Mastercard is changing the Chargeback Process
Mastercard started the rollout of the Mastercard Dispute Resolution Initiative (or MDRI), in October 2018.
This policy completely overhauls the Mastercard chargeback process, similar to what Visa did with their Visa Claims Resolution (VCR) in April 2018. Mastercard hopes that by changing to a rules-based system it will make the chargeback process more fair, pointed, and responsive to the demands of contemporary payments.
Why Change the Chargeback Process?
Mastercard claims their MDRI is an attempt to modernize the process. As with VCR, the idea is to clean up outdated, redundant processes, providing multiple benefits:
- Optimized practices offer faster and more accurate dispute outcomes
- Regular changes are responsive to developments in technology and fraud trends
- Gradual rollouts encourage compliance and stability
Listed below is the timeline of the MDRI rollout:
Phase 1: October 12, 2018
With the first phase of the MDRI rollout, Mastercard requires issuers to collect more information from cardholders before a chargeback. This applies to any dispute listed under the following reason codes:
4831 – Incorrect Transaction Amount
4834 – Point of Interaction Error
4853 – Cardholder Disputer
4863 – Cardholder Does Not Recognize
Requesting additional information from the cardholder helps filter out invalid disputes, meaning the changes from this phase should help prevent friendly fraud.
Phase 2: April 12, 2019
Previously, you could try to reverse a chargeback through representment, then issue a refund to resolve problems with customers directly. With Phase Two of the MDRI, this is no longer an option.
Now, even after you initiate a return, the issuing bank can submit a second chargeback, resulting in a double loss. Be very careful about issuing returns after customers initiate a chargeback. Be sure to communicate clearly with the customer when doing so.
This phase also sees the chargeback filing timeframe for issuers reduced from 120 to 90 days in cases involving Mastercard chargeback reason code 4834 (Point of Interaction Error). Finally, MDRI's second phase removes two reason codes from Mastercard's list:
4840 – Fraudulent Processing of Transactions
4863 – Cardholder Does Not Recognize
Phase 3: October 18, 2019
Mastercard has yet to announce the details of Phase Three. Once details have been released you will be informed.
Phase 4: April 17, 2020
Under the MDRI, Mastercard will no longer allow second chargebacks for the following reason codes:
4837 – Fraud (excluding 4870 - Chip Liability Shift and 4871 - Chip/Pin liability shift chargebacks)
4853 – Cardholder Disputer
4834 – Point of Interaction Error
Mastercard will allow issuers to continue a dispute with a pre-arbitration response. This resembles the Visa process used under VCR. The existing second chargeback process remains in effect for other reason codes.
Chargeback Guide
Mastercard issued the most recent version of their Chargeback Guide on December 13, 2018. This includes several changes adopted October 12, 2018, overlapping with the MDRI.
First, the mandate handed down from Mastercard disallows any new information--such as name, location, or date--that merchants might submit to resolve a chargeback with reason code 4837 (No cardholder authorization). This applies if the information presents a mismatch between authorization and clearing.
Next, there are two new details concerning late presentments:
- Late Presentment chargeback rights and language moved from chargeback reason code 4834 (Point of interaction errors) to reason code 4808 (Authorization-related chargebacks).
- Reason code 4842 (Late presentment) is invalid.
The update requires you to provide supporting documentation for chargeback reason code 4863 (Cardholder does not recognize).
The MDRI and VCR have the same core goal: update, streamline, and speed-up the chargeback process.