What is the Mastercard Dispute Resolution Initiative?

Alex ForbessAnnouncements4 Comments

A dispute is best resolved if it does not exist. Basically, if there is a way to prevent a dispute from being filed by issuing banks, disputes will not be a problem for merchants. Mastercard plans to prevent invalid disputes and streamline the dispute process. Here is what merchants need to know about the upcoming Mastercard Dispute Resolution Initiative:

MDR Will Roll Out In Three Phases

Mastercard will not implement its initiative in one full sweep. Instead, the network plans to roll out its initiative in three phases. The three phases will involve the following actions:

First Phase: Remove One Reason Code While Beefing Up Another

The first phase will roll out on October 12, 2018. There will be no significant changes to the dispute process, but there are two changes to keep in mind.

First, Mastercard will no longer have a reason code for Late Presentment, which is currently Mastercard Dispute Reason Code 4842. Late Presentment will be refurbished as a condition for authorization-related chargebacks. Basically, you can expect Mastercard Dispute Reason Code 4808 to be tied to late presentment while it also addresses disputes authorization-related inquiries.

Second, Mastercard will require issuers to ask for more information from cardholders before they can file disputes related to ‘Cardholder Does Not Recognize’ claims. This will also apply to disputes related to recurring billing and digital goods. While there is no explicit statement provided by Mastercard, what we can tell from this action is Mastercard is putting more of an emphasis in reducing the dispute volume that comes from Reason Code 4683 (for ‘unrecognizable’ transactions) and 4853 (with Recurring Transaction and Digital Goods at or Under $25 USD transaction modifiers).

Second Phase: Pre-Arbitration, Smaller Time Frames And More Codes Off The List

The second phase will focus on redefining its current second chargeback phase in the dispute process. As of April 12, 2019, the Mastercard Dispute Resolution Initiative will not send disputes with the following reason codes to second chargeback:

Mastercard Dispute Reason Code


How to Respond


No Cardholder Authorization


Cardholder Dispute


Point-of-Interaction Error

Instead, these disputes be sent to pre-arbitration, otherwise known as Second Presentment in Mastercard terminology.

Please note Mastercard does not plan to make any new workflows to manage its disputes. But it is announced that the network plans to modify its consumer dispute workflow similar to how Visa currently processes consumer disputes. That means Mastercard-affiliated issuers could be required to assess a dispute on a questionnaire or some kind of checklist. This clearly is an initiative to reduce invalid consumer disputes, which is something similar to what Visa aims to do with the Visa Claim Resolution (VCR) Initiative.

But under the Mastercard Dispute Resolution Initiative, cardholders will still be able to send cardholder disputes to pre-arbitration. But only if these disputes meet the pending conditions.

We will inform you about these conditions as soon as we receive the announcement. But for now, here is a quick review of Mastercard dispute reason codes are under the ‘Cardholder Dispute’ category:

Mastercard Dispute Reason Code


How to Respond


Cancelled Recurring or Digital Goods Transaction


Cardholder Dispute


Cardholder Dispute – Not Elsewhere Classified


Goods or Services Not Provided


Addendum, No Show or ATM Dispute


Credit Not Processed

What Else Can Merchants Expect From MDR’s Second Phase?

The Mastercard Dispute Resolution Initiative will apply a minor change to Dispute Reason 4834 – Point-of-Interaction Error. More specifically, the initiative plans to reduce the cardholder’s timeframe to file for this dispute.

The current timeframe for cardholders is 120 days from the transaction date. When the second phase rolls out (on April 12, 2019), cardholders will only have 90 days from the transaction date to file a point-of-interaction error dispute.

And that is not the end of the second phase. Mastercard also plans to remove the following reason codes from their rules. While these reason codes will be gone as of April 12, 2019, it is recommended that you still respond to these disputes beforehand.

Mastercard Dispute Reason Code
(Prior April 12, 2019)


How to Respond


Fraudulent Processing of Transactions


Cardholder Does Not Recognize – Potential Fraud

Third Phase: TBD

There have been no announcements (yet) that state what changes will roll out under Mastercard’s third phase. What we can say is that this phase will roll out on October 19, 2019.

This current enigma got us thinking about what the Mastercard Dispute Resolution Initiative has in store for merchants. Besides removing a couple reason codes and reducing some timeframes, how will this initiative impact dispute management and dispute resolution?

We took a look at Mastercard’s current dispute cycle in order to figure it out. We will offer our insights within each stage as we give you a quick review of Mastercard’s dispute process.

Stage One: First Presentment

In this stage, first presentment is when the transaction has been processed and is settled. The funds are in the merchant’s account, and the cardholder received a withdrawal and merchant descriptor on their account statement.

Insight from the MDR

Currently, the Mastercard Dispute Resolution Initiative does not appear to make any significant changes to this stage. The only phase that will affect First Presentment is the first phase, where Late Presentment will be a new condition under Dispute Reason Code 4808.

The thing to remember is Late Presentment will still be a reason for a potential dispute, even if this reason no longer has a distinctive code. The best way to protect your business from late presentment is to settle funds before the Approved authorization expires. The authorization time limit will vary from business to business, and it can range from 24 hours to 31 days. Feel free to find your time limit in order to prevent future Late Presentment disputes.

Stage Two: Chargeback

The cardholder submits a claim, and the issuer believes it is valid to file as a dispute. As a result, the merchants receives a dispute. And the disputed funds are withdrawn from their account and transferred back to the cardholder’s account. This of course is a simplified explanation of the chargeback process.

Insight from the MDR

At this point, Mastercard’s chargeback time limits are still 45 days from the chargeback date. But there is a possibility that the network will want to reduce these time limits and streamline its dispute process. This is based on the actions Visa took under the VCR. It will not be surprising if the Mastercard Dispute Resolution Initiative does something similar.

But even when Mastercard rolls out a more streamlined dispute process, merchants won’t receive the full benefit when their dispute workflow is manually-driven.

In short, a streamlined dispute process will involve automation in order to pull and format data into a response document. That is what makes dispute management software more of a necessity to catch up with these upcoming changes.

But there are also time-saving methods merchants can use in the Chargeback stage. For example, our Mastercard Chargeback Response Templates will help them save time in creating their response document. Think of these templates as a more elaborate version of Mastercard’s requirements for Transaction Information Documents (TIDs). But instead providing transaction details, merchants will be guided in providing compelling evidence and drafting a rebuttal.

The specific evidence will vary, depending on the reason code involved in the Chargeback stage. It is recommended that merchants review the exact evidence needed to overturn a chargeback. Fortunately, it does not seem Mastercard will change the majority of their reason codes (with some exceptions as mentioned above).

Stage Three: Second Presentment (a.k.a, Pre-Arbitration)

The cardholder and/or issuer challenge the merchants’ argument for successfully initiating a chargeback reversal during the Chargeback stage. They do so based on one of two conditions:

  • The cardholder and/or issuer believes the merchant’s response did not fulfill the requirements of the dispute reason code
  • Can provide information that addresses the original reason for the dispute

Insight from the MDR

Remember that Mastercard plans to modify its consumer dispute workflow similar to how Visa processes consumer disputes. It may not be an exact replica of the VCR Collaboration Workflow, but it does suggest that Mastercard will allow the issuer to send the dispute to pre-arbitration. But that will only be possible after the issuer verifies if the disputes meet the criteria based on a (possible) questionnaire.

The following image is a condensed figure of what we how the MDR will modify its consumer dispute workflow. This is based on Visa’s current Collaboration Workflow under the VCR. Whether or not this process will also involve processing error disputes remains to be determined.

Notice the acquirer will not be able to file for pre-arbitration. The merchant can submit a response after receiving pre-arbitration, but it is unlikely that they can file for pre-arbitration if they lost against the dispute during the Chargeback stage.

Based on Visa's Collaboration Workflow under the VCR.

Stage Four: Arbitration Chargeback

It is too soon to extract insight that gives some notice of potential changes in Arbitration Chargeback. It is recommended to read this post in order to prepare for this stage.

Bottom Line

The Mastercard Dispute Resolution Initiative will answer more questions as its phases roll out. But at least we have an understanding of what to expect in the present and in the near future. The next challenge for merchants is to find a resource that allows to receive the full benefit of the Mastercard Dispute Resolution Initiative.