How to Handle Mastercard Chargebacks & Disputes

Being that Mastercard is the second leading card network in the United States, merchants everywhere have experienced their fair share of Mastercard chargebacks.

Mastercard or otherwise, chargebacks can be a business owner’s worst nightmare—especially because customers can file them even if there’s nothing wrong with the product or service provided. Fortunately, there are certain steps that you can take to mitigate the effects of chargebacks!

Continue reading to find out how Mastercard chargebacks work, how to properly dispute them, and tips to help you mitigate the occurrence of chargebacks altogether.

How Do Mastercard Chargebacks Work?

In an attempt to minimize chargeback frustrations among business owners, Mastercard mostly follows Visa’s chargeback rules. As such, when Visa announces significant changes to its processes, Mastercard soon follows suit.

By understanding Mastercard’s chargeback regulations—and, by extension, Visa’s—you’ll be armed with the knowledge it takes to successfully fight chargebacks with the two largest card networks in the United States.

6 Steps in the Mastercard Chargeback Process

1. First Presentment: The first presentment occurs when the bank is first presented with the transaction explaining that money was debited from a cardholder’s account and then credited into a merchant’s bank account.
2. Request for Information: The bank can request more information from the merchant if the cardholder doesn’t recognize the charge or questions the billed amount. (One can initiate a chargeback without this step, so many banks go straight into the chargeback process.)
3. First Chargeback: A chargeback occurs if the merchant fails to respond to an information request, the bank forgoes sending one, or the information provided isn’t sufficient. The merchant’s account will be debited and the cardholders will be credited. If the merchant accepts the chargeback, the process ends.
4. Second Presentment: To combat the chargeback, the merchant needs to present the charge to the bank with evidence proving the chargeback is erroneous. Then, the bank will decide if they want to accept the representment and reverse the chargeback.
5. Pre-arbitration: If the bank finds the merchant’s evidence compelling enough to reverse the chargeback or the cardholder presents new evidence to support their claim, the case may go to pre-arbitration. The merchant can decline the pre-arbitration, giving the card issuer the option of either reversing the chargeback or going to arbitration.
6. Arbitration: When a dispute reaches arbitration, Mastercard reviews the evidence and makes a final decision. A fee of $500 is assessed against the losing party. If the merchant concedes the case before Mastercard makes its decision, they incur a reduced fee of $300.

Mastercard Chargeback Time Limit

Mastercard cardholders have 120 days to file a chargeback, and for some recurring bills, this period goes up to 540 days. See below for a guide to Mastercard’s chargeback time limits for card issuers and merchants:

After a chargeback is filed, it can still take a few days for you to receive notifications, so be sure to act fast once you are notified to ensure you meet all necessary deadlines.

Mastercard Chargeback Rules

Although there have not been major updates to Mastercard’s chargeback rules in 2022, there were a few notable changes in 2021.

In 2021, the main update was the streamlining of their list of chargeback reason codes—consolidating them into a few numeric codes, each holding a text description distinguishing it from the others. The second main update was their weeding out of retrieval requests for all transactions other than those regarding United States healthcare.

Is There a Mastercard Chargeback Fee?

Yes, Mastercard chargebacks incur a fee, however, the whole process can be quite confusing. To clarify, let’s break down the specific chargeback fees.

When processing a chargeback, the card issuer collects a $25 handling fee, otherwise known as a chargeback fee. The acquiring bank may also collect a handling fee of $50 within 15 calendar days of the second presentment. These fees are a part of Mastercard’s Progressive Handling Fees program and only apply to non-face-to-face transactions that don’t include cardholder-activated Terminal (CAT) Level 2 transactions.

Mastercard Excessive Chargeback Program

Mastercard offers an “excessive chargeback program” that monitors dispute activity closely to help you more effectively manage chargebacks. The program is based on a chargeback ratio calculated by dividing the number of chargebacks received in one month by the number of transactions processed in the previous month. Merchants who go over a certain chargeback ratio are automatically enrolled in the program. Additionally, merchants placed into this program must submit a remediation plan listing the specific steps they plan on taking to mitigate their chargebacks.

The only way to escape the excessive chargeback program is to fall below the specified chargeback ratio for three months in a row.

Ways to Manage Mastercard Chargebacks

Much like other card networks, merchants are given an opportunity to win a Mastercard chargeback during the second presentment period. When you receive notice of a chargeback, you may dispute the chargeback with a rebuttal letter and evidence supporting your claim. You must ensure the evidence you present is strong enough to ensure that you win the settlement.

Another crucial piece of the puzzle is to discover why the chargeback happened in the first place. When you gain more insight into why a chargeback occurred, you can then take the necessary steps to fix the underlying issue in your operations, actively mitigating future disputes.

Finally, consider imposing an authorization hold period on transactions. Only processed transactions are eligible for chargebacks. By implementing an authorization period, during which the transaction isn’t processed, you’ll create a window during which unsatisfied customers can resolve their issues without initiating a chargeback.

Mastercard’s Tips for Avoiding Chargebacks

Mastercard doesn’t offer many tips on how to avoid chargebacks. That said, below is a list of tips that will help you to avoid chargebacks in general:

• Set a clear and fair return policy for your customers.
• Accurately describe your products online.
• Understand the differences between a chargeback and a refund.
• Try to avoid manually entering credit card numbers.
• Provide available customer service.
• Utilize authorization hold tools.
• Clearly explain the shipping process.
• Incorporate credit card fraud prevention tools into your operations.
• To avoid friendly fraud, ensure your merchant account descriptor matches your business’s name.

Mastercard Chargebacks: Final Thoughts

While you can’t avoid all chargebacks, you can put operations into place that significantly reduce your exposure to chargebacks via Mastercard and other credit card networks. Additionally, finding the cause of each chargeback is oftentimes a blessing in disguise because it can help you understand your customer’s experience more clearly.

Even still, chargebacks can lead to financial loss, unhappy customers, and worst of all, merchant account termination. However, when you partner with PaymentCloud, you’ll gain access to programs designed to mitigate, identify, and resolve chargebacks, keeping your chargeback rate low and revenue stream high.

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