Mastercard Chargeback and Dispute Merchant Guide

Table of Contents

1. How Does Mastercard's Chargeback Process Work?
2. What Are Mastercard’s Chargeback Time Limits?
3. The Mastercard Excessive Chargeback Program
4. Evidence Requirements for Mastercard Disputes
5. How Do I Fight Mastercard Chargebacks?
6. Chargeback Knowledge Is Power

One of the things that makes effective chargeback management frustratingly complicated is the fact that each individual card network has its own process, its own rules, and its own terminology. While there are broad similarities between the different networks, merchants can often run into trouble when they assume that what they know about dealing with chargebacks from one network will hold true for another.

Mastercard is second only to Visa among card networks in the United States, which means many merchants will be dealing with Mastercard chargebacks regularly. In order to minimize difficulties for merchants, Mastercard often follows Visa's lead when it comes to the rules for chargebacks. When Visa makes major changes to its process, Mastercard often announces similar changes soon after.

Unfortunately, there are still major differences between the two networks. Without an understanding of those differences, merchants who are familiar with Visa chargebacks sometimes become overconfident and end up making simple mistakes that hurt their chances of getting a chargeback reversed. Let's take a look at Mastercard chargebacks and what merchants need to know to manage them effectively.

Ignoring the differences between card networks can cause you to miss response deadlines, misinterpret reason codes, and submit the wrong kind of evidence in representment.

There’s nothing worse than getting stuck with an avoidable chargeback, so familiarizing yourself with card network rules is an important part of your overall chargeback management strategy.

The card networks update their rules regularly in order to account for the changing landscape of e-commerce and new forms of payment card fraud. The updated guidelines they publish periodically aren’t exactly light bedtime reading, with Mastercard's latest chargeback rules totaling 1,582 pages of dense information.

These guides are good to have as a reference in case you need a definitive answer to a specific question, but they're a terrible way to try to learn the ins and outs of how chargebacks work with a given network. Fortunately, we're here to help.

Let's go over the stages in the Mastercard chargeback process one at a time:

First Presentment

The original transaction is the first time the charge is “presented” to the bank. The purchase amount is debited from the cardholder’s account and credited to the merchant.

First Chargeback

If the cardholder disputes the charge and the bank believes the dispute to be valid, the bank will perform a chargeback. This causes the transaction to be credited back to the cardholder and debited from the merchant’s account. If the merchant chooses to accept the chargeback, the dispute ends here.

Second Presentment

The merchant can fight the chargeback by representing the charge to the bank along with evidence that disproves the cardholder's claim and demonstrates that the transaction was legitimate.

Pre-arbitration

If the issuer doesn't find the merchant's evidence convincing enough to reverse the chargeback, or if the cardholder presents new evidence supporting their case, the case may go to pre-arbitration.

The merchant can either accept that they lost the dispute or decline the pre-arbitration, in which case the issuer has the option to either accept liability or go to arbitration.

In some cases, the issuer may skip the pre-arbitration step and go directly to arbitration.

Arbitration

Once a case goes to arbitration, Mastercard will step in, review the evidence, and make a final decision on the dispute. The losing party will be charged fees totaling hundreds of dollars. The merchant may concede the case at any time before Mastercard makes its decision, which may result in lower fees.

Mastercard allows cardholders to dispute a charge up to 120 days after the transaction in most cases. Merchants should retain records related to Mastercard transactions for as long as they might be needed for representment evidence.

For merchants and banks, however, the deadlines aren't quite so generous. Here's the rundown:

• Merchants have 45 days to submit a second presentment 
• Once the merchant has initiated representment, there is an 8-day window to submit documentation.
• The issuer has 30 days from when representment was initiated to open a pre-arbitration case.
• Merchants have 30 days to accept or reject a pre-arbitration case.
• The issuer has 15 days to escalate a rejected pre-arbitration case to arbitration.

Note that for second presentment, the clock starts ticking when the chargeback is filed, which may be up to a few days before the merchant receives notice. Regardless, it's generally best to decide whether or not to fight a chargeback quickly upon receiving it. Once a merchant decides to pursue a second presentment, evidence should be gathered and submitted as soon as reasonably possible.

To calculate your chargeback ratio, the Mastercard Excessive Chargeback Program divides the number of chargebacks you’ve received in the current month by the number of Mastercard transactions you processed in the previous month. Acquiring banks are responsible for tracking and following up on their merchants’ chargeback ratios.

Merchants who end a month with at least 100 chargebacks and a chargeback ratio of 1.5% or more are categorized as Excessive Chargeback Merchants (ECM). A ratio of 3% or more with at least 300 chargebacks will result in being categorized as a High Excessive Chargeback Merchant (HECM).

The first month a merchant is placed in one of these categories essentially acts as a warning. If a merchant exceeds the thresholds a second time before three months have passed, the penalties start rolling in. Mastercard charges the amount listed in Euros for EU merchants, and in USD for all other merchants.

After 6 months, Mastercard may step in more directly, advising the acquirer on an action plan to remediate the issue or requiring a risk review. If a merchant continues to stay above the threshold, the acquirer may terminate the merchant's account. In order to be removed from the program, a merchant must stay below the threshold for three consecutive months.

A representative of the issuing bank will review the evidence and decide whether or not to reverse the chargeback. If the issuer and the merchant cannot come to a final agreement about who is liable for the charge, the arbitration process may be initiated and Mastercard will adjudicate the outcome.

To prevent Mastercard (and all other) chargebacks, merchants must seek to understand the root causes behind their chargebacks. When you know why you’re getting chargebacks, you can take action to fix the problems that are causing them.

Evidence Requirements for Mastercard Disputes

Mastercard requires supporting documentation to directly address the cardholder’s specific allegation and satisfy the requirements for the applicable dispute category. A receipt showing that a payment occurred, for example, may establish little in a dispute over whether goods were delivered or a subscription was properly disclosed.

The records needed depend on the nature of the dispute. Proof of delivery or tracking information may support a goods-not-received case. A dispute involving services may require appointment records, access logs, usage history, or documentation showing when and how the service was provided. Recurring-payment cases may depend on the enrollment agreement, the language used to disclose the recurring terms, cancellation records, and communications with the cardholder.

Mastercard also places restrictions on how evidence is prepared. Supporting documentation must be legible, and the complete primary account number must not be visible. Only the last four digits may appear. If redaction is necessary, it must prevent the hidden digits from being read or reconstructed. Relevant portions of non-English documents generally require an English translation when the issuer and acquirer do not share a language.

Merchants should preserve the relationship between each document and the disputed transaction. Records are more persuasive when they display matching transaction identifiers, dates, customer information, or other details connecting them to the purchase.

Evidence management should begin long before a chargeback arrives. Transaction records, customer communications, refund details, fulfillment documents, account activity, and applicable policies should be stored in a format that allows them to be matched to individual purchases. Organized records make it easier to assemble a focused response containing evidence that addresses the cardholder’s actual claim.

Chargeback Knowledge Is Power

When you’re fighting a difficult-to-manage chargeback problem, you need every advantage you can possibly get. Understanding the card network rules inside and out can help you make better strategic choices in how you fight and prevent chargebacks, but many merchants simply don’t have the time or resources to become chargeback experts on top of everything else they have to do to keep their business running.

Outsourcing chargeback management can be a viable solution for these merchants. The right chargeback management firm with the right experts working on your behalf can generate a positive ROI for you by bringing your chargeback rate down and winning back your recoverable revenue.