Chargebacks from Authorization Errors

Chargebacks from Authorization Errors

By In Information On August 5, 2015


Authorization Errors Are Dangerous For Merchants.

Preventing chargebacks before they occur can help merchants retain profits and keep chargeback ratios low. One type of chargeback that is preventable is an authorization error chargeback.

Receiving Authorization

Merchants receive authorization codes for purchases by the issuing bank. Once the merchant receives the authorization code they can either complete or terminate the sale. If the authorization code is incorrect or not determined, the merchant is at risk for an authorization error related chargeback. If the transaction is declined by the bank, the merchant is advised to cancel the transaction and request another form of payment. However, if the customer does not have any other way of purchasing the item, he or she may not complete the sale.

Declined Authorization

Some merchants, afraid of losing profit, will process the transaction with the declined credit card by continuously swiping or proceeding with other methods of approval, such as key in or phone approval requests. This will always result in a declined authorization chargeback.

These chargebacks are initiated by the issuer and are avoidable. By proceeding as advised in the authorization message, merchants are able to prevent declined authorization chargebacks.

If the transaction was declined, merchants must refuse payment and request alternative funds from the consumer. If the customers are unable to provide another form of payment, merchants may lose the sale, but if a transaction is processed with a declined card, they will not only lose the sale but will be facing chargebacks as well.

No Authorization

Additionally, there are some merchants who don’t receive authorization at all.

For card-present transactions, merchants may have a floor limit—a transaction amount above which authorization is required. For card-not-present transactions, however, the floor limit for all merchants is zero, and all transactions must be authorized before they are processed.

Authorization will not be given if merchants request authorization…

  • Using incorrect transaction information
  • After the transaction date
  • Including an estimated tip

These instances result in automatic chargebacks from the issuer.

If the transaction information used to request authorization is incorrect, the authorization request is invalid. In addition, authorization must be requested and received prior to completing the transaction, never afterwards.

When it comes to merchants who receive tips, approval must be requested for the exact amount of the official bill. Estimated tips should never be included in an authorization request. Merchants who are tipped are protected by a margin of 15-20% that is automatically added by the bank as a precaution during the authorization process. If merchants request authorization approval for amounts that include an estimated tip, they are at risk for chargebacks.

Expired Card

If customers attempt to pay using expired payment cards, they should be declined every single time. Many merchants accept expired payment cards because they do not received authorization before doing so. Expired payment cards are invalid and will always result in authorization error chargebacks.

Whether merchants are accepting payments through card-present or card-not-present means, the expiration date is necessary to successfully process sales. In addition, if there is an error in the authorization process when conducting a sale in shop, request that the employees personally check the expiration date on the payment cards.

If a payment was authorized by the issuing bank and the card was not expired at the time of the sale, the chargeback is in error and proof of this should be submitted to the issuer.

Non-Matching Account Number

The fourth common chargeback that results from an authorization error occurs when a card is processed with an incorrect account number. When an authorization request is sent to the issuer, the account number for the card in question should be on file with the issuing bank. If this is not the case, an error has been made and the transaction will be declined.

In order to prevent these errors from occurring, merchants should double and triple check the account number from the receipt and the card. If they are keying in the account number, it is advised that they make sure that they are doing so accurately. Once they receive authorization, it is vital that they record the authorization code for their files. And of course, if the authorization comes back declined, merchants should request another form of payment or cancel the sale.

Avoid Authorization Errors

By preventing all authorization errors, merchants are not only able to retain profits, but they are able to avoid excessive chargebacks which result in penalties from acquirers and card networks. It is important that merchants do all that they can to keep their chargeback ratios low and win rates high, but preventing unnecessary chargebacks is the first step.

If you are requesting authorization on every transaction and are still experiencing authorization error related chargebacks, we may be able to help. By contacting DisputeChargebacks, you have the opportunity to receive a free ROI analysis that can help us track down the source of the problem and determine the ideal course of action.