In this post, we’re going to start digging a little deeper into the details first mentioned in my last blog post, The Chargeback Lifecycle. Specifically, let’s explore the many reasons for receiving a chargeback.
We’ll start with a refresher of the key terms and players from the first chargeback lifecycle post:
For full definitions of any of the chargeback reason codes used in this post, see our Industry Terms guide.
Chargeback reasons and the codes card brands assign to them give an indication as to the issue that ultimately led to a dispute. As a merchant, this can provide valuable insight into your business and indicate changes you can make to either detect service issues or fraud earlier in the customer journey, or flag technical issues that need remediation.
There are four general categories of chargebacks (with several ‘reasons’ within each bucket):
When thinking about chargebacks, most think only of cardholder-initiated disputes. However, chargebacks can be started by the issuer as well—these are known as bank chargebacks.
When an issuer initiates the chargeback process for a bank chargeback, they generally do so without advising the cardholder. Some of these disputes will be resolved between the acquirer and issuer, while others will require the merchant’s involvement. Reasons for bank chargebacks are usually in the authorization or processing errors categories, such as:
Issuers can also initiate bank chargebacks when they suspect merchant fraud. Merchant fraud occurs when someone within a merchant business is committing fraud, or a third party acts as a merchant to process fraudulent transactions.
There are a wide range of dispute reasons in the fraud and consumer/cardholder disputes categories. These disputes are where you find your customers voicing their biggest concerns or frustrations with your business. Examples include:
According to Chargeback Gurus, the top 3 customer-initiated dispute reasons in 2020 were fraud, canceled recurring, and canceled merchandise/services.
This is a lot of information to digest, but the first step to understanding your chargebacks is to always look at your payment processing data—specifically aggregated and normalized chargeback data from all of your solution providers. Through Peacock, Pagos provides a solution for accessing that data, along with actionable insights and business intelligence across your entire payments ecosystem. You can even drill down into important categorizations of your disputes, such as chargebacks by processor, card type, or BIN. We will look further into these insights and see some examples as we continue our blog series on chargebacks.
One thing to be aware of is that the chargeback reason assigned by the issuer is not always accurate. It’s possible the cardholder mistakenly provided the wrong information to their bank—or did so on purpose—or the issuer made the mistake in categorizing the dispute. Regardless, it’s always best practice to do at least some initial research on all the chargebacks you receive to ensure you handle them correctly.
For example, let’s say your customer disputes a transaction with the chargeback reason listed as duplicate processing. You conduct your research and find that there is not a duplicate charge, but rather the customer called to cancel their subscription (canceled recurring) and your customer support team didn’t take the necessary action. Now that you know the correct reason, your response will be different! Instead of simply allowing the chargeback for a duplicate charge, you can cancel the customer’s subscription in order to avoid future chargebacks, and put that customer into a customer recovery process, if you have one.
Looking at your chargebacks by reason code is the most relevant data point in any chargeback analysis. In addition to the insight it provides you for your internal investigation and remediation, it also defines exactly what evidence card brands require you to provide to dispute it successfully throughout the chargeback lifecycle. And keep in mind: a successfully defended chargeback can result in you receiving the lost funds back.
Peacock by Pagos can help you and your team to have a greater understanding of your chargebacks by reason. By categorizing, tracking, and analyzing your chargebacks, you have a much greater chance of increasing your customer retention rate over the long term.
What types of chargebacks would you like to know more about? Contact us here and we will incorporate that into a future post!