Mastercard Chargebacks in 2019: What Merchants Should Know
What Happens When a Merchant Receives a Mastercard Chargeback?
Generally, a Mastercard chargeback is like chargebacks from other card networks. At the same time, each scheme handles the process slightly differently. Fines, deadlines, reason codes, and other elements often vary from brand to brand.
A detailed understanding of Mastercard's chargeback regulations can help successfully prevent and dispute chargebacks stemming from Mastercard transactions.
Mastercard Chargeback Phases
One of the key differences between schemes is the network-specific terminology they use. For example, there’s the names for the different stages of the chargeback process. It's important for merchants to have a clear understanding of what happens in each stage—as well as the terminology Mastercard uses—to determine what their response needs to be.
- First Presentment: The original transaction is processed (the cardholder made a purchase). The charge is "presented" to the bank, who debits the cardholder's account and credits the merchant's account.
- First Chargeback: Either the cardholder or the issuer disputes the transaction. A typical reason might be that the cardholder doesn't recognize a charge on the monthly statement.
- Second Presentment: The merchant submits (re-presents) the transaction a second time with evidence to contradict claims of the chargeback. This is commonly known as chargeback representment.
- Arbitration Chargeback: The issuing bank disputes the representment. In other words, the bank and/or the cardholder looked at the evidence the merchant provided and it does not resolve the claim (note: Visa refers to this as a pre-arbitration response).
NOTE! CHANGES COMING APRIL 2020:
As part of the Mastercard Dispute Resolution Initiative, the company plans to eliminate the arbitration chargeback cycle. Instead, for most disputes a pre-arbitration case will need to be filed prior to going to arbitration.
Arbitration: The issuer, acquirer, cardholder, and merchant are unable to reach an agreement. At this stage, Mastercard will be asked through an arbitration case to resolve the chargeback dispute.
Mastercard Chargeback Regulation Compliance
With these phases in mind, let's look at some of the regulations of Mastercard's chargeback process.
All the major card networks publish their regulations and guidelines for merchant review and use. As stated, there can be considerable differences between schemes, so you must familiarize yourself with the requirements of each network to ensure best practices are followed.
Mastercard updates the chargeback regulations regularly, typically in April and October. The most current guide can be found here. Regularly checking for new versions of the guide is an essential part of maintaining network compliance.
As a public service, the Chargebacks911® team does its best to educate merchants about essential chargeback management topics. Having said that, our broad-themed publications should not be considered exhaustive. You should consult the latest edition of Mastercard’s official guide to ensure compliance.
Maintaining compliance throughout the chargeback process is a tedious task, especially understanding that the regulations can change at any time. You have two real options:
- Appoint an in-house chargeback manager whose primary responsibility is to stay current on the latest trends, regulations, and chargeback activity.
- Outsource to a professional.
While it may seem more cost-effective to use in-house resources, most merchants find that outsourced chargeback management is more efficient, produces better results, and offers better ROI. It's easy to underestimate the amount of time required, and it’s all time that could be put to more profitable use. Ultimately, chargeback management can't be effectively handled on an "as-needed" basis.
The hired chargeback professional, on the other hand, has the knowledge base, resources, and industry relationships necessary to stay on top of ever-changing regulations and technologies...as well as the experience to quickly and efficiently handle disputes.
Mastercard Chargeback Time Limits
To ensure both the cardholders’ and merchants’ rights are upheld, all parties involved must adhere to specific time limits. These limits are set and governed by Mastercard and are based on the applicable reason code.
Reason codes are the basis of chargeback management. Each network has its own set of reason codes, and they are assigned by the issuing bank according to the consumer’s claim. Check out our detailed knowledge base post for a more detailed explanation of Mastercard reason codes.
Consumer Time Limits
Most of the time limits for Mastercard chargebacks are based on the Central Site Business Date, which is counted as “Day One.” The Central Site Business Date, however, varies according to which stage of the chargeback process the dispute is in.
|When filing…||Central Site Business Date is…|
|First chargeback||The date of the original transaction settlement date|
|Second presentment||The date the first chargeback is processed|
|Arbitration chargeback||The date the second presentment is processed|
|Pre-Arbitration||The date the case was filed|
|Arbitration||The date the case was filed|
As you can see, the timing on the process can be quite confusing; it's easy to miss a deadline, and consequently forfeit a case. Worse, because the chargeback filing period for cardholders can be up to 540 days, you can be blindsided by a chargeback months after the successful completion of a transaction.
For further details, see our complete listing of cardholder time limits for each individual reason code.
Bank and Merchant Time Limits
While cardholders have a lengthy window of time to file chargebacks, banks and merchants don't have that luxury. Acquirers must respond to the issuer’s actions within 45 calendar days of the Central Site Business Date. And because the acquirer acts as the middleman and has various responsibilities before and after the merchant’s involvement, the merchant’s window to act is even smaller. You typically only have 5-10 days to complete the business’s representment responsibilities.
Other deadlines are even more stringent. For example, under the new Mastercard Refund Authorization Mandate, merchants have no more than 24 hours to initiate authorization requests for product returns.
Mastercard Chargeback Representment
While there are valid reasons for transaction disputes to occur, the majority of today's chargebacks are the result of friendly fraud. To prevent a needless drain of revenue, all fraudulent chargebacks from all networks should be challenged through the process of representment. In addition to recouping funds that should have never been lost, challenging chargebacks can positively benefit you in dealings with consumers and banks.
The basic representment process for a Mastercard chargeback is similar to that of other card networks. Here's how it works:
- The merchant is notified by the acquirer of a chargeback, including the network’s reason code.
- The merchant consults Mastercard’s regulations to determine the specific documentation needed to dispute the chargeback for the designated reason code.
- The merchant submits a detailed chargeback rebuttal letter to the acquirer along with as much of the mandated compelling evidence as possible.
- The acquirer submits the documentation to the network for review.
- The network reviews the dispute and submits the evidence to the issuer.
- The issuer evaluates the documentation and decides in favor of either the merchant or the cardholder.
- Successful chargeback disputes in favor of the merchant result in the transaction being re-deposited into the merchant’s account.
Mastercard Changes: Navigating the Chargeback Rule Changes in 2019 and Beyond
Like Visa with 2018’s VCR, Mastercard is implementing sweeping changes to its chargeback and dispute systems. Download our whitepaper to learn what changes are coming, and how to prepare.Free Download
Mastercard’s Excessive Chargeback Program
All the major networks, including Mastercard, constantly assess risks and threats posed by financial institutions and merchants. One method Mastercard uses to evaluate merchant risk is the Excessive Chargeback Program. By using predetermined chargeback thresholds, Mastercard can in many cases identify and predict the risk of chargebacks.
Mastercard calculates these chargeback thresholds using a straight-forward chargeback-to-transaction ratio: The number of first chargebacks processed in the current month divided by the number of transactions in the previous month.
Acquirers are responsible for monitoring this ratio and taking action when a merchant has surpassed the acceptable threshold. To minimize their own liability, acquiring banks will often take pre-emptive action against a merchant in danger of breaching the thresholds. It is common for acquirers to react much sooner than Mastercard itself.
Mastercard has two chargeback monitoring programs:
|Category||Number of Chargebacks||Number of Basis Points||Timeline|
|Chargeback Monitored Merchant||At least 100 chargebacks||At least 100 basis points (1% chargeback ratio)||A merchant earns this title at the end of the monthly review|
|Excessive Chargeback Merchant||At least 100 chargebacks||At least 150 basis points (1.5% chargeback ratio)||A merchant earns this title if the thresholds are exceeded for two consecutive months (trigger months). The merchant remains in this category until the basis points drop below 150 for two consecutive months.|
Additional information can be found in our Excessive Chargeback Program knowledge base article.
Managing Mastercard Chargebacks
Mastercard chargebacks are similar to transaction disputes with other card networks, but there are enough minor differences to make the process confusing. The reality is, they are all extremely cumbersome to manage and eat away at business' longevity.
Fortunately, help is available. If you are struggling to manage your Mastercard chargeback instances, or simply need help understanding the guidelines, contact Chargebacks911® today. We're more than happy to serve as your resource.