Merchants who receive a chargeback for a transaction placed with a Mastercard card may encounter reason code 4870, which indicates an improperly authorized transaction that the cardholder does not believe they should be responsible for paying. The actual underlying cause of this chargeback may be true fraud, friendly fraud, or merchant error. Merchants who believe they have received an invalid chargeback under reason code 4870 may be able to represent the transaction and reverse the chargeback with the right compelling evidence.
What is Mastercard Chargeback Reason Code 4870?
Mastercard chargeback reason code 4870 falls under the “Fraud” category. The shorthand description is “Chip Liability Shift.” This reason code applies to situations where the cardholder has a card with an EMV chip and claims that it was used to make an unauthorized card-present transaction, which suggests that a fraudster has gotten ahold of a counterfeit copy of the card.
The EMV standard was created specifically to prevent the use of counterfeit cards, but its protections can be circumvented when merchants run EMV cards by using the magnetic stripe on payment terminals that are not EMV-compliant.
Payment terminals that can read EMV chips can detect and block counterfeit cards, so the card networks mandated the EMV chip liability shift to encourage merchants to upgrade their terminals comply with the EMV standard.
What Scenarios Might Lead to This Chargeback?
The usual scenario behind this reason code is when a fraudster clones a credit card by using a skimmer device or by copying stolen credentials purchased on the dark web. They will then seek out a merchant that does not have EMV-compliant payment terminals where they can safely use their cloned counterfeit card. Or, they may talk the merchant into letting them swipe the card by claiming that the EMV chip is malfunctioning. Either way, they get away with using the counterfeit card and the cardholder gets stuck with an unauthorized charge that they will surely dispute.
Friendly fraudsters may try to take advantage of the liability shift rules by running their EMV card as a swipe transaction specifically so that they can later dispute it. Merchants may make themselves vulnerable to this sort of chargeback fraud if they aren’t careful about following the correct transaction processing rules.
What are the Important Timeframes?
Mastercard recommends that its cardholders file their dispute within 120 calendar days of placing the transaction. The acquirer and/or merchant have 45 calendar days to respond to this chargeback after it is filed.
How Can Merchants Fight this Chargeback Code?
Merchants can fight this chargeback if the cardholder’s claims are false. Your chargeback response should include at least one of the following elements:
- Documentation that proves that the cardholder knowingly authorized the transaction.
- Proof that the card did not contain an EMV chip and that the transaction was properly authorized.
- Evidence showing that the chargeback does not comply with Mastercard’s rules and is therefore invalid.
- If you have already processed a refund for the transaction in question, provide documentation that proves you have credited the cardholder’s account.
- If you have resolved the issue directly with the cardholder, provide proof, such as written correspondence, that proves they no longer wish to dispute the charge.
How Can Merchants Prevent this Chargeback Code?
Now that the deadline for the EMV chip liability shift has passed, it is imperative that every card-present merchant update their payment terminals for EMV compliance and follow the recommended rules and procedures for processing chip transactions. This is the only way to ensure protection against these types of chargebacks.
The following best practices can help you avoid this kind of chargeback:
- Only use EMV-compliant terminals. If you are still using point-of-sale devices that do not include an EMV chip reader, upgrade or replace them immediately.
- Always use the correct cardholder verification method (such as signature or PIN) for the type of transaction you are processing.
- Make sure to obtain an electronic or manual imprint for all card-present transactions.
- Make sure your staff knows the correct procedures for handling EMV card transactions.
About Mastercard Chargeback Reason Codes
Reason codes are alphanumeric codes that provide the justification for granting a chargeback. Pursuant to the Fair Credit Billing Act of 1974, cardholders have the right to dispute unauthorized or erroneous charges and issuing banks must reverse a disputed transaction of the cardholder’s claim is valid.
When a cardholder contacts their issuing bank to dispute a transaction and receive a chargeback, the dispute is assigned a reason code that most closely matches the substance of the cardholder’s claims. The reason code provides the merchant and other stakeholders in the dispute with a concise explanation for why a chargeback has been granted.
Each card network—Visa, Mastercard, American Express, and Discover—defines and maintains their own unique set of reason codes, which are applied to disputes by the banks that issue credit and debit cards under their brands.
Mastercard specifies 21 reason codes under the categories of Fraud, Authorization, Point-of-Interaction Error, and Cardholder Disputes. Mastercard uses a four-digit numbering scheme for its chargeback reason codes.
Understanding chargeback reason codes is one of the most essential parts of effective chargeback management. Identifying the chargeback reason code and the evidence required to fight it is the first step in chargeback representment, and analyzing your chargeback reason codes can provide you with insights into what types of disputes are causing you the most trouble. With this information, you can determine the root causes of your chargebacks and take action to prevent them from reoccurring.