Credit Card Processing Blog

Visa uses chargeback Reason Code 77 to designate chargebacks resulting from processing transactions where the account number on the card presented by the cardholder does not match the one on file with the card issuer. MasterCard does not have a reason code that exactly matches Visa’s 77.

What causes these chargebacks? By far the most common cause for a chargeback Reason Code 77 is that the merchant incorrectly key-enters or records a card account number.

How to manage such chargebacks? Your response to Reason Code 77 chargebacks will depend on the particular transaction circumstances and the actions you have taken (or not) so far.

• The account number matches. If the card account number on the sales receipt does match the one on the chargeback and you received an authorization approval from the issuer, contact your processing bank and request that they include their authorization log when they re-present the chargeback. Most processors handle this type of chargebacks automatically and you will never see them.
• The account number doesn’t match. If the card account number on the sales receipt does not match the one on the chargeback, there is no remedy and you should accept the chargeback. Process a new transaction and make sure that the account number is correct. However, do not process a credit at this time, as the chargeback has already performed this function.

How to prevent chargeback Reason Code 77? The following card acceptance best practices will help prevent this type of chargebacks:

• The terminal can’t read the card’s magnetic stripe. For card-present transactions, if the magnetic stripe cannot be read, request authorization by key-entering the account number. Then take a manual imprint from the face of the card onto the sales receipt and have it signed by the cardholder.
• The terminal is not working. If your point-of-sale (POS) terminal is not working, call your processor’s voice authorization center. If you get an authorization approval, be sure to write the response code on the sales receipt. Then take a manual imprint from the face of the card onto the sales receipt and have it signed by the cardholder.
• The embossed account number doesn’t match. If the account number on the terminal or on the sales receipt does not match the one on the front of the card, request a Code 10 call. If you are asked to retain the card, comply only if it is safe to do so.
• Taking orders over the phone. For telephone orders, you should read the account number back to the cardholder to verify it.
• Obtaining authorization. Authorization should always be requested for transactions where the sale’s amount is above the merchant’s floor limit. Floor limits are typically stated in the merchant’s processing agreement. Remember that for all card-not-present transactions the floor limit is zero, which means that they always require authorization.
• Recurring payments. With recurring payments it is possible that, over time, the account number on file can be changed or the account can be closed altogether. If authorization is declined, contact the customer and update the card details. To avoid declined authorizations due to changed account numbers altogether, consider signing up for Visa’s and MasterCard’s automatic card updater services, which enable merchants to update account information on file, as such changes occur.

Your point-of-sale staff should be well trained on employing these best practices, but specifically on comparing account numbers printed on sales receipts to account numbers embossed on the cards. Everyone should understand that, when the numbers differ, the card should not be accepted and a Code 10 call should be made. The phone numbers for voice authorizations should be clearly posted, so that when the terminal is down or the card’s magnetic stripe cannot be read, a voice authorization can be quickly requested. Staff should also be instructed that authorizations are always required for card-not-present transactions.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

We have previously written in detail about how recurring payment plans work, so this post will not deal with the specifics of how to set one up or how to process each payment. Rather, it will offer suggestions on how to identify and manage the risks associated with recurring payments.

The terms of each recurring plan and the processing of each payment should be done in accordance with a set of best practices, which will help minimize customer disputes, declined transactions and chargebacks. Consider implementing the following procedures:

• When processing a recurring payment:
  • Always notify your customers before charging his or her card. Send the notice at least 10 days in advance. In the notification include the amount to be charged to the account and, if applicable, alert the cardholder if the transaction amount exceeds the pre-authorized range.
  • Save the card’s expiration date on file and include in all authorization requests.
  • Always use the Address Verification Service (AVS).
  • Identify all recurring transactions as such by using the Recurring Payment Indicator. Recurring Payment Indicator is used to identify recurring transactions within authorization and settlement messages in card-not-present environment. The Recurring Payment Indicator is required in all authorization and clearing records. Recurring transactions are typically lower risk than single transactions and should be approved, provided the account is in good standing.
  • Never store card security codes. Card security codes are the three-digit numbers found in the signature panels on the back of Visa, MasterCard and Discover cards and the four-digit numbers found slightly above and to the right of the account numbers of American Express cards. The Credit Card Companies and Associations strictly prohibit the storage of card security codes and may impose substantial fines on offenders.
• Store all cardholder information in a secure manner. Your organization must be compliant with the requirements of the Payment Card Security Data Security Standard (PCI DSS).
• Only use your customers’ account information for the payment for products and services. The account information should not be used for age verification or for any purpose other than payment.
• Keep customer logs and quickly follow-up on customer complaints. A special emphasis should be given to complaints relating to transaction amounts or to failure to notify customers in advance of a recurring transaction that exceeds the pre-authorized amount range. Address each complaint immediately.
• Immediately honor a cancellation request. Once you receive a cancellation request, you should immediately cancel the recurring plan and issue a credit, if applicable. Notify your customer that his or her request has been fulfilled and the payment plan has been stopped. Be advised that, in the event of a chargeback resulting from an unfulfilled cancellation request, the cardholder does not have to prove that such a request has been made. By industry regulations, the customer only needs to verbally cancel a recurring plan.
• Use the Associations’ account updating tools. As recurring plans can last a long time, the card you have on file for your customer may expire or the account may be closed or the card number replaced. MasterCard Automatic Billing Updater and Visa Account Updater are services designed for merchants processing recurring and installment transactions. These services verify that on-file information, including account number and expiration date, is correct, ensuring uninterrupted payments.

As with other credit card processing procedures, using common sense in managing risks associated with recurring payments is your most powerful tool. Keep your customers updated by email on the status of their payment plan. Ask customers for an alternative payment method if a transaction using the card on file does not go through.

Both Visa and MasterCard offer automatic card account updater services to enable merchants, operating in a card-not-present environment, to verify that account information they have on file, including account numbers and expiration dates, is correct. By automatically maintaining the accuracy of cardholder data, the automatic update services help prevent disruptions due to account changes.

These services are designed specifically to address the needs of merchants that process recurring transactions and other types of ongoing transactions where payments for products and services can be made over the course of months or years using the same account. Utility providers, insurance companies, telecoms all encourage their customers to set up recurring payment plans to automatically pay their monthly bills. Such relationships provide convenience to consumers and cost-efficiency to service providers.

Typically, in a recurring payment plan, the customer provides his or her account information at the time the recurring payment plan is set up and the merchant processes the first payment as it would process any other card-not-present payment. The cardholder’s account information is then stored and all subsequent payments are processed using the stored data. Cardholders rarely discontinue recurring payments once they sign up for them. Usually, routine changes in account information, such as card number replacement or card expiration date change, are the sole reasons why cardholders switch cards, because that’s when service disruptions occur.

The problem is that, when card account information changes, cardholders rarely update it on their own. In fact, one of the two major reasons why cardholders agree to participate in recurring billing is to make payments on time without having to remember to do so. If the merchant processes a payment using the information on file that has become invalid, the transaction will be returned as a chargeback, costing the merchant additional processing fees and, possibly losing the transaction amount altogether. Moreover, when a recurring payment plan is discontinued because of an account change, the cardholder is usually unaware until the service stops – and that disruption is usually perceived by the cardholder as a sign of poor customer service.

The Credit Card Associations introduced the updaters to prevent disruptions due to account changes and extend the life of recurring payment plans, while helping merchants to avoid chargebacks. The two services work in a similar way, following these steps:

1. Participating card issuers submit account changes to the Association’s updating service.
2. Participating merchants submit account number inquiries to their acquirers.
3. Acquirers send these inquiries to the Association’s updating service database.
4. The updating systems match account queries to issuer submissions and send a response to the acquirer for each inquiry, including updated information.
5. Acquirers send matched account records to the merchants.
6. Merchants update their billing database with the changed account information.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).