The Lowdown on Chargeback Reason Codes and How to Avoid Them

Chargeback reason codes are a right old headache for payment processors these days, with global chargeback volumes expected to shoot up to 337 million transactions by 2026 – a 42% jump from 2023. These alphanumeric codes assigned by issuing banks to disputed transactions are the key to figuring out why customers dispute charges and what evidence merchants need to get to the bottom of them.   For businesses taking payments online or in-person, getting a grip on chargeback reason codes across Visa, Mastercard, American Express and Discover is a vital business move if they want to protect their revenue and keep their merchant accounts in good nick. Why You’re Here: If you’re losing revenue due to unexplained losses, getting confused over dispute notifications, or just don’t know why customers are disputing legitimate transactions, you’ve come to the right place. We’ll break down the bewildering world of chargeback reason codes and give you the lowdown on how to save your business from both dodgy and genuine disputes.   TL;DR Summary: • The main reason chargebacks happen is down to friendly fraud (36% of all fraud globally), messed up authorisation, processing errors and genuine customer disputes – with a whopping 84% of consumers contacting their bank before even bothering the merchant • The big card networks all have their own reason code systems: Visa uses two different workflows (Allocation and Collaboration), Mastercard bundles codes into four-digit identifiers, while American Express and Discover use alphabetic systems • The most common reason codes vary depending on the industry, Visa’s 10.4 (Card-absent fraud) being a particular favourite among online merchants, and digital goods businesses getting hit with up to 80% friendly fraud rates • Combining chargeback alerts (up to 95% reduction), 3D Secure authentication (70% reduction) and clear comms protocols is a more cost-effective long term plan than trying to sort out disputes after the fact • To fight chargebacks effectively, you need to have specific evidence for each reason code – and sadly merchant win rates average only 8.1% through representment in 2024 • Keeping an eye on things in real-time and doing some data analysis lets you spot patterns, and some businesses are achieving 45-60% reductions in chargebacks through automated alert systems • 2Accept provides comprehensive chargeback prevention and management solutions tailored to help businesses understand and reduce their specific reason code vulnerabilities Practical Tip: Get yourself an automated chargeback alert service (Ethoca or Verifi) and use it as your first line of defence – these can prevent up to 95% of chargebacks by giving you a chance to refund a customer before it all escalates, saving you both the disputed amount and the additional chargeback fees that can total a whopping $4.61 for every dollar of fraud.   Getting to grips with chargeback reason codes is all about protecting your business from a threat that costs US merchants $4.61 for every dollar of fraud in 2025. As we look at the different ways that card networks classify disputes and the best ways to prevent them, you’ll get the knowledge you need to turn chargeback management from a reactive scramble into a proactive business win.

Why Do Chargebacks Keep Happening in Payment Processing?

Chargebacks happen in payment processing when cardholders dispute transactions with their issuing bank instead of sorting things out directly with the merchant.   According to a 2024 global fraud report, first-party misuse accounts for an astonishing 36% of all reported fraud – up from 15% in 2023. The rise in chargebacks is all about consumer behaviour, processing errors and genuine fraud incidents. Understanding where chargebacks are coming from helps merchants put in place targeted prevention strategies. We’ll be looking at the most common chargeback scenarios and how card networks classify these disputes through reason codes.

What Are the Most Common Scenarios That Lead to Chargebacks?

The most common chargeback scenarios are friendly fraud, transaction confusion and dodgy purchases. First-party misuse, also known as friendly fraud, accounts for 40% to 80% of all e-commerce fraud losses according to industry experts. It’s all because 84% of consumers contact their bank first rather than the merchant when there’s a problem with a transaction – which could easily be sorted out with a bit of communication.   Over 60% of merchants are seeing an increase in first-party misuse for the second year running as of 2024. Clear communication failures and consumer misunderstandings lead to chargebacks. The most common triggers include:

• Customers not spotting charges on their statements
• Buyers regretting purchases after the fact
• Family members making purchases without permission
• Subscription renewals catching customers off guard

These scenarios show why clear billing descriptors and proactive comms are key to preventing unnecessary disputes.

How Do Chargeback Reason Codes Classify Different Types of Disputes?

Chargeback reason codes classify different types of disputes through standardised alphanumeric codes that categorise the dispute reason. Each major card network has its own system for doing this. Here’s a quick rundown of the main differences:

Card Network	Primary Categories	Code Format
Visa	Fraud, Authorization, Processing, Customer Disputes	Numeric (e.g., 10.4, 13.1)
Mastercard	Authorization, Point-of-Interaction Errors, Cardholder, Fraud	Four-digit (e.g., 4853, 4837)
American Express	Authorization, Cardmember, Fraud, Inquiry, Processing	Alphanumeric (e.g., A01, FR2)
Discover	Cardholder Dispute, Processing Errors, Fraud	Alphabetic (e.g., AA, AP)

These classification systems are a real help to merchants in spotting dispute patterns and coming up with targeted strategies to stop them happening in the first place. Working out which type of dispute is most likely to cause problems lets businesses focus on making improvements that will really make a difference to reducing chargeback rates effectively.

How Do the Major Card Networks Define Chargeback Reason Codes?

Chargeback reason codes are special alphanumeric codes assigned by the banks that issue the cards to help sort out disputed transactions. Each card network has its own unique set of codes – and they’re updated all the time to reflect the latest fraud patterns and dispute trends. American Express and Discover do things a bit differently, as they issue their own cards and so have more control over how things get sorted out.   The card networks use these codes to sort disputes out into different categories, get the processing under way, and decide who’s liable. It all helps merchants to understand why a dispute is happening and come up with the right response. The following sections explore the different ways the major networks handle their code systems and which codes are the most common.

What are the key differences between the reason codes used by Visa, Mastercard, and the others?

When it comes down to it, the key differences are in the way the different networks set out their codes – with each one having its own unique format, workflow, and way of consolidating codes. Visa has two main systems – one for fraud and authorization disputes, and one for processing errors and customer disputes. Mastercard on the other hand, groups multiple dispute reasons together in a single four-digit code, like 4853 which can cover all sorts of cardholder disputes.   American Express and Discover are different again, using alphanumeric and alphabetic codes respectively, like A01, C02, and FR2, or AA, AP, and AW. Each network’s approach is a reflection of the way they like to do things, and the type of merchants they work with.   It all affects how merchants have to respond to disputes – and understanding each network’s system is a big help when it comes to coming up with the right prevention strategies for your business.

How often do certain reason codes get used by each network?

Certain reason codes get used far more often than others, especially in high-risk environments like e-commerce where online fraud and first-party misuse are common. For example, Visa’s code 10.4 for Other Fraud in Card-absent Environments is a big one when it comes to online transactions. According to some numbers I’ve seen, 31% of merchants are seeing a 25% increase in first-party misuse fraud cases in the last year.   First party misuse has been going up, from 16% in 2022 to 20% in 2024, so it’s clear there’s a trend towards friendly fraud cases. These numbers give a good idea of which codes are most commonly used for things like online transactions and customer disputes.   Knowing the frequency of codes helps merchants to work out where to focus their prevention efforts and allocate their resources effectively. We’ll be looking at which specific reason codes merchants encounter most often in the next section.

What are the most frequent Chargeback reason codes that merchants encounter?

The most common chargeback reason codes are all to do with fraud, authorization errors, and customer disputes. By 2026, the number of chargebacks will be up to 337 million, a 42% increase from 2023.   The value of these chargebacks will hit $41.69 billion by 2028, up from $33.79 billion in 2025. Digital goods merchants are the ones who are hit the hardest by friendly fraud disputes, while subscription businesses struggle with recurring billing chargebacks.

How can businesses identify which codes affect them the most?

Businesses can find out which reason codes are causing them the most problems by looking at their transaction data and using chargeback tracking systems. Digital goods and services merchants, for example, have a particular vulnerability to friendly fraud disputes because of the nature of their products.   Subscription-based businesses often run up against the 1% chargeback threshold because of unclear cancellation policies and recurring billing issues. According to some numbers I saw in 2024, friendly fraud accounts for up to 80% of chargebacks for digital goods merchants.   Companies should break down their chargeback data by reason code, product type, and customer demographic to identify the patterns.

Are certain industries more vulnerable to specific reason codes?

Yes. Certain industries are more exposed to specific chargeback reason codes because of the way they do business. Education and training sector merchants have the highest chargeback rates of all. Digital goods merchants are hit by friendly fraud in up to 80% of their chargebacks – usually because of “item not received” and “unauthorized transaction” codes.   Subscription-based businesses are hit with dispute rates because of unclear cancellation policies and recurring billing issues. Travel and hospitality merchants deal with service quality disputes and cancellation-related chargebacks. By understanding which industry is most vulnerable, merchants can come up with targeted prevention strategies for the most common reason codes.

How can merchants stop chargebacks and reason codes from happening in the first place?

Merchants can stop chargebacks and reason codes from happening by communicating clearly with their customers, using robust authentication systems and advanced fraud detection technology. According to a LexisNexis study in 2025 on the costs of fraud, US merchants end up losing $4.61 for every single dollar of fraud they encounter; this is a pretty eye watering 37% increase from where things were at back in 2020. Trying to combat all this, prevention strategies start by combining a whole bunch of defensive layers, including real-time alerts, 3D Secure authentication, and having clear communication protocols in place with customers.   The following bits of text break down some of the best practices for lowering chargeback risks, and just how important immediate communication is, as well as the role clear policies play in preventing disputes.

What are some Best Practices that Help Lower Chargeback Risks?

Practices that really help lower chargeback risks include putting in place chargeback alert systems, deploying authentication protocols, and using verification services. The chargeback alert services from Ethoca and Verifi for example, can cut chargebacks by as much as 95% if they are properly configured according to the latest payment industry data that was collected in 2024.   This is what we’re really looking for in terms of some of the more effective authentication methods for lowering chargeback risks:

• 3D Secure authentication (this one can reduce chargebacks by up to 70%)
• Automated alert responses (these can prevent 70-80% of disputes from escalating in the first place)
• Address Verification Service (AVS) and CVV checks (these help detect when there are mismatched or just plain fraudulent transactions)

So, using all these different layers of defense ensures that you can verify who the person is that is trying to make the purchase, as well as detect any potential fraud quickly.   Alert systems work by immediately sending merchants a notification when a customer starts disputing a transaction. Merchants then have 24-72 hours to figure out a way to issue a refund before the chargeback becomes official. Meanwhile, the authentication layers verify who the card holder is at the time of the purchase, using techniques such as biometric verification, one-time passwords and even device fingerprinting.   Verification services on the other hand will cross-reference things like billing addresses and security codes with what is on file with the issuer. AVS is used to match up numerical portions of the address, while CVV makes sure the card itself is in the customer’s possession. When you put all these practices together, you create all sorts of different check points that prevent unauthorized transactions and reduce the likelihood that a dispute will happen in the first place.

How Does Immediate Communication With Customers Help Reduce Disputes?

Immediate communication with customers really helps to reduce disputes by preventing confusion in the first place, keeping the customer in the loop as to what is going on with a transaction, and making it a whole lot easier to resolve any issues that do come up. When billing descriptors are recognizable, customers aren’t going to get confused about what they are paying for, which helps to prevent unnecessary disputes.   Order confirmations and shipping notifications keep the customer informed about the status of the transaction throughout the purchase process. If merchants make it easy for their customers to get in touch with them, either through a phone number, email address or even live chat, then it cuts down on the amount of time it takes to resolve disputes that do arise. In fact, if merchants are able to respond to customer support requests in under 24 hours, they can actually prevent formal chargebacks from taking place.   Timing is everything when it comes to preventing disputes. Sometimes sending out a pre-transaction email that says “Hey, just to confirm, this is what you are buying” really helps to prevent problems later on. Then, sending a post-transaction email that includes the receipt and any information about when the customer can expect their purchase to arrive, helps to keep the customer in the loop. Sending proactive notifications about any kind of delays or issues that come up can also help to maintain the customer’s trust – and these kinds of touch points are all opportunities for merchants to resolve any issues that do come up before they ever escalate to the point where a formal chargeback is filed.

What Role Do Clear Policies and Good Documentation Play?

Clear policies and good documentation are pretty essential in establishing clear expectations for the customer, preventing confusion in the first place, and supporting merchant’s dispute challenges. Return and refund policies need to be transparent, and billing descriptors need to be clear and recognizable to the customer, so that they know exactly what they are paying for.   If a dispute does end up happening, merchants are going to need to have complete records that can verify the authenticity of the transaction. This kind of documentation includes things like transaction receipts with all the details, shipping confirmations with the tracking numbers, customer communication records that show all the different attempts to resolve the issue, and even terms of service agreements that show where the customer agreed to all the different policies and procedures.   The kind of visibility that merchants have when it comes to their policies can really affect their dispute rates. If merchants display return policies on the checkout page, it can help to eliminate some of that uncertainty that customers might have. Including cancellation procedures in email receipts can also prevent subscription disputes from happening. Having the terms of service up front on the website is also a good idea.

How Should Merchants Effectively Respond to Chargeback Reason Codes?

When it comes to responding to chargeback reason codes, merchants should really look at gathering specific evidence that is required for each different kind of dispute and following up with some pretty proven steps to improve their chances of success.   The representment process requires a pretty high degree of precision – different reason codes require different documentation types and success rates can vary pretty wildly depending on the size of the merchant and their response strategy.

What Kind of Evidence is Required for Disputing Different Reason Codes?

The evidence that is required for disputing different reason codes can vary pretty wildly depending on the specific dispute category and the rules of the card network. Visa’s Compelling Evidence 3.0 (CE3.0) for example, really changed the game when it comes to contesting reason code 10.4 disputes – it now allows merchants to submit historical transaction data that shows a pattern of previous undisputed transactions that occurred between 120-365 days before the disputed transaction.   According to a Visa implementation guide released in 2024, CE3.0 requires evidence of at least two previous undisputed transactions that include at least two matching data elements such as IP address, device ID, account ID, or shipping address. Different chargeback categories require specific documentation – the following table gives you a sense of what evidence is needed for different types of disputes.

Dispute Type	Required Evidence
Fraud Disputes	Transaction authorization records, CVV match results
Authorization Errors	Proof of valid authorization or customer acknowledgment
Processing Errors	Documentation confirming correct transaction processing
Customer Disputes	Signed receipts, delivery confirmations, service agreements

Signed receipts, delivery confirmations, and service agreements – these are all essential pieces of the puzzle when it comes to dispute resolution.

What Steps Can Help Improve Chargeback Dispute Success Rates?

There are several steps you can take to boost your chargeback dispute success rates – automated prevention systems, proper evidence compilation, and picking which disputes to fight are all key. According to a 2024 Chargebacks 911 industry report, the net win rate for merchants via representment was a paltry 8.1% in 2024. Not surprisingly, larger enterprises report higher success rates than smaller merchants – this is largely due to having a dedicated team dealing with disputes and better documentation in place.   Properly configured Rapid Dispute Resolution (RDR) systems can really make a difference, and a 2024 study by Verifi showed that these systems can prevent a staggering 90% of eligible Visa chargebacks. To get the most out of RDR, merchants should:

1. Set the right refund thresholds
2. Define dispute categories to auto-accept
3. Integrate RDR with payment processing systems
4. Keep a close eye on performance metrics

Following these steps will mean that RDR systems can automatically prevent up to 90% of eligible chargebacks.   The fact is that most chargebacks are not successfully challenged by merchants, making prevention strategies a far more cost-effective option than fighting disputes after the fact. Choosing to focus on high-value, winnable disputes maximises resource efficiency while keeping chargeback ratios in check.

How Can Businesses Monitor and Analyze Chargebacks for Ongoing Improvement?

Businesses stay on top of chargebacks for ongoing improvement through systematic tracking, automated tools, and data-driven insights. Real-time alerts are a godsend – they allow merchants to spot disputes early and resolve them before they become formal chargebacks.   Analytics platforms are another valuable tool – they help to identify patterns across reason codes, which can reveal all sorts of useful information. And by keeping a regular eye on things, businesses can spot operational weaknesses that need addressing straight away.

What Are the Best Tools and Metrics for Chargeback Tracking?

The best tools and metrics for chargeback tracking are alert services, automated response systems, and reason code analytics. Chargeback alert services send real-time notifications when disputes are initiated, which gives merchants a chance to resolve the issue before it escalates into a formal chargeback. Automated response systems can prevent up to 70-80% of chargebacks, and by processing alerts instantly without manual intervention, they make short work of the process. To get a sense of how your chargeback management performance is doing, you should regularly track key metrics like:

• Chargeback ratio (disputes per total transactions)
• Win rate percentage for representments
• Response time to alerts
• Prevention rate by reason code
• Monthly dispute volume trends

These indicators will help you spot any weaknesses in your strategy and measure the impact of any prevention strategies you put in place.   Tracking reason code patterns can also help you identify areas for improvement, by showing which codes crop up most often. This can then guide targeted prevention strategies for specific types of disputes.

How Can Data Analysis Help Prevent Recurring Chargeback Reason Codes?

Data analysis can help prevent recurring chargeback reason codes by revealing patterns in disputes and allowing you to take targeted action. Historical transaction data analysis can also support stronger dispute responses under programs like Visa CE3.0. By looking back at past disputes, you can spot common triggers that can inform your strategy going forward.   For example, an online fashion retailer was able to slash its chargebacks by 45% and save over $60,000 a year by using Ethoca and Verifi alerts. By analysing the alert data, they identified problem product categories and made some adjustments to product descriptions and sizing guides. A SaaS company saw a similar benefit – they reduced their subscription-related disputes by 60% after deploying alert solutions. The company had been able to identify billing descriptor confusion as a key issue through reason code analysis, and sorting that out made a big difference.   Identifying high-risk transactions before they even happen is also key – and machine learning algorithms can help with that. These predictive models get better and better over time as you continue to analyse the data.   Monitoring and analysing chargebacks can really transform the way you deal with disputes – it allows you to be proactive rather than reactive, and that means significantly reducing your dispute rates while making your operations more efficient.

How Can 2Accept Help Businesses Understand and Reduce Chargeback Reason Codes?

2Accept offers comprehensive chargeback prevention and management solutions that can really help businesses understand reason codes and develop effective prevention strategies. By combining automated alert systems, real-time monitoring, and data analytics, the platform can cut chargeback rates by up to 95%.   The platform also integrates with Ethoca and Verifi networks to make sure merchants get instant dispute notifications, and advanced fraud detection tools can identify high-risk transactions before they become chargebacks.

What Specific Solutions Does 2Accept Offer for Chargeback Prevention and Management?

The specific solutions 2Accept offers for chargeback prevention and management bring together a range of fraud prevention technologies in a single platform. 2Accept’s core features include real-time alerts, automated responses, authentication tools, and support for advanced programs like Rapid Dispute Resolution and Compelling Evidence 3.0. Together, these tools give merchants a structured way to prevent disputes and handle the ones that do arise more effectively.

Solution / Feature	Function	Effectiveness / Result
Ethoca & Verifi Alerts	Real-time chargeback prevention	Up to 95% reduction in disputes
Automated Response System	Processes alerts instantly	70–80% prevention rate
3D Secure Authentication	Confirms cardholder identity	Up to 70% reduction in fraud-related chargebacks
AVS & CVV Checks	Verifies billing address and card authenticity	Adds extra fraud screening layer
Rapid Dispute Resolution (RDR)	Auto-refunds eligible transactions	Prevents 90% of Visa chargebacks
Compelling Evidence 3.0 Support	Uses historical transaction matching	Meets Visa’s 2024 CE3.0 standard

This table gives you a clear overview of what 2Accept’s prevention suite does and just how much it can help you. What Are the Key Takeaways About Chargeback Reason Codes and Prevention Strategies? Getting a handle on network-specific reason codes is vital for keeping on top of dispute management – each card network does its own thing when it comes to codes and categories. And let’s be real, it’s way cheaper to keep chargebacks from happening in the first place than it is to fight them after they occur. Automated alerts are a game-changer – not only can they help you avoid costly dispute fees but they can also save you some serious cash on merchandise that’s been written off as a loss. Solutions like Ethoca and Verifi, combined with that extra layer of security that is 3D Secure, can knock chargeback rates down by as much as 70- to 95%.   It’s also worth remembering that industry-specific strategies are a must – if you sell digital goods, you’re probably fighting a losing battle against up to 80% of ‘friendly’ fraud, while subscription services are at risk of exceeding that 1% chargeback threshold. And don’t even get me started on first-party misuse – it accounts for 36% of global fraud in 2024, so you need to be implementing all sorts of prevention strategies, from clear billing descriptors to customer support that’s easily accessible and proactive communication.   Industry analysis shows that merchants are losing a whopping $4.61 for every dollar of fraud they do spot – so it’s not hard to see why prevention systems that can knock chargeback rates down to 70-80% are the key to making your business sustainable in the long term.