How to Avoid Processing Error Chargebacks
Processing errors—those seemingly minor merchant missteps that can trigger disputes—often go unrecognized as a cause of chargebacks. They’re hard to pinpoint because most singular errors don’t seem to have a measurable effect. Collectively, however, processing shortcuts and simple oversights can have a serious impact on your bottom line.
There is no “silver bullet” that can protect you from all customer disputes. However, processing error chargebacks are relatively easy to avoid. For the most part, it only requires vigilance and quality control.
In this post, we’ll look at which mistakes can lead to processing error chargebacks, and how they can be avoided.
What is a Processing Error?
For the most part, processing errors stem from mistakes you made at some point during the payment submission. Some of these errors may be caught by the issuer, the card network, or your processor. Others, such as “duplicate processing,” may go unnoticed…at least until the cardholder later initiates a dispute in response.
This is particularly relevant considering the rapid rise in eCommerce. Many processing errors come from mis-entered information, and hand-entered details are much more likely to come from card-not-present transactions.
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Before we start looking at the individual errors, it’s important to point out that each card network has its own set of chargeback reason codes. While these sets mostly cover the same situations, the numbers and groupings can vary significantly.
To avoid redundancy and confusion, we’ll use Visa’s chargeback reason codes as an example. You’ll find information on reasons codes for all the main card brands here.
Visa Processing Error Reason Codes
There are numerous scenarios that fall under the umbrella of processing error chargebacks. Each has a unique reason code, which is meant to give you a clearer understanding as to why you got hit with a chargeback.
Below are all the chargeback reason codes associated with these processing error chargebacks:
12.1: Late Presentment
You should process all transactions as quickly as possible. If you wait too long to batch your transactions, you could see a chargeback with a 12.1 reason code.
How long is too long? Well, you have a certain amount of time to clear your transactions after the sale. For Visa, this is typically 8 days, although the period could be shorter based on the type of transaction and/or your processing agreement. If you miss Visa’s processing deadline, the issuer can file a late presentment dispute up to 120 days from the processing date.
12.2: Incorrect Transaction Code
Simply put, the transaction code that was submitted didn’t match what was authorized. You may have processed a debit instead of a credit, processed a credit instead of a reversal, or in some other way submitted a transaction that differed from the obtained authorization. However it happened, just about the only way you could earn an incorrect transaction code chargeback is by mistyping the transaction code.
12.3: Incorrect Currency
Incorrect currency chargebacks are the result of one of the following scenarios:
- You submitted a transaction with an incorrect currency reason code.
- The transaction currency doesn’t match the currency transmitted through Visa.
- The cardholder claims they didn’t agree to the use of Dynamic Currency Conversion (DCC).
This transaction error could have a simple explanation: you used the wrong code for the type of currency used in the transaction. It’s most likely that the type of currency used in the transaction differed from the type of currency transmitted through Visa.
12.4: Incorrect Account Number
Reason code 12.4 is used for transactions where the authorization does not match the account number used in the transaction.
The most common cause of these processing error chargebacks is human error. It could be that you (or a staff member) keyed in the account number incorrectly. Or, maybe you mistyped the account number on a mail or telephone order. A simple error like this can become very costly if it leads to a chargeback.
12.5: Incorrect Transaction Amount
Essentially, the issuer is letting you know that the transaction amount which posted was different from the amount shown on the sales receipt.
Like chargebacks from incorrect account numbers, reason code 12.5 disputes are mostly the result of human error in keying in transaction data. In response, the cardholder offers proof that the amount charged is incorrect. This could be because you made an error when calculating the total, or altered the amount after the transaction was complete without seeking a pre-authorization (adding a tip to restaurant bill, for example).
12.6.1: Duplicate Processing
Reason code 12.6.1 applies when a single transaction is accidentally processed more than once. These disputes can be triggered by multiple events:
- You enter the same transaction into the terminal more than once.
- You electronically transmit the same transaction capture batch to the card processor more than once.
- You deposit both the merchant copy and the acquirer copy of the receipt.
- You create two transaction receipts for the same purchase.
- You deposit receipts for the same transaction with more than one merchant bank.
12.6.2: Paid by Other Means
“Paid by other means” chargebacks are like those that come from duplicate processing. They occur when a cardholder claims that a transaction was actually paid for using an alternate method (not the Visa card in question). This can be cash, check, or some other type or brand of payment card. The most common cause, though, is that the cardholder initially paid for a transaction with a Visa card, then decided to use cash or a check after the credit card purchase was complete.
12.7: Invalid Data
This code applies where a transaction was authorized, but contained incorrect or invalid data. That definition is pretty broad and vague, so it may seem like it could technically apply to any incorrect usage of data. However, there are a few specific conditions that most commonly result in a 12.7 code chargeback:
- Incorrect transaction date
- Incorrect MCC
- Incorrect merchant or transaction type indicator
- Incorrect country/state code
- Incorrect “Special Condition” indicator
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The list of reason codes outlined above isn’t exhaustive. It only shows the most general reasons for transaction error chargebacks. Remember that the circumstances of individual transactions may vary, and in some cases, the details of a disputed transaction may not perfectly reflect the reason code.
What About Authorization Errors?
There are a few additional reason codes which were considered processing error chargebacks at one point. However, these have since been reclassified as authorization error chargebacks.
Visa created a new category strictly for designated authorization errors back in 2018. However, it could be argued that they still fit under the old subheading. After all, you could make the case that an authorization error is still a part of transaction processing. As some merchants might still associate certain these with processing errors, we thought it would be helpful to include them here.
11.2: Declined Authorization
You can see a reason code 11.2 chargeback if you override a declined, referral, or pickup authorization message, but process the transaction anyway.
There are tricks you might use to circumvent an undesirable authorization message, such as not requesting authorization at all, or making multiple attempts on a declined card. Any time you attempt to force, circumvent, or override a declined authorization, however, you’re asking for a declined authorization chargeback.
11.3: No Authorization
Not requesting approval from the issuing bank before processing a transaction could result in an 11.3 “no authorization” chargeback. This code also applies if you wait until after the fact to request the authorization, or if the authorization is for a different amount.
Prevent Chargebacks Caused by Processing Errors
This article only outlines the most basic reason code explanations. We encourage merchants to consult the Visa Core Rules or MasterCard Chargeback Guide for more detailed explanations of chargeback regulations based on individual reason codes.
For now, let’s look at processing error chargebacks more broadly.
Processing a credit card transaction involves many steps, and mistakes can be made at any point along the way. As we mentioned in the beginning, though, these types of chargebacks can be prevented in most cases simply by paying careful attention to details. The problem: you don’t always know where all those details are.
Many instances of merchant error are difficult to detect. Overlooking even one recurring misstep could lead to a series of chargebacks. And, if you’re like most merchants, you’re too close to your business to conduct unbiased analysis.
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What are processing error chargebacks?
Processing error chargebacks stem from mistakes you made at some point during the payment submission, such as authorization shortcuts or misreported numbers. Because these disputes start with the merchant, they can almost always be prevented.
Do all card networks have reason codes for processing errors?
All of the main schemes—Visa, Mastercard, Discover, American Express—do. The problem is that the designations each brand uses are different. For example, take a simple error like submitting the wrong amount for a transaction. Visa labels this 12.5: Incorrect Transaction Amount while Mastercard calls the same error 4843: Transaction Amount Differs.
Can processing-error chargebacks be prevented?
In almost all cases, yes. It is mostly a matter of paying extra attention to problem areas. The problem is, some of the problem areas aren’t obvious; this is where it’s good to consider professional 3rd party professionals who can provide unbiased analysis.