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TC40 Data

Can TC40 Data Help You Prevent Fraud & Chargebacks?

Every merchant wants to get a leg-up in the fight against fraud and chargebacks. Some believe that TC40 data is the “silver bullet” that can help stop chargebacks before they happen. The truth is a lot more complicated than that, though.

TC40 Data

[noun]

A TC40 data claim occurs when a customer makes a fraud claim against a merchant. The issuer generates a claim, then transmits it to the merchant’s acquirer, as well as to the card networks like Visa and Mastercard, as a means of noting all reported fraud incidents tied to the merchant.

A standard TC40 data claim report includes a few key elements:

  • Merchant identification information.
  • The banking information attached to both the cardholder and the merchant.
  • Transaction details, i.e., where the transaction took place, items purchased, etc.

The reports are compiled and used by Visa and Mastercard as part of their programs to manage fraud. Each brand has its own compliance program: Visa has their Risk Identification Service (RIS), while Mastercard has the System to Avoid Fraud Effectively (SAFE) program.

The TC40 can help identify merchants with unusually high fraud levels, and take action in response. As outlined in the Visa eCommerce Merchants’ Guide to Risk Management, for example, merchants may be “identified by RIS and may lose their chargeback protection until corrective measures are put in place.” This is true even if few, or any, of these reported incidents, ultimately result in chargebacks.

Acquirers use these reports to judge merchant risk profiles. Exact calculations and thresholds are not published, but as a general rule, the more TC40 fraud claims against you, the more likely your acquirer is to view you as “high risk.” If this happens, the bank may refuse to accept payments on your behalf.

Can You View Your TC40 Data?

Information in theTC40 data claim report lets you see which customers claimed fraud against you. This could be useful information, right? Well, maybe not.

As a merchant, you will not typically be notified when an issuer generates a TC40 claim. You can request a report from your acquirer, but neither your acquirer nor your processor is required to share TC40 reports with you.

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TC40 reports are often massive files, which can make them difficult to transmit and review. Also, the report will contain descriptor items (for internal use by banks and card networks), which can be confusing.

Speaking of confusion, it’s also important to understand that not every TC40 will result in a chargeback. Take small dollar-value transactions, for instance: in many cases, the cost of filing a chargeback can be greater than the value of the transaction itself. In these cases, banks typically refund the customer directly and write-off the loss.

Issuers still submit TC40 data claim reports when they write-off transactions, however; it will still count as a strike against you, even if you’re not notified. This is in contrast to a chargeback, where you will be notified and may challenge the claim if it’s invalid.

TC40s Have No Real Chargeback Impact

TC40s are sometimes misinterpreted as a way to proactively prevent chargebacks. But, as we outlined above, they’re cumbersome and usually inaccessible and are not a reliable chargeback indicator. Also, while TC40 data claims are usually released within a few days after a fraud report, they don’t stop chargebacks from being filed.

Unfortunately, some providers offer chargeback alerts based on TC40 data claims. This is a fundamental misunderstanding of chargeback sources, though, which attributes all chargebacks to criminal fraud. In reality, criminal fraud makes up less than 10% of chargebacks, meaning alerts based on TC40s would be mostly useless.

Chargeback alerts based on TC40 information would cause other problems, too. Such a system would produce unreliable fraud data, which can then lead you to misallocate fraud prevention resources. Ultimately, this would cause more fraud problems.Here’s the bottom line: TC40 data can be useful in some situations, but only if you know how to use it correctly. And as a chargeback prevention tool, TC40 data is largely ineffective.

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When TC40s Come in Handy

TC40 data can be a useful tool if you’re working to give your internal fraud management efforts a boost. It can help you identify recurring historical problems, so you know if you need to reallocate your resources. If you’re seeing a lot of TC40 reports, you know you probably have a genuine fraud problem.Here are a few practices you can employ to help identify issues tied to TC40 data:

Low-Value Transaction Declines

Low-Value Transaction Declines

Are you seeing a large percentage of low-value (less than $25) transactions being declined? If so, this is a sign that they may be systematically blocked due to TC40 data.
Decline Frequency

Decline Frequency

Are specific issuers systematically declining your orders for no apparent reason? This is likely because TC40 data gave them the impression that you’re too risky.
Customer Complaints

Customer Complaints

Are you seeing a lot of customers complain about declined orders, through your customer service channels and/or via social media? This could be a sign that issuers are rejecting transactions due to TC40s.
If you notice any of the above trends, it’s a good idea to contact your payment processor. They may be able to provide some insight based on your TC40 data and tell if you’re experiencing a surge in low dollar-value fraud activity of which you may not even be aware.So…what comes next?If you suspect criminal fraud, the best approach is a multilayer fraud management strategy. This means deploying a variety of complementary tools designed to weed out bad transactions, while still allowing valid transactions to pass through. A good multilayer strategy will incorporate tools including (but not limited to): You can use fraud scoring to automatically review each transaction and flag potential fraud based on these and other indicators.

Still Experiencing Issues?

Of course, there’s no simple fix to stop fraud and chargebacks in all their forms. The TC40 data claim report can be a great asset in identifying fraud—particularly fraud that you didn’t know was happening. But, as we mentioned before, fewer than 10% of the average merchant’s chargebacks are directly tied to criminal fraud.If you’re experiencing chargeback issues, your best option is to seek out third-party chargeback management. Click below to learn more and get started today.


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