MasterCard is enhancing the charge-back process by making it easier and faster to handle disputes. It’s called the MasterCard Dispute Resolution Initiative and it will be a rules-based charge-back decisioning process.
The aim from MasterCard is to improve the dispute handling process by automatically detecting invalid disputes, shortening dispute resolution time-frames and updating some dispute reason codes and their conditions. This will decrease the charge-back volumes and allow for faster resolution of disputes.
The Dispute Resolution Initiative will roll out in phases, according to the below timelines:
First phase: October 12, 2018
Issuers will be required to request more information from their cardholders so they can file charge-backs for the following reason codes:
By requesting this information at the first charge-back stage, MasterCard aims to reduce invalid charge-backs raised without the necessary information. Our customers don’t need to take any action regarding this change.
Second phase: April 12, 2019
As of April 12, 2019, if acquirer initiates a refund after the charge-back has been reversed and the issuer files a second charge-back, it will result in a double loss. Acquirer don’t recommend to initiate refunds once a charge-back has been reversed.
As a best practice, communicate clearly with the shopper if acquirer do perform a refund after the first charge-back has been reversed.
As always, if a refund is issued before the first charge-back, acquirer have one opportunity to provide the refund information to the cardholder, which is in the response/defense to the first charge-back.
Issuer have automated dispute defense for fully refunded transactions and will always send the refund details to cardholders.
To support faster resolution of disputes, MasterCard has reduced the timeframe to file a charge-back for reason code 4834 – Point of Interaction Error from 120 days to 90 (counted from the transaction date). The customers won’t need to do anything here if they are an existing one.
Lastly, the below charge-back reason codes will be removed from the rules and issuers will no longer be allowed to file a charge-back:
Third phase: October 18, 2019
MasterCard has announced they are planning additional changes effective in October 2019.
Fourth phase: April 17, 2020
MasterCard will not send a second charge-back for the following reason codes.
Instead, for these reason codes the issuing bank will be able to send a pre-arbitration charge-back.
MasterCard will align with the Visa collaboration charge-back process (the consumer dispute category) whereby issuers can continue the dispute with a pre-arbitration charge-back.The pre-arbitration chargeback is initiated by the issuing bank, when the cardholder does not agree with the defense information provided by the merchant.
Based on the current information MasterCard has provided that there will not need to be any development work, as the new flows should match the ones currently used for Visa VCR. Merchants should keep in mind that MasterCard is only removing the second charge-back cycle for the above-mentioned dispute reason codes.Dispute reason codes that do not fall in these categories (for example, 4808 – Authorization related disputes) can still receive a second charge-back.
Stage One: First Presentment
First presentment transaction is when the transaction has been processed and is settled. The funds are in the merchant’s account, and the cardholder received a withdrawal and merchant descriptor on their account statement.
Currently, the MasterCard Dispute Resolution Initiative does not appear to make any significant changes to this stage. The only phase that will affect First Presentment is the first phase, where Late Presentment will be a new condition under Dispute Reason Code 4808.
The thing to remember is Late Presentment will still be a reason for a potential dispute, even if this reason no longer has a distinctive code. The best way to protect your business from late presentment is to settle funds before the Approved authorization expires. The authorization time limit will vary from business to business, and it can range from 24 hours to 31 days
Stage Two: Charge-back
The cardholder submits a claim, and the issuer believes it is valid to file as a dispute. As a result, the merchants receive a dispute. And the disputed funds are withdrawn from their account and transferred back to the cardholder’s account. This of course is a simplified explanation of the charge-back process.
At this point, MasterCard’s charge-back time limits are still 45 days from the charge-back date. But there is a possibility that the network will want to reduce these time limits and streamline its dispute process. This is based on the actions Visa took under the VCR. It will not be surprising if the MasterCard Dispute Resolution Initiative does something similar.
But even when MasterCard rolls out a more streamlined dispute process, merchants won’t receive the full benefit when their dispute workflow is manually-driven.In short, a streamlined dispute process will involve automation in order to pull and format data into a response document. That is what makes dispute management software more of a necessity to catch up with these upcoming changes.
Stage Three: Second Presentment (a.k.a, Pre-Arbitration)
The cardholder and/or issuer challenge the merchants’ argument for successfully initiating a chargeback reversal during the Chargeback stage. They do so based on one of two conditions:
Stage Four: Arbitration Charge-back
It is too soon to extract insight that gives some notice of potential changes in Arbitration Charge-back.