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Chargeback Management

Chargeback and post-transaction management is a critical component of any risk management strategy. In addition to providing three online training courses and two professional certifications related to chargeback management for an eCommerce or Card Not Present (CNP) channel merchant, lists several free educational resources as well. This includes:

Online Shopping
Related Training Resources

Credit Card Chargebacks


Chargeback Representment


Advanced Chargeback Analytics


Chargeback Specialist Certification


Chargeback Professional Certification


How it Works
Processing Error Related Chargeback Reason Codes

Chargeback Costs & Fraud Liability

Chargebacks were intended to provide a means for merchants, banks and consumers to resolve cases of abuse and fraud. They have been pretty good at doing this, but they have also created a lot of finger pointing and higher costs for everyone involved. 

The total cost of a chargeback can include refund of the sale, lost product and additional fees such as chargeback fees. For this reason many merchants go out of their way to resolve customer satisfaction complaints and have lenient refund policies. When it comes to true fraud, a merchant may have little-to-no recourse.

Online fraud costs more than the direct loss of product or service...

When fraud occurs in the card-present world, the issuer typically picks up the costs for fraud as long as the merchant is EMV compliant. However, the merchant will still have some associated costs that are not covered by this. These include the associated labor costs, transaction and interchange fees and operational post-transaction costs to handle the chargeback. The merchant will also have to pay a chargeback fee.

Online Shopping

In the card-not-present world the merchant is typically the one paying for the fraud, outside of 3-D Secure liability coverage or the use of guaranteed fraud prevention services. Typically the merchant has already lost the goods, all of the overhead costs they spent on the order, and they will still have to pay a chargeback fee.

For customer-service chargebacks the merchant pays a chargeback fee and unless they can resolve the customer service issue they may have physical loss of goods and services and associated overhead costs as well. 3-D Secure and guaranteed fraud prevention services protect against specific, fraud-related reason codes only, and are therefore not covered in terms of liability.

Chargeback Liability Example

  • Total Sale = $100.00

  • Margin (22%) = $22.00

  • Credit Card Issuer Interchange & Acquirer MDR (3.5%) = $3.50

  • Net Profit = Margin – Credit Card Issuer Interchange & Acquirer MDR = $18.50

The merchant will make $18.50 from this one sale, if it ends up as a chargeback, it will cost them: 

  • Consumer Refund = $100.00

  • Chargeback Fee = $25.00

Dollar Bills
  • Net Loss to Merchant = Net Profit – (Consumer Refund + Chargeback Fee) = -$106.50


The merchant will have lost $106.50 on this order. That means they would have to sell 4.8 more orders at this same amount just to make up this one loss. This example does not even take into account all of the merchant’s costs, such as overhead and processing fees. It also assumes a very low chargeback fee — if they are doing e-commerce and are considered high risk, the chargeback fee could be $100 or more.

Chargeback fees are not fixed, they are different from bank to bank, and they also grow in cost depending on the number of chargebacks you have. If you have a significant problem with fraud you could find yourself paying higher chargeback fees than the actual cost of the goods sold.

How did this happen? As merchants tried to prevent abuse by consumers, they pushed disputes to the bank. The banks retaliated by increasing their fees. The card associations reacted to the increase in chargebacks by setting thresholds for the total percentage of orders that are chargebacks, along with the total percentage of dollars processed. If your chargebacks go above these thresholds you get hit with higher fines, and they keep going up until you get below the threshold. We call this the “going out of business plan” for the merchant. These thresholds are around 1% of total monthly transactions or 2.5% of total dollar volume. More recently it has become increasingly complicated with monthly time intervals and the corresponding thresholds for chargebacks. Beyond the chargeback fees, the number of chargebacks you have can impact the basis points you pay on each order. Merchants that exceed these limits are considered high risk. If they were considered high-risk they would have lost $181.50 on that same order and would now have to sell 8.25 orders of the same size to make up that one loss.

As you can see it is a scary proposition — one that has high stakes for the merchant. Merchants are very focused and motivated to control their losses to ensure that they don’t get compounded by escalating chargeback fees.

Chargeback Representment

Technique Overview

Chargeback representment is the process by which a merchant can dispute a chargeback with an issuing bank. The representment process allows merchants to present evidence to prove that a chargeback is not warranted.

The success rate for fighting chargebacks can vary greatly from merchant to merchant and from industry to industry. Some vendors offering outsourced representment services claim to have an 85% success rate on the chargebacks they select to represent. These vendors do not fight all chargebacks, they are selective in which ones they do fight.

Merchants do not have to turn to vendors or third party services for chargeback representment, they can handle it all in-house. Merchants will want to first reconcile the chargeback to its original transaction and prepare the supporting documentation to fight the chargeback. The documentation needed to successfully dispute a chargeback is contingent on the chargeback reason code. There are hundreds of reason codes and they differ by each card brand, but understanding the root cause of the chargeback, as indicated by the reason code, is one of the first steps in representment.

Key considerations when implementing or buying this functionality include:
  • Before you decide to start fighting chargebacks, make sure you analyze your business case. Representment carries a fee from your acquirer, so you may end up spending more money than you will get back from the process. In general, if your loss is less than $25.00 than you should evaluate the costs of representment first.

  • Make sure you are doing the right things in your order process such as AVS and proof of delivery, as these go along way with representment.

  • Be selective on which chargebacks you fight, not all chargebacks are the same.

  • Even if you are selling digital goods, there are chargebacks that are customer service related and chargebacks that can be influenced by compelling evidence, and you can still win.

  • Check with your acquirer if you are in a high risk market, they can typically tell you if representing makes sense for you.

How it Works

Merchants will need to gather information and evidence that can help their case that a transaction was legitimate or that the chargeback is not warranted. This evidence can include signed delivery receipts, proof the customer provided the correct Card Security Code (CVV2), the fact that the billing and/or shipping address matches what was on file with an AVS check or other evidence depending on the type of chargeback. For example, to dispute a Credit Not Processed or Duplicate Billing Chargeback the merchant can show evidence of when a credit was issued to the consumer.

Compelling Evidence should be used when available and some chargeback reason codes require it. When applicable, this can greatly increase your chances of winning chargeback disputes, especially around cases of friendly fraud. Merchants need to follow the specific guidelines in terms of what is considered compelling evidence for different chargeback types and when it can be provided. Also keep in mind that merchants only have a short time frame to respond and dispute a chargeback. The representment timeline for Visa disputes, for example, has been shortened to just 20 days.

Using the Results

If sufficient evidence is provided, and in the correct format, an issuer will reverse a chargeback and the merchant will be refunded. If the chargeback cannot be successfully represented than the merchant can elect to take the next step to resolve the issue: arbitration, which has additional fees for the merchant. One benefit of compelling evidence is that when provided correctly issuers are required to submit a second chargeback or go through a pre-arbitration phase.

Issuer Alerts

Technique Overview

Issuer Alerts are a form of data sharing between participating issuers and merchants where merchants receive notifications on transactions or disputes that the issuer is about to process into a chargeback, providing the opportunity for merchants to resolve the problem or refund the transaction and prevent a chargeback from occurring.

Issuer Alerts are provided to merchants through the service provider who receives notifications from the cardholder’s issuing bank. It may be that the issuer has identified fraudulent activity on a card before the cardholder does, or it may be that the cardholder initiated a dispute (fraud or non-fraud related) with the issuer but the issuing bank will first address the dispute with the merchant directly through the service provider rather than going through the chargeback process with the card association. This route can benefit both the issuer and merchant by avoiding the costs and operational processes associated with chargebacks.

Through Issuer Alerts, merchants are able to respond to disputes or avoid them entirely by refunding transactions before they hit the cardholder’s statement and before they become a chargeback. If detected early enough, merchants may be able to stop fulfillment or cancel shipment on a physical good. Merchants can also perform link analysis to find other orders associated with the ones in which Issuer Alerts were received.

Key considerations when implementing or buying this functionality include:
  • How large is the provider’s network of participating issuers? This should be considered in terms of the number of cards issued by participating banks rather than just the number of different issuers participating.

  • Does the service apply only to fraud or to both fraud and non-fraud related chargebacks?

  • How are transactions flagged by issuers to become alerts? Does it require the cardholder to contact the issuer and dispute the charge, or does the issuer provide information on all compromised cards to the service provider?

  • Are both domestic and international issuers participating in the service?

  • Can merchants provide information on a transaction to the card issuer? (one way versus two way communication)


Typically, Issuer Alerts are sent to merchants through the service provider to recognize transactions that may be fraudulent or would otherwise result in some type of chargeback without intervention. There are some service providers that provide real time data sharing between the merchant and issuer to look for potential fraud. In this case the issuer may provide a real time alert or post alert that fraud or a chargeback is likely.

There are a couple of different ways potential fraud or chargebacks are recognized by issuers and submitted to the vendor offering Issuer Alert services. First, the provider must work with a network of issuers who will provide this information. Issuers participating in the service could notify the service provider when a customer initiates a dispute rather than immediately filing a chargeback. Alternatively, issuers may provide the service with a list of payment card numbers for blocked or compromised accounts, and the list is checked against the transactions the merchant is processing or has already processed. With some services, if fraud is suspected the issuer may even contact the cardholder to determine if the transaction is legitimate before initiating an alert. Some Issuer Alert services may also offer the ability for merchants to submit information about transactions to the card issuer through the service provider.

Using the Results

It can be weeks or months after a transaction is processed before the cardholder recognizes the charge and initiates a chargeback. But Issuer Alerts enable merchants to recognize these transactions before they become a chargeback so the response time from purchase to chargeback notification is shorter. Merchants should investigate the transaction related to the alert and make a decision on how to handle the transaction. Generally, this would include refunding the transaction and notifying the issuer of the outcome so that the chargeback is avoided. If detected early enough, the merchant may be able to stop fulfillment or shipment of the good to avoid lost product.

Another application of Issuer Alert services is to perform link analysis on the orders that were flagged by issuers as fraudulent. This could enable merchants to find and cancel or refund other linked orders made by the same entity that may have been conducted using a card issued by a bank that is not participating in the service.

Issuer Alerts are also beneficial for avoiding chargebacks with billing and other non-fraud related issues. If a cardholder goes directly to their issuing bank to say they are owed a refund, were billed twice, want to cancel recurring charges or initiate some other dispute, and the issuer is participating with an Issuer Alert service, then the issuing bank can work with the merchant directly to resolve the issue rather than go through the chargeback process. This saves both parties fees and resolves the issue more quickly for the cardholder.

Issuer Alerts can benefit all types of online retailers and merchants in reducing their chargebacks, and they are especially useful for merchants that offer digital goods, subscription services and recurring billing, as well as merchants with high margins.

Visa Chargeback Reason Codes

In April 2018 Visa made a major overhaul to the taxonomy and organization of chargebacks, which they now refer to instead as disputes. This included consolidating and removing some old reason codes and creating an organizational structure where all dispute codes fall under one of four categories, numbered 10 through 13. The format for the reason codes is the dispute category followed by dispute number within that category. For example group 10 is the Fraud dispute category, and the dispute reason code 10.4 represents the dispute description Other Fraud: Card-absent Environment.

Fraud Category (10)
Authorization Category (11)
Processing Errors Category (12)
Customer Disputes Category (13)

MasterCard Chargeback Reason Codes

MasterCard uses four-digit numbers for their chargeback reason codes, each beginning with 48 as the first two digits. Some acquirers, processors or PSPs may just provide the last two digits of the reason code in their data reporting, as that is all that is needed to distinguish between the reason codes and recognize the chargeback description.


MasterCard eliminated some reason codes while condensing or combining others in 2016. There are now 19 different reason codes and while MasterCard does not group or categorize these in a way like Visa disputes, we have organized these into four similar groups below.

Fraud Related Chargeback Reason Codes
Authorization Related Chargeback Reason Codes
Customer Dispute Related Chargeback Reason Codes

Discover Chargeback Reason Codes

Discover is unique in how they label reason codes in that they use an alpha and alpha-numeric labeling system. In some cases the use of letters groups chargebacks into a category, such as with the six chargeback reason codes beginning with UA which stands for Unauthorized. In many cases the letters used in the reason code are hints to convey the chargeback description, such as with DP representing Duplicate Processing and DA representing Declined Authorization. Other times the lettered reason code system is random or arbitrary, such as with reason code AA being for Cardholder Does Not Recognize chargebacks. 

Fraud Related Chargeback Reason Codes
Authorization Related Chargeback Reason Codes
Processing Error Related Chargeback Reason Codes
Customer Dispute Related Chargeback Reason Codes

AmEx Chargeback Reason Codes

American Express and Discover are similar in two ways that differentiate them from Visa and MasterCard. First, AmEx and Discover act as both the card network and card issuing bank, whereas Visa and MasterCard do not issue credit cards directly. Second, like Discover American Expresses uses alpha-numeric chargeback reason codes. American Express uses letters to categorize each reason code by chargeback description or reason. For example, fraud related chargebacks begin with F or FR, processing error chargebacks begin with P, authorization chargebacks begin with A and cardholder dispute chargebacks begin with C. Whereas the other card brands have done away with retrieval requests, American Express still has a few of these which they call inquiries.

Fraud Related AmEx Chargebacks
Authorization Related AmEx Chargebacks
Processing Error Related AmEx Chargebacks
Customer Dispute Related AmEx Chargebacks
AmEx Inquiries
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