Mastercard Chargeback & Dispute - Merchant Guide
The card networks are the final authority on chargebacks. All of the rules, reason codes, and phases of the chargeback process are designed by the card networks, and when the banks can’t agree on an outcome, the card network is the final arbiter. On the surface level, chargebacks appear largely the same no matter what network you’re dealing with, but each one has different regulations and time limits. To manage your chargebacks effectively, you have to know how to play by each network’s rules. What do merchants need to know about Mastercard chargebacks?
Mastercard and Visa are the two most widely used card networks, and it’s true that their chargeback processes are pretty similar. However, ignoring the differences between card network rules 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 ecommerce and new forms of payment card fraud. The updated guidelines they publish aren’t exactly light bedtime reading, but they’re the best source for a comprehensive overview of the rules and the latest changes.
How Does Mastercard's Chargeback Process Flow?
Many online chargeback guides use Visa’s process and terminology as the default. Things are a little different under Mastercard’s rules, and merchants should be aware of the key divergences.
- 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 transaction with their issuing bank, a chargeback occurs. 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. For the bank to accept the representment and reverse the chargeback, the merchant must submit evidence that proves the chargeback is not valid.
- Arbitration: In the past, a second chargeback could follow the second presentment if the issuing bank did not accept the merchant’s evidence. This was more or less equivalent to Visa’s “pre-arbitration” phase. Effective April 2020, Mastercard has eliminated the second chargeback phase of the process in order to streamline progression to arbitration and a final resolution of the dispute case.
What Are Mastercard’s Chargeback Time Limits?
Depending on the reason for the chargeback, Mastercard allows cardholders a fairly generous amount of time to file a chargeback—typically between 60 to 120 days, but certain recurring billings can be disputed a whopping 540 days later. Merchants must retain records related to Mastercard transactions for as long as they might be needed for representment evidence.
On the other end of the equation, time windows are considerably narrower. Acquiring banks have 45 days to respond to an issuer’s chargeback notification, and it’s up to the acquirer to contact the merchant and relay a response from them. That means that the merchant’s time limit to respond is based entirely on when their acquirer notifies them, and it’s not uncommon to receive your first notification of a chargeback with only a week or two remaining to assemble and submit your second presentment.
Does Mastercard Have an Excessive Chargeback Program?
Mastercard rightly sees rampant chargebacks as harmful to the card payments ecosystem, so they have devised a multi-tier program to intervene when merchants start racking up excessive chargebacks.
To calculate your chargeback ratio, Mastercard divides the number of chargebacks you’ve received in the current month by the number of transactions you processed in the previous month. You can also cross the allowable chargeback threshold by exceeding a fixed number of chargebacks within a single month. Mastercard holds acquiring banks responsible for tracking and following up on their merchants’ chargeback ratios.
Merchants who hit 100 chargebacks in a single month, or a 1% ratio at month end, are labeled Chargeback Monitored Merchants. This carries no penalties, but put the merchant on notice that if they don’t get their ratio down they could be placed in a more restrictive tier of the program.
After two consecutive months with more than 100 chargebacks per month, or a 1.5% chargeback ratio, a merchant will be considered an Excessive Chargeback Merchant. If a merchant remains in this status for six months, Mastercard may require the acquiring bank to create a specific action plan for the merchant to follow to reduce their chargebacks.
How Do I Fight Mastercard Chargebacks?
You can fight Mastercard chargebacks just as you would any other, by submitting a representment of the charge (or as Mastercard would prefer you call it, the “second presentment”) along with a rebuttal letter and documentary evidence that supports your argument.
A representative of the issuing bank will review the evidence and decide whether or not to reverse the chargeback. If the issuer and acquirer 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.
When you’re fighting a difficult-to-manage chargeback problem, you need every advantage you can possibly get. Understanding the card network rule 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.