How Do Bank Chargebacks Differ From Other Chargebacks?
Merchants concerned about problems related to credit card transactions are likely aware of chargebacks. Many merchants, however, may be confused about the difference between a bank chargeback and a traditional chargeback. Is there a difference? How can merchants protect their revenue and prevent chargebacks from occurring?
What is a Chargeback?
The term chargeback refers to a reversal of a credit card transaction. These forced transactions can be problematic for merchants who experience a loss of revenue, additional fines and a potential revocation of their merchant account as a result of them.
Chargebacks were created to offer cardholders protection against unscrupulous merchants or criminal activity due to identity theft or fraud. In recent years, however, chargebacks have evolved into a complex financial transaction that has implications for banks, merchants and cardholders.
Why Do Banks Issue Chargebacks?
There are two types of chargebacks, initiated by either the bank or the cardholder.
- A cardholder chargeback occurs when a cardholder contacts their bank to dispute a credit card transaction that appears on their statement.
- A bank chargeback occurs when the issuing bank determines there has been an error in the transaction process.
Depending on the type of chargeback filed, chargebacks can involve multiple parties: the cardholder, issuing bank, acquiring bank, card network and merchant. In bank chargebacks, the merchant and cardholder are typically unaware of the chargeback.
Each network has specific codes to designate the reason behind the chargeback. Some are specific to bank chargebacks and are only used by issuers to indicate the problem with the transaction. Others may be used by either the bank or the cardholder to initiate a chargeback.
Reason codes used for bank chargebacks include:
| Reason Code | Code Title |
| Visa: N/A MC: 4802 |
Requested/Required Information Illegible or Missing |
| Visa: 71, 72 MC: 4808 |
Authorisation Related Chargebacks |
| Visa: 73 MC: N/A |
Expired Card |
| Visa: 74 MC: 4842 |
Late Presentment |
| Visa: 82 MC: 4834 |
Duplicate Processing |
| Visa: 76 MC: 4846 |
Incorrect Currency Code |
| Visa: 77, 80 MC: N/A |
Incorrect Transaction Amount or Account Number |
| Visa: 93 MC: 4849 |
Merchant Fraud |
Can you Prevent Chargebacks?
The good news for merchants is that a majority of chargebacks are preventable. Cardholder chargebacks are a result of merchant error, criminal fraud or friendly fraud. The majority of cardholder chargebacks can be prevented. When chargebacks do occur, merchants can dispute them through a process known as representment.
Bank chargebacks are more complex but can still be prevented through a careful correction of merchant business practices. Merchants are not involved in the bank chargeback process, yet are required to pay any chargeback fees. Representment options are limited for bank chargebacks.
Do You Need Professional Help?
Merchants concerned about handling their chargebacks have several options: handle the chargebacks in-house or contract with an outside company to monitor and manage chargebacks.
There are a variety of tools designed to educate and equip merchants in their fight against chargebacks. Despite the abundance of free resources, it is impossible to fully educate a merchant on every aspect of the chargeback process.
Card network regulations are constantly changing, technology is developed, best-practices are constantly evolving, and maintaining adequate knowledge of the chargeback process is a full-time job. The merchant attempting to have a casual understanding of chargebacks and how to best manage their occurrence may find themselves overwhelmed and unable to keep up.
Merchants who accept professional assistance experience lower chargeback-to-transaction ratios and higher representment win rates.
If you’d like help managing both consumer-initiated and bank chargebacks, contact us today.