Mastercard Chargeback Reason Codes: The Ultimate Merchant's Guide

From my experience as an e-commerce merchant, I've encountered my share of chargebacks stemming from Mastercard transactions.

I aim to share this knowledge, giving you insights into how to navigate these reason codes.

Within each category, we'll delve into the specific reason codes, their root causes, preventative measures, and the evidence required to contest any resulting disputes.

Let’s explore some reason codes.

Key Takeaways

• All reason codes require merchants to reply within 45 days.
• Reason codes give customers 90 — 120 days to file a chargeback after the transaction.
• Some reason codes give customers a maximum of 540 days to file a chargeback.
• Mastercard recategorized and retired many of its reason codes in 2016.

Important to Know

Remember these rules, programs, and information when dealing with Mastercard chargebacks. We discuss this information in more depth in our Mastercard chargeback guide.

Throughout this guide, we recommend evidence to submit to Mastercard during a dispute. Use this information as guidance. Provide the evidence that Mastercard requests.

540-Day Rule

The 540-day rule refers to the maximum time frame for a cardholder to dispute a Mastercard transaction. So long as the goods or services were not received or not as described.

This timeframe starts from the transaction date and typically allows for 90 — 120 days from the date the cardholder becomes aware of the issue. However, it cannot exceed 540 days.

Mastercard's Excessive Chargeback Program

Mastercard's Excessive Chargeback Program (ECP) aims to reduce excessive chargebacks by monitoring merchants' chargeback ratios and volumes.

Sellers with 100 – 299 chargebacks in a calendar month or a chargeback-to-transaction ratio of 1.5% are enrolled in the program.

Or they’ll be placed in the “High” Excessive Chargeback Program when they breach 3.00% or have over 300 chargebacks a month.

They potentially face fees and must implement corrective actions to lower their chargeback rates.

Chargeback Criteria

The criteria for a successful chargeback depend on the specific reason code.

Generally, the customer must provide compelling evidence supporting their claim, and the merchant must be unable to refute it with sufficient documentation.

1. Reason Codes for Cardholder Disputes

Notes:

• All reason codes under this category allow customers up to 120 days to file a chargeback (instead of 90).

1 - Credit Posted as a Purchase

Description: Credit mistakenly processed as a charge.

Causes:

• Merchant error during refund processing.
• Processing system glitch.
• Cardholder misunderstanding of statement.

Prevention:

• Double-check all refund amounts and transaction types.
• Use clear communication with customers regarding refunds.

Evidence:

• Documentation of communication.
• Transaction documentation.

Legacy Code: 4860

2 - Counterfeit Goods

Description: Goods believed to be counterfeit or unauthorized replicas.

Causes: The buyer received fake items.

Prevention:

• Source products from reputable suppliers and manufacturers.
• Inspect inventory for signs of counterfeiting.
• Provide proof of authenticity (e.g., certificates, receipts).
• Implement a strict return policy for counterfeit claims.

Evidence:

• Proof of purchase from authorized distributors.
• Invoices or receipts from suppliers.
• Certificates of authenticity for the products.
• Detailed product descriptions and photos.
• Communication logs.

3 - Goods / Services Not as Described (or Defective)

Description: The goods / services received were not as described or were defective.

Causes:

• The product does not match the description.
• Item arrived damaged or broken.
• Service did not meet agreed-upon standards.
• Seller sent the wrong item to the purchaser.
• Quality is lower than expected.

Prevention:

• Accurately describe products and services.
• Use high-quality images in product listings.
• Clearly state refund and return policies.
• Package items securely to prevent damage.
• Respond promptly to buyer inquiries or complaints.

Evidence:

• Proof of accurate product description or service agreement.
• Photos or videos of the product received by the buyer.
• Communication records.
• Proof of delivery and tracking information.
• Inspection reports or expert opinions (if applicable).

4 - Addendum Dispute

Description: Unauthorized charge added to a valid transaction.

Causes:

• Merchant error during transaction processing.
• Miscommunication about additional charges or fees.
• Unauthorized user accessing cardholder's account.
• Shopper forgets about authorized charges.

Prevention:

• Clearly disclose all charges and fees upfront.
• Obtain clear authorization for any additional charges.
• Send transaction confirmations with detailed breakdowns.

Evidence:

• Proof of cardholder authorization for all charges.
• Documentation of transaction details and communication.
• Evidence of security measures in place.

Legacy Code: 4859

5 - Goods or Services Not Provided

Description and Cause: The customer didn’t receive the goods or services they were charged for.

Prevention:

• Send a confirmation email with purchase details.
• Use a recognizable business name on the billing statement.
• Require signature upon delivery for high-value purchases.

Evidence:

• Proof of delivery (tracking information, signed delivery receipt).
• Communication logs.
• Documentation of the services rendered.

Legacy Code: 4855

6 - Cardholder Dispute of a Recurring Transaction

Description: A recurring transaction the customer claims was unauthorized or attempted to cancel.

Causes because the buyer:

• Forgot about the recurring billing agreement.
• Was unaware of the subscription terms.
• Did not recognize the descriptor on their statement.
• Believes the recurring charge is fraudulent.

Or the user could have actually canceled the subscription, but you still charged them.

Prevention:

• Obtain explicit consent for recurring billing.
• Send clear reminders before each recurring charge.
• Make cancellation easy and accessible.
• Use clear and recognizable billing descriptors.
• Monitor for and address unusual account activity.
• Confirm cancellations via text or email.

Evidence:

• Proof of the buyer's authorization for recurring billing.
• Documentation of the terms of the recurring billing agreement.
• Evidence that you notified the buyer of upcoming charges.
• Record of the buyer's cancellation attempt (if applicable).
• Relevant communication records.

Legacy Code: 4841

7 - Transaction Did Not Complete

Description: Payment was deducted, but the transaction was never finalized.

Causes:

• Technical issue during transaction processing.
• Miscommunication about order status or confirmation.
• Cardholder misunderstanding of pending authorization.
• Merchant failing to fulfill order after payment.

Prevention:

• Communicate clearly with customers about order status.
• Explain authorization holds and their temporary nature.
• Promptly fulfill orders or issue refunds for cancellations.

Evidence:

• Proof of successful transaction completion.
• Documentation of order status and communication.
• Evidence of goods or services delivered or rendered.

Legacy Code: 4855

8 - Digital Goods $25 or Less

Description: Shopper claims unauthorized digital purchase due to a lack of account security.

Causes:

• Purchase involves digital goods valued at less than $25.
• Insufficient purchase controls on digital accounts.
• Unauthorized user accessing cardholder's account.
• Customer sharing account information with others.

Prevention:

• Implement strong security measures for digital accounts.
• Require strong passwords and two-factor authentication.
• Limit purchase amounts without additional authorization.
• Educate customers about digital purchase risks and security.

Evidence:

• Proof of adequate purchase controls on digital accounts.
• Documentation of security measures and customer communication.
• Evidence of unauthorized use or shared account access.

Legacy Code: 4841

9 - Credit Not Processed

Description: A refund or credit was not issued or not correctly reflected on their statement.

Causes:

• You did not issue the buyer a refund after returning an item.
• The seller failed to process a refund after a cancellation.
• The refund amount was incorrect or not applied properly.
• The buyer misunderstood the refund policy or timeline.

Prevention:

• Issue refunds promptly upon return or cancellation.
• Clearly communicate refund policies and timelines to buyers.
• Double-check refund amounts for accuracy before processing.
• Maintain detailed records of all refunds and credits issued.

Evidence:

• Documentation of the original transaction.
• Proof of return or cancellation (if applicable).
• Correspondence with the buyer regarding the refund.
• Documentation of the refund or credit transaction.

Legacy Code: 4860

10 - No-Show Hotel Charge

Description: Cardholder received a no-show fee at a hotel despite canceling their reservation. The hotel in question participated in the Mastercard Guaranteed Reservation Service.

Cause: Merchant error in processing.

Prevention:

• Clearly communicate cancellation policy and deadlines.
• Confirm cancellations in writing and provide reference numbers.
• Maintain accurate records of all reservation changes and cancellations.
• Ensure compliance with Mastercard Guaranteed Reservation Service rules.

Evidence:

• Proof of cancellation communication and confirmation.
• Documentation of reservation details and cancellation policy.
• Evidence of compliance with program rules and fee justification.

Legacy Code: 4859

2. Fraud-Related

Notes:

• All reason codes under this category allow customers up to 120 days to file a chargeback (instead of 90).

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1 - 4871: Chip / PIN Liability Shift - Lost / Stolen / Never Received Issue (NRI) Fraud

Description: A fraudulent transaction made with a chip-enabled card that was reported lost, stolen, or never received by the cardholder.

Causes:

• Buyer claims their card was stolen and used without their consent.
• Purchaser reports their card as lost before an unauthorized transaction occurred.
• Consumer never received a new or replacement card, but it was used fraudulently.

Prevention:

• Verify card security features like the chip and signature.
• Require PIN entry for chip transactions whenever possible.
• Utilize fraud detection tools for online and in-person sales.

Evidence:

• Proof of chip card authentication for the disputed transaction.
• Documentation of shopper reporting the card lost or stolen.
• Communication logs.

2 - 4849: Questionable Merchant Activity

Description: The seller violated Mastercard’s rules

Cause: Seller processed a transaction after being listed on Mastercard's Global Security Bulletin for violating the Questionable Merchant Audit Program (QMAP).

Prevention:

• Regularly check transactions against Mastercard’s Global Security Bulletin.
• Strictly adhere to Mastercard rules and regulations.
• Regularly monitor Mastercard communications for any listings or warnings.
• Take prompt corrective action if notified of any violations.

Evidence:

• Documentation demonstrating that the transaction occurred before the vendor was listed on the Global Security Bulletin.

3 - 4837: No Cardholder Authorization

Description: The purchaser denies authorizing or participating in a transaction.

Causes:

• Unauthorized use of lost or stolen payment credentials.
• Misunderstanding of billing descriptor leading to unrecognized charge.
• Family member or friend using the card without the owner's knowledge.
• Accidental processing of an incorrect account number.

Prevention:

• Implement 3D Secure or similar authentication methods for online sales.
• Use clear, recognizable billing descriptors on statements.
• Verify card security code (CVV) for card-not-present transactions.
• Obtain purchaser signature for in-person sales.

Evidence:

• Sales receipt with matching signature or authorization code.
• Proof of delivery or service confirmation.
• Communication records.
• IP address or geolocation data for online purchases.

4 - 4870: Chip Liability Shift

Description: A fraudster used a card with an EMV chip; however, they didn’t actually use the chip during the transaction.

Causes:

• Counterfeit EMV chip card used at a non-chip-enabled terminal.
• EMV chip card used at a chip-enabled terminal but processed as a magnetic stripe transaction.

Prevention:

• Ensure all payment terminals are EMV chip-enabled and properly configured.
• Train staff to always process chip cards by inserting the chip, not swiping.
• Regularly update terminal software and security features.
• Verify cardholder identity for high-value transactions.

Evidence:

• Proof of EMV chip terminal capability and proper configuration.
• Transaction records showing chip authentication failure or fallback to magnetic stripe.
• Documentation of staff training on EMV chip card processing.
• Additional evidence of fraud, such as CCTV footage or witness statements.

3. Authorization-Related

Notes:

• All reason codes under this category allow customers up to 90 days to file a chargeback.

1 - 4834: Late Presentment

Description: Transaction processed after acceptable timeframe, potentially impacting closed accounts.

Causes:

• Merchant delay in submitting transaction for processing (beyond 30 days from authorization).
• Seller submitting transaction more than 180 days after the original transaction date.
• Cardholder account closure before delayed transaction processing.

Prevention:

• Process transactions promptly within established timeframes.
• Regularly reconcile transactions to identify and address any delays.
• Implement automated systems to ensure timely transaction processing.

Evidence:

• Proof of timely transaction processing within 30 days of authorization.
• Documentation demonstrating a valid reason for delay (e.g., technical issues, bank holidays).
• Evidence that the cardholder account was open at the time of processing.

2 - Cardholder-Activated Terminal (CAT) 3 Device

Description: A transaction was processed through a Cardholder-Activated Terminal (CAT) Level 3 device — Limited Account Terminals — without proper authorization or verification.

Screenshot from Mastercard (PDF file).

Causes:

• Transaction amount exceeded preset limit for CAT 3 devices.
• Card used at a CAT 3 terminal was invalid or expired.
• Technical error at the terminal led to unauthorized transaction.

Prevention:

• Ensure CAT 3 terminals have correct transaction limits.
• Regularly update terminal software and check for malfunctions.
• Clearly display transaction limits and card acceptance rules at terminals.
• Train staff to assist customers with CAT 3 transactions if needed.

Evidence:

• Transaction records showing amount, date, and card validity.
• Terminal logs indicating any errors or malfunctions.

Legacy Code: 4807 or 4812

3 - Expired Chargeback Protection Period

Description: A chargeback is filed after the allowed timeframe for disputes, but the cardholder's account is no longer valid.

Causes:

• Settlement delay past the dispute window.
• Cardholder's account closed or compromised.
• System glitch delaying chargeback processing.

Prevention:

• Process settlements promptly, within timeframes.
• Implement fraud detection tools for early warnings.
• Regularly reconcile transactions to spot discrepancies.

Evidence:

• Proof of timely transaction authorization/settlement.
• Documentation showing cardholder's account status.
• Any correspondence proving chargeback is invalid.

4 - Account Number Not on File

Description: The issuer cannot locate the provided account number in their records.

Causes:

• The purchaser closed their account before the transaction was settled.
• Stolen or fabricated card details used for purchases.

Prevention:

• Double-check the entered account information before submitting.
• Compare the billing address provided to that on file with the issuer.
• Use systems to detect suspicious transactions and identify high-risk orders.

Evidence:

• Proof of authorization and settlement details.
• Documentation of the products or services purchased.
• Records of any correspondence with the purchaser regarding the transaction.

5 - Warning Bulletin File

Description: Issuer cannot confirm authorization for the disputed transaction.

Causes:

• Seller failed to obtain authorization before processing.
• Merchant requested authorization after the transaction was completed.
• Vendor ignored authorization decline and processed anyway.
• Technical error prevented authorization verification.

Prevention:

• Obtain authorization before processing any transaction.
• Follow proper authorization procedures and timeframes.
• Ensure systems are functioning correctly to record authorizations.
• Address any technical issues promptly to avoid authorization errors.

Evidence:

• Proof of valid authorization obtained at the time of the transaction.
• Transaction records showing authorization code and timestamp.
• Documentation of any communication with the issuer regarding authorization.

6 - Authorization-Related Chargeback

Description: The merchant processed the transaction without obtaining proper authorization. Or the authorization was obtained outside the allowed timeframe.

Causes:

• Authorization not obtained before settlement.
• Authorization request sent after the transaction date.
• Authorization code expired before settlement.
• Invalid authorization code used.

Prevention:

• Always obtain authorization before settling transactions.
• Verify authorization codes are valid and unexpired.
• Ensure point-of-sale systems are functioning correctly.
• Train staff on proper authorization procedures.

Evidence:

• Transaction receipts showing authorization approval.
• Authorization code and date.
• Proof of authorization request before settlement.
• Documentation of valid authorization procedures.

7 - Required Authorization Not Obtained

Description: A transaction was processed without obtaining the required authorization from the issuer.

Causes:

• Authorization request was not sent or lost.
• Transaction processed before authorization approval.
• Technical issue prevented authorization.
• Authorization not obtained for offline purchase.
• Unauthorized use of payment credentials.

Prevention:

• Confirm approval before completing sales.
• Ensure processing systems function correctly.
• Follow proper procedures for offline transactions.
• Implement tools to identify suspicious activity.
• Educate employees on authorization protocols.

Evidence:

• Proof of the transaction and amount.
• Records showing attempted or obtained authorization.
• Correspondence with the processor about the issue.
• Documentation of any technical malfunctions.
• Evidence of potential unauthorized use.

8 - Multiple Authorization Requests

Description: Card-not-present transaction initially was declined but later approved using alternate methods.

Causes:

• Merchant repeatedly swiped card after initial authorization decline.
• Seller used alternative authorization methods (key entry, voice authorization) after initial decline.
• Technical error led to multiple authorization requests.

Prevention:

• Only attempt authorization once per transaction.
• If authorization is declined, do not reattempt and request alternative payment method.
• Ensure systems are functioning correctly to avoid duplicate authorization requests.
• Train staff on proper authorization procedures and error handling.

Evidence:

• Transaction records showing only one authorization attempt.
• Documentation of any communication.
• Proof of system functionality and error logs if applicable.

4. Point-of-Interaction Errors

Notes:

• The following reason codes allow customers up to 120 days to file a chargeback:some text
  • Duplication / Paid by Other Means
  • ATM Disputes
• Otherwise, every other reason code gives customers up to 90 days.

1. Transaction Amount Differs

Description: The final charge amount doesn't match the initially authorized or agreed-upon sum.

Causes:

• Accidental double billing by the seller.
• Adding undisclosed fees or tips post-authorization.
• Incorrect currency conversion applied to the sale.
• Failure to provide a final receipt matching the billed amount.

Prevention:

• Obtain explicit consent for any post-authorization changes.
• Clearly display all fees before finalizing the sale.
• Double-check the billed amount matches the authorized amount.
• Ensure accurate currency conversions if applicable to the transaction.
• Provide a detailed final receipt mirroring the exact billed amount.

Evidence:

• Original transaction receipt matching the authorized amount.
• Proof of cardholder's consent for any changed amounts (if applicable).
• Documentation supporting the accuracy of the final charge amount.
• Currency conversion records, if relevant to the disputed transaction.
• Communication logs.

2. Duplication / Paid by Other Means

Description: A single purchase was charged multiple times.

Time to File a Chargeback as a Customer: 120 days

Causes:

• Merchant submitted the same batch of transactions multiple times.
• The buyer accidentally initiated the purchase multiple times.

Prevention:

• Utilize duplicate transaction detection software.
• Train staff on proper transaction processing procedures.
• Provide clear instructions to buyers during checkout.

Evidence:

• Transaction history.
• Proof of refund or cancellation.
• Communication records.
• Documentation of any system errors related to the transaction.

3. Loss, Theft, or Damages

Description and Cause: The cardholder was charged for loss, theft, or damage to the vendor's property or goods.

Prevention:

• Require a deposit for rentals or valuable items.
• Document the condition of goods before and after use.
• Have clear policies regarding loss, theft, or damage charges.

Evidence:

• Copy of the signed agreement outlining the policies.
• Photos or videos documenting the damage.
• Proof of the cost to repair or replace the item.

4. Point of Interaction Error

Description: A broad reason code indicating an error occurred at the point of sale.

Causes:

• Duplicate processing of a single purchase.
• Incorrect transaction amount charged to the cardholder.
• ATM dispensing less cash than requested.
• Late submission of a transaction by the seller.
• Dynamic Currency Conversion errors or lack of consent.

Prevention:

• Ensure accurate entry of transaction amounts.
• Maintain transaction records for verification.
• Follow proper procedures for currency conversion.
• Timely submission of transactions to the processor.
• Regular maintenance and reconciliation of point-of-sale systems.

Evidence:

• Original transaction receipt.
• Documentation supporting the correct transaction amount.
• Proof of cardholder authorization for currency conversion.
• Communication logs.
• System logs or records showing transaction details.

5. Point-of-Interaction Currency Conversion

Description: Issues with the currency conversion at the point of sale.

Causes:

• Cardholder was not informed or did not agree to Dynamic Currency Conversion (DCC).
• Currency conversion rate was inaccurate or unfair.
• Transaction currency differs from the currency transmitted to Mastercard.

Prevention:

• Clearly disclose DCC terms and conditions to buyer before processing.
• Obtain explicit consent from the shopper for DCC transactions.
• Ensure accurate and transparent currency conversion rates.
• Provide receipts in transaction and billing currencies.

Evidence:

• Proof of DCC disclosure and cardholder consent.
• Documentation of accurate currency conversion rates used.
• Transaction records showing transaction and billing currencies.

6. ATM Disputes

Description: Incorrect cash amount dispensed or multiple debits from ATM withdrawal.

Time to File a Chargeback as a Customer: 120 days

Causes:

• ATM malfunction resulting in incorrect cash disbursement.
• Technical error causing multiple debits for a single withdrawal.
• Error in entering withdrawal amount.

Prevention:

• Regular maintenance and inspection of ATMs.
• Promptly address any reported malfunctions or errors.
• Clear instructions for ATM use and transaction verification.

Evidence:

• ATM transaction logs and surveillance footage.
• Maintenance records of the ATM.
• Cardholder's account statement showing debits.
• Communication logs.

5. Additional Codes

Notes:

• All reason codes under this category allow customers up to 120 days to file a chargeback (instead of 90).

1 - 4850: Installment Billing Dispute

Description: A buyer disputes a charge from a payment plan, claiming it's inaccurate or unauthorized.

Causes:

• Unclear payment terms lead to confusion.
• The buyer is unaware of the installment schedule.
• Billing errors result in overcharges or duplicate payments.
• The buyer claims to have canceled the plan but is still billed.

Prevention:

• Clearly disclose all installment terms before agreement.
• Send payment reminders before each installment is due.
• Ensure accurate billing with clear transaction details.
• Provide an easy cancellation process with confirmation.

Evidence:

• Original installment agreement signed by the buyer.
• Transaction history showing all installment payments.
• Documentation of any communication about billing or cancellation.
• Proof of delivery or service for each installment period.

2 - 4854: Cardholder Dispute Not Classified Elsewhere (US)

Description: Cardholder disputes transaction after unsuccessful attempts to resolve with the merchant.

Causes:

• Vendor failed to resolve the shopper’s issue satisfactorily.
• Seller did not address the issue within a reasonable timeframe.
• Buyer may be making a fraudulent claim (friendly fraud).

Prevention:

• Address customer complaints and concerns.
• Respond to disputes promptly and professionally.
• Offer fair and reasonable solutions to resolve disputes.
• Document all communication.

Evidence:

• Communication logs.
• Proof of attempts to resolve the issue in good faith.

Coming to a Close

All of the reason codes above give the merchant around 45 calendar days to respond to the chargeback. The acquirer will let you know the specific evidence you’ll need to fight whatever dispute you face.

While the prevention methods above can help, you’ll need additional help from alert providers like Ethoca. It can prevent dispute requests from escalating into chargebacks.

We partner with Ethoca and other alert providers to prepare you for disputes ahead of time. Learn more about how we can help.

Sources

• [1]: Mastercard US: Chargeback guide