What is the Mastercard Dispute Resolution Initiative?

February 12, 2019/ Jessica Velasco /

The Mastercard Dispute Resolution Initiative, or MDRI, is a new set of policies for Mastercard network members. Like the Visa Claims Resolution initiative adopted in 2018, the MDRI overhauls the entire Mastercard chargeback process.

The MDRI rollout began back in October 2018. As of this writing, the phased rollout continues through April 17, 2020. So, let’s look at what already changed, and what additional changed are in store.

4 Phases of MDRI Rollout

As mentioned above, the Mastercard Dispute Resolution Initiative has a phased rollout schedule. This includes four general updates to specific Mastercard chargeback rules:

Phase 1: October 12, 2018

With Phase 1, Mastercard requires more information from issuers before filing a chargeback. Now, issuers will need more in-depth information and evidence from cardholders for the following reason codes:

• 4831 – Incorrect Transaction Amount
• 4834 – Point of Interaction Error
• 4853 – Cardholder Disputer
• 4863 – Cardholder Does Not Recognize

Phase 2: April 12, 2019

This phase primarily concerns “unjust enrichment,” or a situation in which the issuer performs a chargeback, while a merchant also issues a credit to the cardholder. Under MDR, this will no longer be allowed via a compliance or pre-compliance case.

Mastercard instructs issuers to check for refunds/reversals prior to chargebacks, and to accept a second presentment if submitted as “Credit Processed.” One should find out if the customer’s bank has been involved before filing a refund. If you offer a refund after the bank files a chargeback, you will need to accept the dispute. However, merchants have 45 days to contest a dispute in the event they submit a refund before the chargeback.

With phase two, Mastercard reduces the chargeback filing timeframe for issuers reduced from 120 to 90 days when the case in question pertains to reason code 4834 (Point of Interaction Error). Lastly, two of Mastercard’s existing reason codes are no longer valid:

• 4840 – Fraudulent Processing of Transactions
• 4863 – Cardholder Does Not Recognize

Phase 3: October 18, 2019

As of this writing, Mastercard has yet to announce their plans for phase three of the Mastercard Dispute Resolution Initiative. This date is reserved for changes to the Mastercard ruleset that are yet-to-be determined.

Phase 4: April 17, 2020

The last phase in the MDRI rollout changes the rules for three specific reason codes:

• 4837 – Fraud (excluding 4870 – Chip Liability Shift and 4871 – Chip/Pin liability shift chargebacks)
• 4853 – Cardholder Disputer
• 4834 – Point of Interaction Error

After this date, Mastercard will no longer accept second chargebacks pertaining to these reason codes. Decisions in the cardholder’s favor involving these reason codes require a pre-arbitration response, like the process mandated by Visa Claims Resolution. The second chargeback process remains in effect for other reason codes not specified.

Additional Changes

Mastercard handed down additional changes with their latest edition of the Mastercard Chargeback Guide in December 2018. While not technically part of MDRI, these changes could still influence merchants’ disputes. For example, the guide specifies merchants must provide supporting documentation, such as a transcript of email conversations with customers, for reason code 4863 (Cardholder Does Not Recognize).

Of course, any of these planned rule updates are subject to change at any time. As the rollout progresses, it’s likely Mastercard will need to adjust and fine-tune their proposal.

Why is Mastercard doing it?

Mastercard’s chargeback overhaul speaks to a desperate need for modernization of the dispute process.

Chargebacks were introduced to the payments industry more than 45 years ago. At that time, consumers and institutions still had little experience with payment cards. Providing chargebacks as a consumer protection mechanism helped build consumer confidence in payment cards.

Unfortunately, the system never anticipated the complexities of the eCommerce market. Policy failed to keep pace as technology advanced. As a result, contemporary payments industry practices are governed by a mismatched, patchwork array of rules and regulations.

With the Mastercard Dispute Resolution Initiative, the company seeks to make their policies more reflective and responsive to the demands of the digital market. The key objectives behind both Visa’s and Mastercard’s chargeback policy overhaul are to:

• Optimize practices for faster and more accurate resolution.
• Make processes more responsive to trends in technology and fraud detection.
• Encourage compliance with industry regulation.
• Avoid confusion and provide stability through gradual, scheduled rollouts.

What is less clear is whether the changes will achieve all those goals. A merchant study conducted in 2018 suggests a majority of merchants saw no improvement in chargeback processes after Visa Claims Resolution adoption. Even worse, a considerable number said VCR made chargeback processes more difficult.

The Mastercard Dispute Resolution Initiative and other policy changes are progress. However, further attention to standardization and compliance are necessary to ensure fairness, adaptability, and transparency.

Last Update: June 13, 2019