Chargeback Prevention, Payments

Mastercard Return Authorization Mandate

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Table of Contents

  1. Mastercard Dispute Timelines for Banks and Merchants
  2. Chargeback Implications for Mastercard Merchants
  3. Mastercard Dispute Tips for Merchants
  4. Where is the Mastercard Mandate Today?
  5. Will the Mastercard Return Authorization Mandate Prevent Chargeback Fraud?
  6. Conclusion
  7. Frequently Asked Questions

The credit card networks are starting to overhaul the way refund transactions are handled. Mastercard and Visa are both currently in the process of rolling out new mandates that will mean big changes in the way merchants issue refunds to their customers. Beginning in April of 2019, Mastercard started requiring their issuers and acquirers to support refund authorizations. The idea is for banks to treat refunds more like purchase transactions, so that cardholders can see them on their statements as pending transactions as soon as they are initiated, and watch them update from pending to complete in real time.

New call-to-actionThe way things currently stand, refunds do not show up on cardholder bank statements until they have been finalized by the banks and the funds have actually been returned to the cardholder's account. This can take several days, during which time the cardholder can see no proof on their end that the refund has really been initiated.

Cardholders often get frustrated and impatient while waiting for their refunds to show up, and may make repeated customer service inquiries to find out the status of their refund. They may even give up on the merchant and decide to dispute the transaction with their bank. Then you end up with a chargeback, a double refund, and a merchant who will bear the worst of the consequences if the entire mess isn't sorted out..

Mastercard Dispute Timelines for Banks and Merchants

Mastercard's new return authorization mandate, which will apply to all of their credit, debit, and Maestro cards, places a some new responsibilities on merchants, but it should also reduce customer service inquiries and help prevent situations like the one described above.

The next phase of the mandate occurs on April 17, 2020, when issuing banks must display pending refund authorization transactions on their customers' bank statements, including apps and online banking pages that display transaction updates in real time. The cardholder will know exactly when the refund was initiated and will see it change from pending to completed when the funds arrive in their account.

Effective that same day, all merchants who process Mastercard transactions will be required to send refund authorization transactions through their payment processing system any time they process a refund.

(Mastercard is exempting airlines from this requirement.) Merchants who are capable of processing return authorization transactions may currently do so, but are not required to.

Chargeback Implications for Mastercard Merchants

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Merchants who fail to comply with the new mandate will be exposing themselves to greater chargeback liability. Currently, merchants are liable for "Credit Not Processed" chargebacks if they do not process a refund within fifteen days of agreeing to a return or cancellation of services. After the next phase of t

he mandate begins, failure to submit a return authorization transaction will leave merchants vulnerable to any of the authorization-related chargeback reasons Mastercard has specified.

Mastercard Dispute Tips for Merchants

"Authorization was required but not obtained" is justifiable grounds for a chargeback according to Mastercard's rules, so merchants who find themselves faced with chargebacks related to unresolved refunds will find themselves without a legitimate means to defend against those chargebacks after April 2020.

Mastercard has released some additional compliance guidelines for merchants:

  • Return policies should limit returns to no more than six months from the original purchase date.
  • Primary account numbers should be verified—in truncated or tokenized form, when necessary—prior to processing refunds, to ensure that the refund is going back to the same card that made the purchase.
  • Refund authorization transactions must be submitted within 24 hours of providing the customer with confirmation that a refund will be processed.
  • Return and refund policies should take into account the fact that some cards, such as prepaid debit cards, cannot accept refund transactions.
  • Issuers can decline return authorizations for certain types of transactions, such as cash transfers and gambling purchases.

Merchants should also know that return authorizations can carry identifier codes that tie them back to the original purchase, which can help to expedite their processing on the banks' end. Such identifying information should always be provided, when possible.

The card networks are always keeping merchants busy staying on top of the rolling phases of their various mandates, but merchants should cheer on Mastercard and Visa's efforts to bring refund processing in line with current consumer expectations. The refund authorization mandate should speed up refund processing, reduce the workload of customer service departments who deal with inquiries about refund statuses, and eliminate many "friendly fraud" chargebacks that result from customers getting impatient with the slow and opaque refunding processes of yesterday.


Where is the Mastercard Mandate Today?

As of April 17, 2020, Mastercard added several new mandates to the overall mandate. 
As of April 17, issuing banks must list all pending refunds for cardholders in their online banking apps. Merchants are also required to initiate an online authorization request for every refund. 
Furthermore, the mandate has changed how issuing banks may submit authorization-related chargebacks. In effect, these banks will need to meet one of several criteria that the bank and the cardholder must show:
  • The merchant ran the transaction without authorization
  • There is no primary account number associated with the transaction
  • The authorization chargeback protection timeframe of 7 days has expired AND one of the two following conditions are met:
    • In Europe: The account is permanently closed before processing the chargeback.
    • Outside of Europe: The issuer must identify the account as “not in good standing”.
Furthermore, on July 1 of 2020, Mastercard put several non-compliance fees into place to combat merchants who do not work within the system. These merchants were required to update their existing processing terminals and software. 

Will the Mastercard Return Authorization Mandate Prevent Chargeback Fraud?

The intention of the mandate is to make the chargeback process more fair for both parties involved. However, with several types of friendly fraud and other fraudulent practices, this mandate isn't expected to be a long-term solution for chargeback fraud. 


Mandates like these are necessary improvements that make the payment space safer for consumers. Unfortunately, what is "good" for a consumer can sometimes be "cumbersome" for a merchant.


What is Chargeback Authorization?

Authorization is when the cardholder’s issuing bank either approves or denies a credit card transaction. Part of this process includes verifying whether or not a card has been stolen. This process can return several reason codes for approval or denial of the transaction for a variety of reasons.



What is the Time Limit for a Chargeback?

Typically, a cardholder has roughly 75-120 days to file a chargeback on a disputed transaction. The reason for the chargeback and the credit card network involved may change that timeframe, however, so consult with representatives in those networks.



What Happens When a Merchant Doesn’t Respond to a Chargeback?

If you are a merchant who receives a chargeback and you do not respond within the network-designated period, you will automatically lose that chargeback.

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