Discover Card Dispute and Chargeback Mandates

Table of Contents

1. What Are the New Deadlines for Discover Chargebacks?
2. What Is the ProtectBuy Fraud Liability Shift?
3. Transit Transaction Aggregation
4. How Does This Mandate Affect Discover Chargebacks?
5. What Is Discover ProtectBuy?
6. Changes to Transit Agency Transactions
7. The Bottom Line on the Discover Mandates
8. What's the Time Limit for a Discover Chargeback?
9. Are Merchants Liable for Discover Chargebacks?
10. How Do Merchants Protect Themselves From Chargebacks?

In 2019 and 2020, Discover issued a mandate that made a number of changes to how the network handles chargebacks. These changes were likely made at least in part as a response to a similar mandate issued by Visa. One of the most significant changes Visa made was to decrease the time limit for a dispute response to 30 days. This change was intended to decrease the overall time it takes to resolve a chargeback.

Discover also brought forward the deadline for merchants to respond to a chargeback. That's not the only change that was made by this mandate, however. The other major change was a liability shift that affects certain merchants who use Discover ProtectBuy. Let's take a look at these updates, what merchants need to do to comply with them, and what effects they've had.

If you don’t accept Discover Card payments, you can breathe a sigh of relief and go back to not worrying about this mandate, but merchants who do process Discover transactions must make sure their policies and procedures have been updated to account for the changes. Mandate compliance may be a headache, but in most cases, it results in better, fairer handling of disputes.

The complete changes to the Discover Dispute Rules Manual can be difficult and time-consuming to try to wrap your head around, so we'll summarize the most important ones. Let’s take a look at what changed and how it will affect merchants who accept Discover cards.

Discover initially made these changes in version 19.2 of their dispute rules:

• Representment: The time limit for merchants/acquirers to initiate a representment request has been reduced from 45 to 30 calendar days.
• Dispute arbitration: The time limit to initiate a dispute arbitration request has been reduced from 30 to 10 calendar days.

Discover then followed up with further updates in version 20.1:

• Ticket retrieval request: The deadline for merchants/acquirers to respond to a ticket retrieval request has been changed from 5 business days to 5 calendar days.
• Pre-arbitration inquiry: After responding to a pre-arbitration inquiry, the merchant/acquirer has 3 calendar days to submit supporting evidence.

Card-not-present sales by acquirers or merchants operating in the following three additional MCCs that use ProtectBuy and receive a ProtectBuy authentication response of “Authentication Successful” or “Authentication Attempted” may be subject to dispute:

• 6540—Non-Financial Institutions
• 7801—Government Licensed Online Casinos
• 7802—Government Licensed Horse/Dog Racing

In addition, merchants using an outdated version of ProtectBuy may no longer be eligible for its protections.

If an acquirer/merchant uses ProtectBuy version 1.0.2 to initiate a ProtectBuy Authentication Request for a card-not-present sale and the issuer is certified to use ProtectBuy version 2.0, the ProtectBuy authentication request will be declined and the transaction may be subject to dispute.

Transit Transaction Aggregation

The next major change Discover made applies only to transit agencies:

• Enables contactless acceptance at transit agencies (specific MCCs) adopting use of contactless bank products to enter and provide payment information using contactless taps
• A nominal amount authorization is used to aggregate multiple journey fares
• Combines multiple taps/journeys from the same card/device into a single settlement transaction
• Leverages contactless chip payment device
• Issuer may initiate a dispute when the transaction amount exceeds $15 and the settlement is beyond 14 calendar days.

Merchants should make sure that the process of deciding whether to fight a chargeback, gathering evidence, writing a rebuttal letter, and submitting representment is consistently handled with appropriate speed and efficiency. If your timetable goes anywhere near those deadlines, you risk losing thousands of dollars with a single slip-up if a large and complicated chargeback comes your way.

Discover’s reason for shortening these time limits is to align with industry standards and equalize the request/response stages between issuing banks and acquiring banks.

Since most merchants should already be in the habit of complying with Visa's reduced time limits for disputes, these changes shouldn't be much of a hassle. As long as you're responding to chargebacks within 30 days, you won't have to worry about which network is handling the dispute.

The 5 calendar days merchants have to respond to ticket retrieval requests under these rules should still be more than enough. Ideally, you should be responding to any retrieval requests you receive in a matter of hours, not days.

One compelling reason for merchants to adopt ProtectBuy and other 3-D Secure technology (aside from the fact that it protects their customers, of course) is that merchants aren't liable for chargebacks filed against 3-D Secure transactions for fraud.

To avoid being subject to the first ProtectBuy update, all merchants need to do is make sure they've updated to the latest version of ProtectBuy. Unfortunately, the second update simply exempts certain types of merchants from the dispute protection ProtectBuy offers in certain cases, and there's not much you can do to change that.

Changes to Transit Agency Transactions

With an eye to the future of transportation (and the ways in which harried commuters will want to pay for it), Discover is allowing some companies that serve as transit agencies (as identified by the transit-related MCCs they fall under) to process transactions in a streamlined manner.

Specifically, Discover is enabling contactless payment processing by allowing these companies to utilize bank products that store and provide payment information through the use of contactless taps.

Transit customers can use their payment cards, smartphones, or any device equipped with the required RFID technology to “tap” a point-of-sale terminal properly outfitted to receive and process the payment information transmitted by the device.

In other words, instead of requiring passengers to run their actual credit cards through a card reader to purchase tickets and fares, they can simply tap their payment device against the payment reader on their way to board the mass transit vehicle.

Because commuter trips will often involve more than one stop or transit vehicle, payment processing is greatly simplified when multiple fares can be aggregated into a single settlement transaction. To facilitate this, Discover will make a nominal authorization to aggregate multiple journey fares. Multiple taps on the same card or device will then be processed as one transaction.

This change leverages the advantages of contactless chip payment devices to cardholders’ advantage. Merchants in the transit sector must keep in mind that issuing banks will be permitted to initiate disputes for settlement transactions that exceed $15, once 14 calendar days have passed.

The Bottom Line on the Discover Mandates

Most merchants will be pleased to see that Discover’s mandates are less far-reaching and impactful than the ones recently handed down by Visa and Mastercard. As long as merchants keep the new deadlines in mind and make sure to update ProtectBuy if they use it, most won't see any negative consequences.

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