Mastercard Dispute Resolution: Get the Details on Mastercard’s New Chargeback Process
If you operate in the eCommerce sector, you might remember the Visa Claims Resolution initiative introduced back in 2018. VCR, as it’s often called, was the company’s move to overhaul their chargeback rules and bring the process into the 21st Century.
Now Mastercard is in the process of rolling out their own version, the Mastercard Dispute Resolution Initiative, or MDRI. That’s exciting news, as a more responsive, dynamic dispute process for Mastercard could help businesses recover billions of dollars in revenue every year.
But what exactly is the MDRI, and how much of a difference will it really make?
Mastercard Dispute Resolution Initiative: Explained
Unlike Visa Claims Resolution, most of which took effect on April 13, 2018, Mastercard favored a phased rollout for their Dispute Resolution Initiative. The process began back in October, and is scheduled to continue until April 2020 in four phases:
Phase One: October 12, 2018
Mastercard can now demand more evidence from issuers before filing a chargeback on a cardholder’s behalf. With phase one, this applies to the following chargeback reason codes:
- 4831 – Incorrect Transaction Amount
- 4834 – Point of Interaction Error
- 4853 – Cardholder Disputer
- 4863 – Cardholder Does Not Recognize
Specific information about the transaction helps ensure best practices, prevent invalid disputes, and protect merchants and acquirers against friendly fraud.
Phase Two: April 12, 2019
After phase two, it will no longer be a good option to try and fight a case through representation, then reach out to a customer to try and resolve the issue directly. Come April, even if you refund the cardholder, their bank can submit a second chargeback, resulting in a double loss.
Mastercard is also retiring two chargeback reason codes, 4840 (Fraudulent Processing of Transactions) and 4863 (Cardholder Does Not Recognize). Finally, the company plans to cut the timeframe allowed for a cardholder to request a chargeback using reason code 4834 (Point of Interaction Error) down from 120 days to 90 days.
Phase Three: October 18, 2019
Mastercard actually hasn’t released any major details about phase three as of this writing. The date is likely designated for necessary adjustments identified during the rollouts of phases one and two.
Phase Four: April 17, 2020
After this date, Mastercard will no longer allow issuers to file second chargebacks using these reason codes:
- 4837 – Fraud (excluding 4870 – Chip Liability Shift and 4871 – Chip/Pin liability shift chargebacks)
- 4853 – Cardholder Disputer
- 4834 – Point of Interaction Error
Instead, Mastercard will implement a new pre-arbitration response system, like the one under Visa Claims Resolution. The existing process remains the same for all other valid reason codes.
Will the MDRI Actually Work?
That’s the million-dollar question. We know what Mastercard plans to do thus far, but it’s not clear if it will improve the chargeback process.
The Mastercard Dispute Resolution Initiative has the same basic goal as Visa Claims Resolution. In both cases, the card scheme aims to streamline the chargeback process and make it more responsive to the demands of a contemporary, digital-enabled market.
Of course, we don’t have any concrete data on MDRI yet. We do have some feedback on Visa Claims Resolution, though. And, based on that information, it’s not as promising as you might hope.
In a survey of merchants conducted last Fall, most said VCR had no real impact on their business. Some even argued that Visa Claims Resolution made chargeback management even harder because of the new workflows and reduced time frames allowed for a chargeback response.
The MDRI does attempt to address friendly fraud and other problems with the chargeback process. However, it doesn’t fix the core problem: the chargeback process, by its nature, incentivizes friendly fraud.
As is, customers really have no reason not to file a chargeback. This creates an environment where, rather than filing a chargeback only if they if they see something suspicious, cardholders can file a chargeback for something as simple as buyer’s remorse. Even worse, they can use chargebacks as a tool to engage in “cyber-shoplifting,” or deliberate chargeback abuse by consumers.
Until the card networks can come up with a way to address that core issue, chargebacks will continue to be a thorn in online merchants’ sides.
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