buyer in a reasonable amount of time. These could be considered valid reasons to dispute a charge.
In other cases, a customer may simply forget about a payment due date, or didn’t recognize the merchant’s billing details on their statement. In these situations, while miscommunication may be understandable, it doesn’t warrant a chargeback. In other instances, a cardholder could file an illegitimate dispute on purpose because they are angry, confused, or simply looking to get something for free.
Regardless of fault, knowing why a chargeback was filed and how to respond can be the key to a lower chargeback ratio, as well as lower fees and fewer account restrictions. To illustrate this, we’ll go over many of these reasons and provide some advice for merchants about how to mitigate losses with a few best practices.
Merchant didn’t provide goods/services in a timely fashion
If a customer orders something that takes an unreasonable amount of time to arrive, they may file a dispute saying they never received the item. This is true even if it eventually arrives. Typically, anything outside of 10 days needs to be explained in a merchant’s terms of service, or else the merchant is at serious risk of a chargeback.
The goods were damaged, defective, or missing parts
This covers any situation in which a customer receives products that arrived damaged, were missing parts, or did not include something they believed would be included.
Merchants might assume they would receive a call or email regarding the issue. In reality, though, many consumers believe it will be more convenient to bypass the merchant and let the bank handle the issue.
The cardholder was charged an incorrect amount
This happens a lot where manual data entry is required to process orders; accepting orders over the phone, for instance. However, it can also happen as a simple mistake if a shop is particularly busy. A simple slip of the finger can be a common problem.
The buyer used stolen cardholder information
This is outright criminal fraud. Cardholders are legally protected from the impacts of card fraud. Merchants won’t be protected, though. Due to several factors, card-not-present merchants are likely to see more fraud than brick-and-mortar sellers. They will be held financially responsible for all acts of fraud that originate with their business.
The customer regrets their purchase
When a cardholder makes a purchase, but regrets it later, they may file a chargeback to recoup their money. A chargeback filed due to buyer’s remorse is a textbook example of friendly fraud; a situation where a customer side-steps a return policy in order to gain an illegitimate refund.
Some customers do this when they know they don’t have a good excuse for a refund and are worried that their return request may be denied.
The cardholder’s family member made the purchase
This is a practice called family fraud. Many consumers fail to understand that members of their household are considered legitimate account users unless otherwise specified in advance of the purchase.
For example, a cardholder’s child using the parent’s account to purchase movies or video games online. Banks and payment processors don’t recognize these purchases as unauthorized, but the buyer may not be aware of this rule at all.
Bad affiliate traffic
There are several ways for scammers to leverage affiliate marketing to take advantage of merchants. Click spam, cookie stuffing, and URL hijacking are just a few examples. While affiliate marketing can be beneficial, it’s essential that these partnerships are vetted extensively.
The buyer wants to end a subscription
Subscription services are considered a high-risk business practice. This is because the business model tends to foster a high number of disputed charges. The reasons for this vary; people may forget about the subscription, make a mistake, or just want out of the agreement. The buyer then sees the chargeback process as an “easy out,” rather than canceling service through the proper channels.
The product description was inaccurate
Many buyers will make a purchase, only to file a dispute claiming the item they ordered didn’t meet their expectations. Rather than call the merchant to arrange an exchange or refund, the cardholder goes straight to their bank to dispute the charge.
Why? Sometimes it’s something as innocuous as an unexpected sizing issue, or the color didn’t quite match the pictures online. In any case, these chargebacks are illegitimate if the buyer didn’t try to return the goods through the proper channels first.
The buyer is trying to get something for free
A growing number of chargebacks happen because consumers ignore return policies, refuse to wait for refunds, or simply want to get something for free. This is a situation known as cyber shoplifting, and is an increasingly common practice for cardholders. Unscrupulous buyers have learned that they can abuse the chargeback process by making purchases and simply disputing them later.
A valid authorization was not provided by the bank
The authorization process occurs when a cardholder presents their card information to the merchant after making a purchase. The merchant’s acquiring bank receives the transaction information and requests authorization from the issuing bank.
Sometimes, this otherwise standard process does not occur as expected. Banks can refuse to authorize a transaction if a card has expired, or if the purchase causes the cardholder to exceed their credit limit. Technical glitches may also lead to invalid authorizations. Chargebacks will result if a merchant tries to run a sale without authorization.
The merchant double-charged the cardholder
This occurs where a merchant receives a decline code when processing a transaction and retries the procedure. Unbeknownst to the merchant, however, the first charge was approved, meaning the transaction has now been submitted twice.
Cardholders will usually find that requesting a refund for the erroneous charge directly from the merchant is faster and preferable to filing a dispute. That said, the cardholder may file a chargeback against one (or both) of the transactions anyway upon noticing the double charge.
The authorization expired
Some businesses are crowded, but short-staffed. When this happens, a merchant may find it difficult to serve customers and process payments at the same time. If the backlog is severe, an approved payment authorization may expire before the merchant has a chance to batch and submit a transaction for processing.
System glitches, internet outages, and other downtime incidents can also result in prolonged delays, which can similarly lead to expired authorizations.
There are many reasons why customers files chargebacks. There’s one solution.
The cardholder Pulle a “No Show”
Cardholders may fail to show up for an event, reservation, or appointment because of medical emergencies, double booking, fatigue, or forgetfulness.
Some businesses, like doctor’s offices, may allow customers to reschedule appointments for free. In other cases, like with hotels and lodging, the process can be time-consuming and can involve cancellation fees. If the appointment is canceled on short notice, the cardholder may have to pay full price. Cardholders who wish to avoid paying for an appointment they no-showed may file chargebacks to recoup the funds.
Goods or services were only partly provided
This mostly affects online businesses. It covers situations where cardholders pay upfront in full for goods or services, but only receive a portion of what they ordered.
This can happen if a merchant mistakenly believes that they packaged everything prior to delivery, but there is an error in the fulfillment process. Or, if they fail to inform the customer about the unavailability of some of the goods paid for and (unilaterally) choose to deliver what is available.
The goods were counterfeit
When making purchases online, it’s difficult for a customer to know whether or not their purchases are originals. Merchants who engage in deceptive practices, for example, may claim to sell Adidas shoes but instead deliver off-brand, Adidas-style shoes to customers.
Because this practice severely erodes trust between buyers and sellers, customers who discover they received counterfeit products are likely to file chargebacks outright rather than request refunds. They’ll also be more suspicious of future purchases made with other merchants, too.
Merchant did not respond to an inquiry
In many cases, the bank will submit an inquiry to the merchant in response to a customer reaching out to dispute a transaction. The aim here is to gather more information before filing a chargeback.
This gives the merchant a chance to provide additional transaction details and, hopefully, avoid a chargeback. But, the issuer will almost certainly rule in favor of a cardholder if the merchant doesn’t respond to the dispute within the required timeframe.
Merchant charged the card using the wrong currency
This happens when a merchant enters the wrong currency code or when the transaction currency fails to match the currency submitted through the card network. For example, a merchant makes this error when they charge an amount in Australian dollars instead of US dollars.
A wrong currency charge can also occur when a cardholder, often hoping to avoid foreign exchange fees, opts out of Dynamic Currency Conversion (DCC) services. When this happens, a cardholder in a foreign country may file a chargeback against a transaction that was processed in their home country’s currency, believing (correctly or not) that they were charged an exchange fee markup.
The cardholder doesn’t recognize the transaction
This can sometimes happen when a transaction is the result of fraud or unauthorized activity.
Other times, this happens when customers have trouble recognizing purchases they previously made due to vague or wrong billing descriptors. To avoid these unnecessary chargebacks, merchants should use billing descriptors that incorporate their commonly-known trading or “doing business as” names.
Implementing dynamic billing descriptors that display the product or service purchased can also help customers remember their purchases. Additionally, merchants may encourage cardholders to seek refunds before filing disputes by including a customer service hotline at the end of every descriptor.
The customer’s refund request was denied
Some merchants do not have clear return and refund policies. Customers who are denied refunds that they believe they are entitled to will often end up filing chargebacks in order to get their money back. Merchants who agree to offer refunds but fail to do so, either outright or too slowly, may also expose themselves to avoidable chargebacks.
Of course, this can also happen because the cardholder was not entitled to a refund at the time the request was made. For example, maybe the return window had already expired. This won’t necessarily stop a cardholder from demanding a chargeback, though.
Failure to comply with card network rules
Visa and Mastercard require merchants and banks to abide by their rules while conducting business on their networks. For instance, when a merchant fails to verify a Visa-branded cardholder’s identity, or has an incorrect merchant category code, this may ultimately result in a chargeback. Mastercard explicitly warns merchants against falsifying transaction data and discourages excessive minimum transaction limits for purchases.
Dishonest affiliate marketers
In some instances, dishonest affiliate marketers themselves may make fraudulent purchases using stolen card information to generate commissions. Instead of sending bad traffic to merchants’ websites, these bad actors may simply buy products and services using their own affiliate links. Then, they can file chargebacks to pocket commissions (and products), all without having to generate real sales.
The merchant’s fees weren’t clearly communicated
This happens when merchants tack on surcharges, cancellation fees, missed delivery fees, or other fees that were poorly communicated at the outset of the purchase.
For example, if a merchant charges a guest a resort fee subsequent to checkout, the cardholder may file a chargeback, particularly if the merchant did not communicate the existence of the resort fee to the customer during check-in. Merchants who levy excessive surcharges (i.e. above 4% of the transaction amount) on credit card purchases may also expose themselves to chargebacks.
The cardholder is living above their means
This happens when cardholders wish to maintain lavish lifestyles they can’t afford, and use chargebacks as a fraudulent way to obtain items they don’t have the money for.
For example, a cardholder may make two purchases from the same merchant. Realizing they don’t have the means to afford both, the cardholder files a chargeback against one purchase. Doing so allows the cardholder to “buy” two (or more) products for the price of one.
Scammers are committing second-party fraud
This occurs when scammers recruit cardholders as accomplices in fraud.
Also known as second-party fraud, this type of “fraud-as-a-service” occurs when cardholders knowingly and consensually provide payment details to bad actors so that these scammers can commit fraud.
One type of second-party fraud is a (so-called) refund service. Here, cardholders purchase an item and then work with scammers to secure “refunds” from merchants. To properly incentivize the fraudster, the cardholder-accomplice pays the criminal a cut of the refund’s proceeds. In any case, the merchant is out the proceeds from a legitimate transaction.
3 Basic Reasons for Chargebacks
Those are just a few of literally dozens of potential chargeback reasons. That said, we should also discuss their root causes. Generally speaking, we can divide all dispute reasons into one of three main categories:
Merchant Error
Missteps on the merchant’s part that inadvertently trigger chargebacks. This covers data entry errors, fulfillment errors, or shipping and handling errors, as well as customer service gaffs and other fixable issues.
Criminal Fraud
Deliberate acts by outside parties to steal from consumers or merchants. Neither the cardholder nor the merchant is responsible for acts of criminal fraud, but merchants are generally held liable when this happens.
Friendly Fraud
This is any consumer claim that is — intentionally or unintentionally — fraudulent. For example, filing a chargeback due to buyer’s remorse, or simply because the buyer misunderstood the merchant’s policies. Both of these would be examples of friendly fraud.
Baseline chargeback reasons will always fall somewhere between these extremes. Chargeback reason codes are supposed to help explain the cause of a chargeback. Unfortunately, they aren’t reliable enough or detailed enough to provide much valuable insight as to reasons for chargebacks.
Most Chargeback Reasons Fall in a “Gray Area”
As you might have guessed, there are some “gray areas” implicit in the dispute process that are not adequately accounted for by the convention industry understanding of chargeback reasons. For instance, there are no “friendly fraud” reason codes, because friendly fraud is predicated on hiding behind a false chargeback reason code.
Overreliance on reason codes is possibly the single most common chargeback management error. This is because most non-fraud chargebacks are not clear-cut cases of either criminal fraud, merchant error, or cardholder abuse. Rather, disputes tend to lie between these categories.
Consider this example: imagine a company sells a shirt online. The picture on their website shows the shirt in a soft salmon color, but the shirt is actually closer to orange. The merchant has some culpability here, but disputing the charge is an improper response.
This makes matters very complicated for merchants. Extreme cases of fraud can be addressed or prevented, but those chargebacks in the middle typically do not have such clear-cut solutions. In most cases, disputes should be fought and overturned. However, there may also be things that a merchant can do to prevent disputes with similar stated chargeback reasons from occurring in the future.
Best Practices Can Help Prevent Chargebacks
Regardless of the reason for a chargeback, the simplest way to avoid problems is to deploy best practices to keep chargebacks from happening in the first place. Below are a few steps merchants can take to avoid customer disputes that result in chargebacks:
Clear Up Billing Errors
Prominently displaying information like email address, website, and phone number encourages customers to reach out to merchants, not their banks.
Simplify Returns
Including no-hassle returns, extended refund deadlines, postage-paid returns, and so on, can drastically improve customer relations and satisfaction.
Provide 24/7 Customer Support
Banks have made dispute forms available to customers online, 24 hours a day. Merchants should do the same to avoid missing the chance to resolve a dispute in advance of a chargeback.
Keep Customers Informed
Always alert customers when goods have been shipped. Alos, provide notifications, as well as a cancellation option, if they have been back-ordered or delayed.
Send Billing Alerts
Customers should be notified before a recurring transaction is processed, especially with a subscription or a negative-option arrangement.
Whether or not a merchant already utilizes many or all of these best practices, they could still find themselves at the mercy of fraud and chargebacks. Disputes are a complex issue. They don’t have a “one-size-fits-all” solution, and what works for some merchants may not work for others.
This is why it’s imperative to not only have a fraud and chargeback prevention plan in place, but also to diversify those options as much as possible.
Chargebacks have their place in commerce, and they aren’t going anywhere anytime soon. That said, the need for comprehensive fraud prevention isn’t going anywhere either.
What should merchants do to stay ahead of the curve? A multi-layered approach to fraud and chargebacks could be the best answer.
With the industry’s first and only full-service chargeback management solution, Chargebacks911 can help you prevent chargebacks, recover revenue, and grow your business. Contact us today to learn about our no-obligation ROI analysis.
FAQs
What is a valid reason for a chargeback?
Valid reasons for filing chargebacks include merchant billing errors, defective or missing goods, or fraudulent or unauthorized activity.
What qualifies for chargeback?
Cardholders can qualify for chargeback protection if they received defective goods or did not receive what they ordered. Cardholders may also file chargebacks against transactions that involve merchant billing errors or fraudulent or unauthorized activity.
What are the chargeback reason codes?
Issuing banks provide two-to-four-digit alphanumeric chargeback reason codes to merchants whenever cardholders file disputes. Chargeback reason codes help merchants understand why disputes were filed and how to respond to them.
What do you say to get a chargeback?
To file a chargeback, you’ll need to contact your issuing bank and tell them the transaction date, amount, and reason for filing a dispute. You may also need to provide supporting documentation, such as invoices, receipts, shipment information, product pictures, and emails showing that you previously tried asking the merchant for a refund.
What is a good excuse to dispute a charge?
Cardholders can dispute charges for valid, legitimate reasons, such as merchant billing errors, unauthorized activity or fraud, defective goods or services, or missing orders. Cardholders should not come up with excuses for filing disputes; doing so may lead to friendly fraud or chargeback fraud.
On what grounds can you dispute a charge?
You can dispute a charge for several legitimate reasons. For instance, if a merchant charged you the wrong amount or more than once, you can challenge the erroneous charge. You can also file a chargeback against transactions involving unauthorized activity, fraud, or defective or missing goods.
