MasterCard Chargeback Reason Codes
MasterCard Chargeback Reason Codes
MasterCard Reason Codes
MasterCard Reason Codes
MasterCard uses four-digit numbers for their chargeback reason codes, each beginning with 48 as the first two digits. Some acquirers, processors or PSPs may just provide the last two digits of the reason code in their data reporting, as that is all that is needed to distinguish between the reason codes and recognize the chargeback description.
MasterCard eliminated some reason codes while condensing or combining others in 2016. There are now 19 different reason codes and while MasterCard does not group or categorize these in a way like Visa disputes, we have organized these into four similar groups below.
MasterCard uses four-digit numbers for their chargeback reason codes, each beginning with 48 as the first two digits. Some acquirers, processors or PSPs may just provide the last two digits of the reason code in their data reporting, as that is all that is needed to distinguish between the reason codes and recognize the chargeback description.
MasterCard eliminated some reason codes while condensing or combining others in 2016. There are now 19 different reason codes and while MasterCard does not group or categorize these in a way like Visa disputes, we have organized these into four similar groups below.
Fraud Related Chargeback Reason Codes
Fraud Related Chargeback Reason Codes
Chargeback Costs & Fraud Liability
Chargebacks were intended to provide a means for merchants, banks and consumers to resolve cases of abuse and fraud. They have been pretty good at doing this, but they have also created a lot of finger pointing and higher costs for everyone involved.
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The total cost of a chargeback can include refund of the sale, lost product and additional fees such as chargeback fees. For this reason many merchants go out of their way to resolve customer satisfaction complaints and have lenient refund policies. When it comes to true fraud, a merchant may have little-to-no recourse.
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Online fraud costs more than the direct loss of product or service...
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When fraud occurs in the card-present world, the issuer typically picks up the costs for fraud as long as the merchant is EMV compliant. However, the merchant will still have some associated costs that are not covered by this. These include the associated labor costs, transaction and interchange fees and operational post-transaction costs to handle the chargeback. The merchant will also have to pay a chargeback fee.
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In the card-not-present world the merchant is typically the one paying for the fraud, outside of 3-D Secure liability coverage or the use of guaranteed fraud prevention services. Typically the merchant has already lost the goods, all of the overhead costs they spent on the order, and they will still have to pay a chargeback fee.
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For customer-service chargebacks the merchant pays a chargeback fee and unless they can resolve the customer service issue they may have physical loss of goods and services and associated overhead costs as well. 3-D Secure and guaranteed fraud prevention services protect against specific, fraud-related reason codes only, and are therefore not covered in terms of liability.
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Chargeback Liability Example
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Total Sale = $100.00
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Margin (22%) = $22.00
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Credit Card Issuer Interchange & Acquirer MDR (3.5%) = $3.50
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Net Profit = Margin – Credit Card Issuer Interchange & Acquirer MDR = $18.50
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The merchant will make $18.50 from this one sale, if it ends up as a chargeback, it will cost them:
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Consumer Refund = $100.00
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Chargeback Fee = $25.00
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Net Loss to Merchant = Net Profit – (Consumer Refund + Chargeback Fee) = -$106.50
The merchant will have lost $106.50 on this order. That means they would have to sell 4.8 more orders at this same amount just to make up this one loss. This example does not even take into account all of the merchant’s costs, such as overhead and processing fees. It also assumes a very low chargeback fee — if they are doing e-commerce and are considered high risk, the chargeback fee could be $100 or more.
Chargeback fees are not fixed, they are different from bank to bank, and they also grow in cost depending on the number of chargebacks you have. If you have a significant problem with fraud you could find yourself paying higher chargeback fees than the actual cost of the goods sold.
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How did this happen? As merchants tried to prevent abuse by consumers, they pushed disputes to the bank. The banks retaliated by increasing their fees. The card associations reacted to the increase in chargebacks by setting thresholds for the total percentage of orders that are chargebacks, along with the total percentage of dollars processed. If your chargebacks go above these thresholds you get hit with higher fines, and they keep going up until you get below the threshold. We call this the “going out of business plan” for the merchant. These thresholds are around 1% of total monthly transactions or 2.5% of total dollar volume. More recently it has become increasingly complicated with monthly time intervals and the corresponding thresholds for chargebacks. Beyond the chargeback fees, the number of chargebacks you have can impact the basis points you pay on each order. Merchants that exceed these limits are considered high risk. If they were considered high-risk they would have lost $181.50 on that same order and would now have to sell 8.25 orders of the same size to make up that one loss.
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As you can see it is a scary proposition — one that has high stakes for the merchant. Merchants are very focused and motivated to control their losses to ensure that they don’t get compounded by escalating chargeback fees.
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