Reason codes as issued by banks come in a wide variety of forms. There are, in fact, 151 reason codes that a bank can issue to your business if you receive a chargeback. A credit card can also send you a few different reason codes, complicating the messages your business might receive if a client disputes a charge.

There is some good news, though. Reason codes break down into five primary categories. The categories that you may encounter include:

Fraud

The majority of chargebacks that come your way may fall under the fraud or “no authorization” category. These codes are in place to defend consumers from identity theft and similar misuse, and they address a wide variety of scenarios, including:

• • Magnetic stripe fraud
  • Keypad fraud
  • Fraud involving multiple charges for a single transaction
  • Identity theft
  • Unrecognized transactions
  • Instances involving the violation of card or banking network rules by the merchant in question

You may also receive one of these codes if the consumer’s bank opted to decline authorization of a transaction at the time of purchase, either due to the bank’s perception of fraud or an error involving one of the consumer’s bank accounts.

Cancellation of a Recurring Bill

Consumers also have the right to cancel recurring billings through your business should they no longer wish to benefit from the goods or services you provide. You might receive a reason code that falls within this category if a consumer claims that:

• • They continue to be billed for goods or services that they no longer benefit from.
  • A merchant allowed a subscription or similar relationship between a client and themselves to run even after said merchant was informed of the client’s cancellation.
  • The credit or debit card that the client used to arrange a recurring transaction expired.
  • The consumer did not understand the terms of a recurring transaction.

Products & Services

You may receive a products and services code if a consumer claims to have taken issue with a product or service received from your business, regardless of whether that purchase was made online or in-person. Reason codes in this category can address instances including:

• • When the product in question was deemed ineffective, defective, or to have differed from its original description
  • When the product was damaged during the shipping process
  • When the product was lost during the shipping process
  • When the consumer did not receive the goods or services they paid for
  • When the consumer returned the product they purchased but did not receive a refund for those goods
  • When a banking error or another mechanical mishap marked a credit charge as a debit charge or vice-versa

Hotels merit their own reason code within this category. Consumers wishing to challenge a “no-show” charge from a hotel may dispute the claim with their bank, at which point the hotel may receive a reason code and chargeback from both the consumer’s credit card provider and the bank in question.

Liability Shift

This affects in-person transactions. Liability shift reason codes came into effect in 2015 when the United States shifted towards the use of credit and debit cards with chips. These codes continue to apply to businesses that fail to provide their consumers with the means to make a purchase via a chipped credit or debit card.

The only time that you might see one of these chargeback codes come your way is if your brick-and-mortar shop is not equipped with a functional chip reader. If you don’t have one of these readers on the premises, then a consumer who wishes to question a purchase made in your business may note to both their bank and credit card provider that they possess a chipped credit card, attempted to use it, and had to resort to using a magnetic strip when not provided with the appropriate facilities to protect their private data.

Other Means

Consumers may also choose to dispute a charge through your business for reasons that fall outside of traditional reason codes. Certain catch-all reason codes meant to address these situations can include:

• • A consumer wants to dispute the amount they were charged on an international transaction.
  • A consumer provided either the bank or credit card company with an alternative proof of payment, suggesting that they used another means to secure their purchase.
  • A consumer’s dispute cannot be classified by an existing reason code.

Note that a consumer’s bank does not have to note the reason that a consumer has chosen to dispute a particular claim. To avoid doing so, however, the bank will have to inform your business that it’s not specifying the charge – an action that has its own code as well as individualized reason codes through active credit card companies.

Did you know?

You can figure out your business’s chargeback rate through a simple math equation. It’s called the chargeback-to-transaction ratio, and you divide your total chargebacks by the total number of transactions over a month.