In October 2018, Mastercard released its official phased plans to streamline outdated and redundant chargeback processes. The overall goal of the initiative is to reduce the number of invalid disputes that cost merchants time and money and drive up costs for both issuers and acquirers.
Following Visa’s update of Fraud and Chargeback Program thresholds, you’ll need to stay current with both these initiatives to ensure compliance. Mastercard has published information on the initiative sparingly, but through our partners and industry connections, we have stayed on top of the latest developments and time frames.
Phase 1: Issuers Tasked with Collecting More Information from Cardholders
As the first action in the initiative, Mastercard released an updated version of MasterCom Claims Manager, its merchant-issuer-acquirer dispute management platform.
Mastercard has indicated the deployment date can be expected around October 2019, at which time these four chargeback reason codes will require the issuer to obtain more information through additional documentation from your acquirer:

• #4831 (incorrect transaction amount) – Requires cardholder’s final bill or receipt
• #4834 (point of interaction error) – Requires cardholder’s final bill or receipt
• #4863 (cardholder doesn’t recognize the charge) – Requires information such as a cardholder letter or email (NOTE: This code to be eliminated in Phase 2)
• #4853 (cardholder disputes this charge; for recurring billing and digital goods purchases) – Requires cardholder letter, email or Expedited Dispute Form

For a quick response and to help reduce chargebacks, ensure that the types of information referenced above are documented and readily available for your acquirer to direct to the issuer.
Phase 2: How to Handle Refunds After a Dispute
No official date has been confirmed by Mastercard, but we believe that Phase 2 will go into effect mid- or late-2020. Per Mastercard, if you choose to provide a refund directly to the customer after a chargeback has been reversed, the issuer – independently or at the customer’s request – can still file a second chargeback. You might risk losing the refund and the transaction amount due to the second chargeback. How we see the key takeaway: pay attention to when you are issuing refunds, and only do so before the first chargeback or after the issuer response to the reversal.
Our assessment is that Mastercard believes motivating merchants to offer a refund early in the process will quickly address the customer’s issue and decrease the total number of chargebacks.
Reduction of Chargeback Filing Time Frame
Mastercard is reducing the chargeback filing time frame specifically for issuers from 120 to 90 days, in cases involving Mastercard chargeback reason code 4834 (Point of Interaction Error). Merchants will still have 45 days to respond to chargebacks and 30 days to respond to retrievals. We see this as just one of the ways Mastercard is working toward a more efficient process.
Additional changes include elimination of:

• Reason code #4840 (fraudulent transaction processed)
• Reason code #4863 (cardholder doesn’t recognize charge)

Phase 3: Changes to MasterCom Coming Soon
Although Mastercard has not publicly announced what changes or additions will be implemented in this phase, we believe Phase 3 will go into effect in late 2020, or even early 2021. We will provide updates as soon as we have new information.
Phase 4: Second Chargebacks Eliminated for Select Reason Codes
We expect this to be launched in late 2020, and Phase 4 will enable merchants to benefit from a more even playing field. Mastercard plans to eliminate second chargebacks and require Mastercard-facilitated pre-arbitration before escalating to arbitration for the following reason codes:

• #4837 (Fraud)
• #4853 (Merchandise returned as damaged, defective, or unsuitable for its needs)
• #4834 (Point of interaction error; either cardholder paid for same transaction using two different forms of payment, OR cardholder’s account has been debited more than once for the same transaction using the same form of payment.)

All other reason codes are eligible for second chargebacks.
As with current practice, issuers can use pre-arbitration (second chargeback) as a response when a customer disagrees with evidence that a merchant has presented during the chargeback representment phase. As with VCR, Mastercard will now become involved in the decision sooner in the process.
Don’t Go It Alone
Staying current with the chargeback representment process can be daunting. For more than 13 years, Verifi’s mission has been to lead the way in helping our partners stay on top of industry changes. If you have any questions on MDRI changes, please reach out.

Many merchants bank their entire year’s success on sales generated during this ultra-busy shopping season. The pressure is on to maximize sales and best practices of customer service. In addition, merchants must be vigilant in their practices to identify and stop fraud, and ensure solutions are in place for reliable chargeback prevention.
From a sales standpoint, 2018 has been a banner year. According to Card Not Present, 2018 has significantly surpassed 2017. “On Black Friday—this year on Nov. 23—online retailers racked up more than $6.2 billion in sales, $1.2 billion more than last year.” This outstanding news is tempered with the understanding that holiday sales invariably lead to customer disputes. However, it also indicates that extra pressure is placed on merchants to properly manage an increase in disputes and chargebacks, while still maintaining excellent customer service.
One of the most effective ways for merchants to limit chargebacks is to minimize transaction errors and consistently deliver excellent customer experiences. A happy customer is a loyal customer, who will return to the merchant for future purchases. Nonetheless, mistakes and missteps do happen. How the merchant handles these speed bumps can make all the difference between a stellar and disappointing holiday selling season.
What Customers Want
Merchants must exercise the delicate balance of knowing how and when their customers want to be engaged. With the benefits of data analysis, much of the guesswork about customer preferences can be eliminated. The resulting insights can help merchants stay in tune with what their customers want, including:

• No-hassle customer service. Customers expect quick and effective assistance and will vote with their pocketbook if merchants don’t deliver.
• One site, one experience. When customers can easily browse, shop, purchase, check out, receive confirmation, and interact with the merchant within one environment, there is less confusion or room for mistakes.
• Personalized service. Customers recoil at sales spam or offers that clearly don’t resonate with them. Personalized offers and discounts are much better received.
• Get involved. Consumers, particularly Millennials, are more likely to choose brands and merchants that are aligned with their favorite charities and causes. Choose wisely and your customers will proudly light up their personal network about your products or brand.
• Social media. Customer loyalty can be easily damaged when customers reach out to a merchant on social media but never receive a response. Dedicate the necessary resources to monitor social media for quick and thorough responses.

Outstanding Customer Service is Key to Effective Chargeback Prevention
The best available products or services can’t overcome poor customer service. E-commerce sales is inherently limited in merchant-customer interaction, compared to traditional brick-and-moratar retail channels – emphasizing the need to extend outstanding customer service and social media engagement.
The cornerstones of effective chargeback prevention hold true when it comes to customer service and laying the foundation of brand loyalty.

• Order review. Carefully review orders before they are finalized. Ensure there are no customer-directed emails needed for the completion and delivery of the order.
• Clear return/refund policy. Make the refund/return policy easily accessible and clear. The harder it is for customers to find this policy, the more difficult it is to resolve disputed transactions.
• Act fast. Respond to customer questions as quickly as possible. A slow response can encourage customers to give up and file a chargeback.
• Be flexible. For the holiday season and throughout the year, be flexible toward customer needs and concerns. Consider lightening up on your refund/return policies and make extra allowances during the holidays.

When customers are happy and feel like their needs are being met and even anticipated, they’re more likely to overlook merchant errors. This is especially true during the holiday season when sales and payment channels are overwhelmed with higher than usual traffic. Mistakes do occur, but how merchants respond and handle these errors is what makes a positive difference in the merchant-customer relationship.
Carefully building brand loyalty is a necessity. Take advantage of the holiday season to build brand loyalty with your new and established customers. Do your best to support them, particularly if they dispute a charge. The speed in which you resolve a customer issue needs to be one of your top priorities as you execute your chargeback prevention plan.

At first glance, e-wallets have all the qualities needed to facilitate faster and safer transactions. As merchants continue to optimize their customers’ omnichannel marketing experiences, e-wallets have made it easy for consumers to ride the wave. Major companies like Google, Microsoft, Apple, and Samsung were early-movers, offering digital solutions that allowed consumers to make purchases without swiping a card.
Then why is it that a recent Experian survey found that only 1 in 10 millennial consumers use a digital wallet for all their daily purchases? Further, why do older generations avoid using it altogether? That same Experian study found that only 25 percent of consumers had used a mobile app to make a payment. This article will explore some of the reasons why.
Security Concerns Remain Paramount
Consumers raised with cash and credit find it a hard habit to break. They’re more comfortable using cash or a payment card and receiving a physical receipt, which is not surprising. What is less obvious is the value these consumers place on cash-back benefits and rewards offered by their branded credit card, something that mobile wallets don’t offer.
Most of all, consumers fear that digital wallets are not secure. Most are unaware that many digital wallet solutions employ tokenization strategies to protect them from cybercriminals. Anyone following the news sees the frequency and devastating consequences of data breaches. This creates a dilemma for merchants who must respond to consumer demand for frictionless shopping experiences, while reassuring them that their payments solutions will protect their information from hackers.
E-Wallet Barriers
According to a survey by consulting firm Deloitte, the two main reasons Americans have been slow to adopt mobile payments are data security concerns and lack of awareness about the technology’s benefits. Security concerns are very real, because e-wallets are vulnerable to a wide range of fraud techniques. Examples include:
Identity theft: Hackers acquire sensitive data not properly protected and use the stolen identity to make online and card-not-present purchases. Fraudsters also steal the actual mobile devices and use them to make purchases.
Velocity attacks: A fraudster continuously submits a credit or debit card for unauthorized purchases until the card number is verified.
Device spoofing: Fraudsters impersonate a real customer’s device or attempt account takeovers through phishing schemes, which trick consumers into clicking on malicious links.
Merchants can take a variety of steps to prevent e-wallet fraud:

• Differentiate e-commerce fraud from m-commerce fraud: While the end result may be the same, it is important to understand the scope of fraud in each channel. Take a close look at fraud attempts and categorize by channel, then select and implement the most effective security programs that provide optimum coverage.
• Incorporate multi-factor authorization: Whether it is fingerprints, other biometric authorization, identification questions or CVV codes, multi-factor authentication will reduce the success rate of identify fraud attempts. Consumers are willing to use these methods to protect their data, provided they don’t significantly slow down the transaction process.
• Stay on top of customer behavior: Know your customers and be on alert for suspicious behavior, like large purchases or an unusually large number of transactions over a short period of time.
• Share data with issuing banks to detect and prevent fraud: By making transaction data or customer purchase history available, merchants enable issuing bank call center staff to have the information needed to prevent chargebacks, by answering legitimate consumer questions or identifying fraud. Real-time collaboration and data-sharing is one of the most effective tools to reduce fraud.

Because of the many benefits to merchants and consumers, e-wallets will inevitably gain wide acceptance over time. When consumers feel confident that their data is secure, they will embrace advances in e-wallets that enable fast and easy payments, secure money transfer, and safe storage of their funds. As long as security solutions keep up with new payments technology, it is only a matter of time before e-wallets become the primary way consumers make purchases.
Contact us to learn how Verifi enables collaboration between merchants and issuers to distinguish legitimate transactions from fraud, protecting themselves and their customers.

If you were to peer into the payments industry’s crystal ball, would you see visions of a cashless society? Will be there a time when cash is obsolete? At this stage in the evolution of payments, it’s less a question of “if” and more a question of “when.” Before we get too ahead of ourselves, we can turn to printed media for some guidance. In the spirit of Mark Twain, let’s just say that “The reports of the death of newspapers are greatly exaggerated.” The same holds true for cash. While the journey to a cashless society heads to its inevitable destination, it is paved with obstacles like data breaches, transaction disputes, and chargebacks.
Zero-Cash Evolution
The zero-cash revolution is currently fueled by credit and debit cards, electronic payment apps, mobile payment solutions, and mobile wallets. Nations like Sweden and India are ahead of the curve, with a push to eliminate cash coming from both consumers and government bodies. Many Swedish shops and some banks no longer accept or handle cash. In fact, only 15 percent of Sweden’s retail sales are cash, and consumers are all for it with the notable exception of the elderly and the poor. For the elderly, old habits are hard to break, and the poor don’t have access to the devices and apps that enable cashless transactions.
Advantages and Disadvantages of a Cashless Society
The benefits of a cashless society are self-evident. Consumers like the convenience of card-not-present transactions and the expediency and instant gratification of omnichannel shopping options. Cashless transactions also offer greater efficiencies with tap-and-go and prepaid digital methods, reducing long lines of people paying with cash and waiting for change. Cash-based drug trade transactions that leave a money trail can be curtailed; money laundering would be much more difficult to pull off and the elimination of printing bills and producing coins would save money.
The disadvantages of a cash-free economy are equally self-evident and illustrate why we need to proceed with caution:

• Privacy issues: Electronic payments inherently mean less consumer privacy. Consumers trust companies to protect their data, but it is possible for their payment information to turn up in ways they didn’t expect.
• Threat of hackers: Hackers spend countless hours searching for ways to steal consumer data. Should a hacker successfully drain a consumer’s account, the consumer is currently left with no alternative ways to pay for goods or services while their issue is being resolved. However, it is safe to conclude that a cashless society will offer alternatives should an account be comprehensively breached.
• Technology problems are inevitable: Outages, glitches, and simple mistakes can prevent consumers from completing their transactions. These same problems can also prohibit merchants from accepting payments.
• Overspending and buyer’s remorse: Cash is a tangible way to feel the “pain” for every dollar spent. Electronic payments make it easy to tap, swipe, or click to complete a transaction without that same level of accountability. This opens the door for friendly-fraud driven by buyer’s remorse or an overall feeling that they are not actually hurting a merchant or company with which they don’t have an ongoing relationship.
• Slow adoption by older consumers: Raised in a cash society, older consumers will hold onto a process they’ve used their entire lives. Couple that with over 14 million consumers who are unbanked and don’t have the means or are ineligible to use banks, and a totally cashless society is years away.

Eliminating cash certainly has its advantages, and for many people the future is now. Adoption by merchants and issuers is part of the natural evolution of the payments industry, but along with its implementation is the need to protect both parties from true and friendly fraud.
Current e-commerce practices rely on data to ensure transactions are processed correctly and disputes can be resolved before they devolve into chargebacks. This demands merchants and issuers to share data and make it readily available when a consumer issue arises. The need for collaboration will only escalate as we continue to make progress towards a totally cashless society.
Contact us to learn how Verifi solutions can enable the level of collaboration to offer consumers the benefits of cashless payments while protecting themselves against fraud.