Mastercard Issues Guidance Clarifying How to Manage Chargebacks During the Crisis

The ongoing COVID-19 crisis is making things difficult for merchants, banks, and cardholders alike.

Even as some states begin loosening quarantine orders, the situation will continue disrupting “business as usual” for months to come in most industries. In the hardest-hit verticals like travel and entertainment, providing even basic service to customers may be impossible, at least for the time being.

As we covered in a recent post, Visa issued updated guidelines to clarify what they’re doing to help make the situation fair for all parties involved, specifically in the area of chargebacks. They also outlined merchants’ responsibilities, and how merchants should respond to customer disputes.

Mastercard quickly followed suit, publishing their own directive earlier this month. In the document, the card network outlines merchants’ obligations to customers, as well as when and why they may be susceptible—or not susceptible—to chargebacks.

Let’s take a quick look at these guidelines, and see what broader takeaways we can draw from them.

When Cardholders CAN and CAN’T File Disputes

First, let’s address the key concern: when can a cardholder file a chargeback against a merchant?

Due to COVID-19, there may be multiple extenuating circumstances that impact whether a transaction should be disputable. In each scenario, though, Mastercard has simply examined the underlying purpose of the chargeback process—to protect cardholders against abuse—and made the rules reflect that purpose.

Here are a few situations in which a cardholder cannot file a dispute:

A service is available, but the cardholder willingly declined the use of a purchased service due to concerns related to COVID-19.
A cardholder is unable to use available services because of travel restrictions on the cardholder.
A cardholder has been charged a “no-show” penalty for failing to cancel a reservation as per the merchant’s cancellation policy.
A cardholder missed a flight (for any reason) and, as a result, missed a subsequent separate non-refundable service, such as a cruise or prepaid hotel reservation.
The cardholder accepted a reasonable alternative for future service from the merchant, such as a voucher or merchant-branded gift card. The cardholder then changes their mind, asks for a refund, and is denied a refund.

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In contrast, situations in which a customer can file a Mastercard chargeback include:

The merchant is unable to provide service; i.e. is going out of business, or has voluntarily ceased operations with no plan to compensate travelers.
The cardholder is notified that the date of service was changed or postponed. Examples include a concert, sports event, flight, or holiday itinerary.
The goods ordered didn’t arrive on schedule, or by the mutually-agreed extended delivery date.
The cardholder’s flight has been cancelled and the transaction was billed by an online travel agent (OTA).

These stipulations can still apply to some situations beyond the merchant’s control. For instance, the cardholder may file a chargeback if the merchant shipped the goods in question, but the package did not arrive in time due to quarantines or travel delays. A cardholder may also request a chargeback if the merchant provides a reasonable alternative in lieu of a monetary refund, but the customer declines and a refund is not provided in a timely manner. The validity of some such chargebacks will be determined based on the merchant’s terms and conditions, or applicable government legislation.

Finding a Middle Ground

When it comes to disputes, it can seem like cardholders and merchants have an antagonistic relationship. In reality, they’re on the same side; merchants and cardholders are equal partners in any transaction. Thus, merchants and cardholders can collaborate for mutual benefit.

As mentioned above, cardholders are unable to file a dispute after accepting a “reasonable alternative” in exchange for goods or services purchased. This can include a gift card, voucher, or a substitute item.

Both Visa and Mastercard encourage merchants to offer some alternatives when customers can’t use goods or services. According to the statement recently published by Mastercard:

“We are supportive of these efforts and encourage acquirers to recommend such practices to their merchants. Ultimately, if an amicable resolution can be reached between the cardholder and the merchant, this will be beneficial to the entire payment ecosystem during this difficult situation.”

The two keywords in that statement are “amicable resolution.” They further note that:

“Reasonable alternatives for future services cannot be imposed on the cardholder in lieu of a refund, unless the merchant has a right to provide the cardholder with such reasonable alternatives based on the terms and conditions properly disclosed to the cardholder at the of the purchase, or based on applicable government legislation or regulations.”

Mastercard still allows cardholders to file disputes if they’re forced to accept a voucher or other substitute by the merchant in lieu of a refund. Thus, the merchant and cardholder must collaborate to reach a mutually-beneficial solution.

Make Each Transaction a “Win-Win” Situation

There are three fundamental outcomes in the merchant-cardholder exchange. These include:

Lose-Lose

Merchant keeps the funds. The cardholder feels cheated. The cardholder will be unlikely to purchase again and may share the negative experience with other customers.

Lose-Win

Cardholder files a chargeback and recovers funds. The merchant loses revenue and is forced to pay added fees.

Win-Win

The cardholder receives equivalent (or higher) value to what they paid. Merchant recovers the sale and protects their reputation.

COVID-19 difficulties notwithstanding, it’s always the best policy to aim for a resolution that is mutually-beneficial for merchants and cardholders. How can merchants appease customers while still protecting their bottom line, though?

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We recommend looking for opportunities to deliver the best possible customer experience, given the circumstances. For instance, even though offering a credit voucher or other substitute isn’t ideal, a merchant can turn it into an opportunity to give customers a great experience if done wisely. One option is to offer customers a 10-20% bonus credit for accepting a voucher in place of a refund. This way, the merchant retains their revenue, while customers are excited to get something extra.

We also have a few more suggestions to help merchants keep up with best practices:

Share Contact Info

Merchants want customers to contact them before calling the bank. Merchants should make their customer service information easy to find by including their phone number, email address, and social media information on every page of their website. They should make the information easy to identify, even for casual browsers, and include detailed information on their contact page.

Optimize Responses

Even with the heightened volume of inquiries, merchants still need to respond rapidly via customer service lines. They should provide live, round-the-clock service via phone. Also, aim to reply within one hour to all email, social media, and SMS queries. If they can’t provide this level of service on their own, consider contracting a third-party answering service to provide overflow support.

Deploy Smarter Chatbots

Chatbots can help offload simple queries that don’t require live responses. They’re a great asset for customer service, but merchants must be careful how they design them to work. Chatbots should fill two key functions: to answer very simple questions that don’t require human interaction and to quickly and efficiently direct more complicated questions to the proper service channel. They’re a first-line tool, not a primary service channel.

Adhere to Best Practices

Even during a crisis, it’s still important to keep up with card-network best practices. For instance, merchants should submit copy requests in a timely manner and ensure sales receipts are legible. They must also settle payment batches promptly, and never attempt multiple authorizations after receiving a decline.

Make Cancellations Easy

If the customer asks to discontinue a service or refund a purchase, the merchant should grant the refund or cancelation, or the Mastercard-approved substitute, as quickly as possible. This should be a simple, “no-strings-attached” process. Also, merchants should be sure to inform the customer once the cancelation is made or the credit issued.

Notify Customers of Delays

If an item is back-ordered, let the customer know. Give the customer the opportunity to cancel rather than wait for a delayed arrival. Merchants can offer suggestions for similar items, but shouldn’t make the substitution without the customer’s approval. It’s better to simply issue a refund than to risk the customer filing a chargeback.

Seek Outside Help

Merchants: no matter whether outsourcing was part of your plan or not, it's an idea worth considering. And, if there ever was a time to outsource…it's now.

Performance-based chargeback management services and other outsourced solutions offer quick setup to protect revenue. Relieving pressure from non-core activities enables you to focus on what's most important during these trying times: serving your customers and keeping your brand stable.

We at Chargebacks911 are the industry’s leading experts in chargeback management. Our unique combination of machine learning and human expertise offers unparalleled chargeback reduction, all backed by a 100% ROI guarantee. With fast implementation for short-term crisis support or long-term strategy, Chargebacks911 offers you the opportunity to recover revenue, reduce costs, reallocate FTE resources, and increase net income.