New Mastercard and Visa Chargeback Rules | Powercash21

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New Mastercard and Visa Chargeback Rules | Powercash21

As we approach October 2019, new Mastercard and Visa chargeback rules will come into effect. The two major global card schemes have announced these changes to reduce fraud worldwide and help enhance security for their customers.

Alterations to Mastercard and Visa chargeback rules

chargeback alert graphic written in light blue with a white background

For Visa the changes involve applying new thresholds to its fraud and chargeback monitoring programs whereas Mastercard will launch the 3rd phase of their Dispute Resolution Initiative which was introduced in October 2018.

MasterCard’s Dispute Resolution Initiative

The Mastercard dispute process has been undergoing major changes since October 2018 in an effort to protect the card network from invalid Mastercard disputes, reduce chargeback volume by making the dispute handling process faster and to ensure that the dispute resolution process is more aligned to the realities and demands of digital transactions. The changes will be applied in four phases as follows:

Phase 1 – Effective from 12th of October 2018

The changes applied in the first phase aimed to minimize chargebacks raised with necessary information missing. Issuing banks now request more information from cardholders in order to file a chargeback for the below reason codes:

4863 – Cardholder Does Not Recognize

4853 – Cardholder Dispute (for digital goods and recurring payment transactions)

4834 – Point-of-interaction (POI) Error

4831 – Incorrect Transaction Amount/ Transaction Amount Differs

Furthermore, the pre-compliance and compliance case filing time frames have been reduced to 120 days (previously 180 days) from the central site processing date/violation date and 45 days from the chargeback reject date/fee collection date.

Phase 2 – Effective from 12th of April 2019

The second stage of the MDRI addresses concerns around ‘unjust enrichment’, whereby situations where the issuer performs a chargeback while a merchant issues a credit to their customer is not allowed. This stage involved changes to the second phase of the Mastercard dispute process. The changes that occurred at this stage included:

4834 – Point-of-interaction Error - Changes to the timeframe of a point of interaction error chargebacks filing are applied, from 120 days reduced to 90. Point-of-interaction error related chargebacks which involve ATM transactions will remain at 120 days.

4840 - Fraudulent Processing of Transactions, will be eliminated and invalid. Issuing banks will not be able to file a chargeback under that reason code.

Phase 3 – Effective from 18th of October 2019

Mastercard has not announced any information relating to the 3rd phase of the initiative set that will go into effect on October 18, 2019. When the official information is released by Mastercard, the article will be updated so don’t forget to check back for the latest updates on Mastercard chargeback rules as soon as it is announced.

Phase 4 – Effective from 17th of April 2020

Second chargebacks will be replaced by pre-arbitration chargebacks. Those include chargebacks with the following reason codes:

4837 (Fraud) - except 4870 (Chip Liability Shift) and 4871 (Chip/PIN Liability Shift) chargebacks

4853 (Cardholder Disputes)

4834 (Point of Interaction Errors)

Chargeback rights for reason code 4863 – Cardholder Does Not Recognize, will be eliminated and invalid.

4808 - Authorization related disputes can still receive a second chargeback.

The removal of the arbitration chargeback cycle and mandated pre-arbitration process will come into effect for certain chargeback reason codes and will apply to first chargebacks that were processed on the 17th of April 2020 onwards.

Visa’s upcoming changes in fraud and chargebacks monitoring

Visa is planning to improve the efficiency of its fraud, chargeback, and acquirer monitoring programs, by applying new thresholds. The programs’ objectives are to maintain trust in the Visa brand and protect the integrity of its payment system for all parties involved.

From 1st of October 2019, Visa will lower fraud and dispute-related thresholds for the Visa Fraud Monitoring Program (VFMP), the Visa Chargeback Monitoring Program (VCMP) and the Visa Acquirer Monitoring Program (VAMP).

Based on the Visa Core Rules and Visa Product and Service Rules booklet, through those programs, Visa monitors merchants who generate an excessive level of fraud and/or visa chargebacks and acquirers that generate a high level of fraud disputes.

The upcoming changes are presented in the table below:

 

Program
Threshold Criteria
VCMP Standard Program
100 or more in dispute count and 
-Effective through 30 September 2019: 1% ratio of Disputes-tosales Transaction count
-Effective 1 October 2019: 0.9% ratio of Dispute-to-sales Transaction count
VCMP Excessive Program
1000 or more in dispute count and 
-Effective through 30 September 2019: 2% of Disputes-to-sales Transaction count
-Effective 1 October 2019: 1.8% of Disputes-to-sales Transaction count
VFMP Standard Program
USD 75,000 fraud amount and 
-Effective through 30 September 2019: 1% fraud-dollar-to-sales-dollar ratio
-Effective 1 October 2019: 0.9% fraud-dollar-to-sales-dollar ratio
VFMP Excessive Program
USD 250,000 fraud amount and 
-Effective through 30 September 2019: 2% fraud-dollar-to-sales-dollar ratio
-Effective 1 October 2019: 1.8% fraud-dollar-to-sales-dollar ratio
VAMP Standard Program
USD 500,000 or more in fraud amount and/or 750 or more in dispute and 
-Effective through 30 September 2019: 1% ratio of Disputes-tosales Transaction count
-Effective 1 October 2019: 0.75% ratio of Disputes-to-sales Transaction count


Acquirers are responsible to inform their merchants that Visa’s VFMP, VCMP and VAMP thresholds will be lower starting October 1st 2019.

Will the new Mastercard and Visa Chargeback Rules succeed?

a light blue lock with a yellow key sitting on top of a laptop

Both Mastercard and Visa are determined to update, and improve the chargeback process. The question though is will it work? There is no doubt that Mastercard chargeback rules and Visa Chargeback Rules are designed to effect positive change and to assist merchants in terms of fraud fighting in a more digitalized world of commerce. The schemes will have to remain innovative to respond to changes in technology and ecommerce realities. Visa and Mastercard will also have to continue to simplify the process around chargeback rules and dispute resolution for the merchants.

Any news regarding efforts to improve both the Mastercard and Visa claims resolution process is welcome news for the financial industry. Certainly the MasterCard’s Dispute Resolution Initiative and Visa Chargeback Rules are a step in the right direction and all parties involved will be assessing the impact of these new rules as they are being implemented in their processes. 

Don't forget to check back in with Powercash21 for all the latest developments. 

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