How Can Mastercard’s Latest Initiative Help Reduce Fraudulent Chargebacks in the Video Gaming Industry?

If you’re in the video gaming industry, you’ll know the effect that human emotion has on your decision making before, during and after a gamer’s journey into the world you’ve helped create for them. There’s the excitement and thrill of the game itself, the determination to beat their opponent or own personal record, and the willingness to do what it takes to gain any tiny advantage to win.

To create a seamless experience for your players, you’ve enabled them to get back to the action with ease by making the transaction process as streamlined as possible.

We must acknowledge, however, that some video games are designed in a way to capitalize on the emotions of the player. In turn, this can cause problems.

The Problem

Microtransactions and in-app purchases are often offered to players as a way to enhance their experience, but also provide additional revenue streams for the company. In the cold light of day, though, the realization of just how much the player has spent kicks in.

Thoughts could turn to ways to recoup the cost of their last gaming session. The player may resort to raising a dispute with their bank, claiming that the legitimate transactions they willingly made were fraudulent, resulting in an illegitimate chargeback against you.

We’re seeing a huge rise in chargebacks across the video game industry, and they’re sapping developers, publishers and platforms of vital revenue. The vast majority of these chargebacks are related to fraud, with players claiming they did not authorize the transaction and that a fraudster somehow initiated the purchase without their knowledge or permission.

There are many ways for gaming companies to mitigate illegitimate chargebacks, such as secure authorization and representment. However, there is a new solution coming down the track in October 2024 in the US.

It’s being brought to you by Mastercard, and is called the First-Party Trust Program.

How Does it Work?

Essentially, if a merchant can demonstrate that a cardholder has a historical transactional relationship with them, it will potentially prevent an illegitimate chargeback from being filed against them. This is particularly pertinent to the gaming industry as a large proportion of players will have made prior purchases before they reach the point of buyer’s remorse.

Say a customer contacts their bank to dispute a transaction on their account as unauthorized. The bank processes a chargeback under reason code 4837. Through the Mastercard FPT program, the merchant is able to provide compelling data to the bank to demonstrate that the cardholder had made at least two previous transactions with the merchant but not reported them as fraud.

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You must opt in to participate in the program. The program is not mandatory and only applies to participating merchants.

Also, the relevant data needs to be available to present to the issuer. This means merchants should have the technology in place to capture, securely store and transmit the key data elements.

What Crucial, Key Data Can Stop The Chargeback?

The previous two transactions must be made at least 120 days before the disputed transaction, but no more than 365 days. The merchant must provide data that demonstrates cardholder participation and authorization in these two previous transactions from three categories of data. At least one each from the device and delivery factor categories and one from the additional factor. Any unused element from the device or delivery factors can be used instead of the additional factor.

Device Factor	Delivery Factor	Additional Factor
Device Fingerprint	Shipping Address	Account ID/Login
IP Address	Email Address	Telephone Number
Device ID		Device Location
		User Device Name
		Billing Address

How Do the Required Data Elements Reach the Issuing Bank?

There are two methods of transmission: the pre-authorization and pre-dispute channels. Merchants can use one or both channels to participate.

Pre-Auth Channel

Merchants can share the required data gathered during the pre-auth stage of the transaction process through the use of Identity Check Insights. The data is stored and ready to be presented in the event of a fraud chargeback.

Merchants must enroll in the Identity Check program prior to enrolling in the First Party Trust Program to enable the collection and transfer of the necessary data.

Pre-Dispute Channel

If the merchant has Ethoca Customer Clarity, the necessary data can be transmitted through this channel to pre-emptively reject the fraud chargeback as it happens. To use this channel, merchants must enroll and integrate with Ethoca Customer Clarity API prior to enrolment in the First Party Trust Program.

Mastercard will cross reference the data for the two previous transactions with the disputed transaction and, if they match, the liability shifts to the issuing bank.

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What Advantages Will the First Party Trust Program Provide to the Video Gaming Industry?

Does all this sound familiar? It may, as Visa introduced their Compelling Evidence 3.0 initiative in 2023 with essentially the same principles of chargeback deflection.

Although there are differences in how the data is shared, both networks have determined that providing an historical transactional relationship between the merchant and the cardholder with no related claims of fraud can provide the basis for a shift in liability from merchant to issuing bank.

This will offer several key benefits for merchants, including:

Reduced Chargebacks

When it comes to the video game industry, buyer’s remorse doesn’t usually kick in straight away. The first few transactions may well be within the players’ own acceptable threshold. It’s after perhaps getting just a tad carried away that they realize they’ve over done it on those in-app purchases. It’s then that the player’s thoughts turn to recouping their overspend.

This is where the FPTP takes effect. Because the player has happily taken part in previous transactions, the data for which you’ve wisely captured and stored is available for you to provide as necessary evidence. This will allow you to refute any illegitimate fraud chargebacks should they come your way.

Lower Fraud Rates

Being in possession of the necessary historical data will help to keep your chargeback and fraud rates lower.

Ensuring your dispute ratio (transaction volume versus chargeback volume) is kept below the required thresholds is key to your ability to continue to do business. Taking advantage of the FPTP by providing the required compelling evidence will help to protect your business against bogus chargebacks that could otherwise push your business towards the danger zone of network sanctions.

Revenue Protection

Obviously, any revenue you generate, you want to keep. That’s why protecting yourself against the burden of dispute resolution is always a wise move.

Chargebacks impact your bottom line, and should not be considered as just another cost of doing business. Anything you can do to keep costs low is always worth considering, and the FPTP is just one of several mitigation tools you can use to protect your precious revenue.

The Key Takeaway

Defending against chargebacks is time consuming enough without having to spend valuable resources fighting against the increasing number of illegitimate disputes brought about by rueful gamers. That’s why the submission of comprehensive evidence in real time is so important. If you can demonstrate that the transactions in question were made willingly and match past transactions not previously reported as fraud, you can cut down on the unnecessary allocation of resources.

In short, you’ll need to have the capability to capture, store and present the right data. It’s vital that merchants in the video gaming space have the technology in place to protect yourselves against illegitimate chargebacks. Data is the crucial component in that protection.

Of course, the First-Party Trust Program is not a silver bullet and won’t protect your business from illegitimate chargebacks in isolation. It needs to be part of a comprehensive mitigation strategy that addresses the numerous root causes of chargebacks.