Mastercard Collaboration: A New Way to Prevent Chargebacks

Mastercard^® Collaboration is an initiative to resolve cardholder disputes at the early stages of the chargeback process. The theory is that opening a new line of communication between issuers, acquirers, and merchants means disputes can be handled quicker and with fewer costs. 

Collaboration is a chargeback prevention technique offered by Mastercard. 

It acts like a warning system, alerting you when a transaction has been disputed. The advance notification gives you the chance to review the situation and see if there is a way to resolve the cardholder complaint — such as issuing a refund. If so, a chargeback can be avoided. 

The goal of Collaboration is to resolve disputes without using the chargeback process. And in nearly all cases, the way to do that is to refund the disputed transaction.

The functionality of Collaboration depends on three key components.

When a transaction is disputed, the issuer will notify you and give you a chance to refund the transaction.

The notification can follow one of two paths to reach you.

If you are enrolled in Ethoca alerts, the request will come to you as an alert. You’ll receive it the same way you normally do — either through the Ethoca portal or your solution provider.

If you don’t use Ethoca alerts, the Collaboration request will be sent to your acquirer.

Once the Collaboration request is received, a response needs to be given within 72 hours. There are four different response options.

The outcome of a Collaboration case depends on the response. 

Either you refunded the transaction and a chargeback is no longer necessary. Or you didn’t refund the transaction and the case advances to a chargeback. 

Plus, there may be additional drawbacks to consider for each response type. 

On the surface, it might seem like Collaboration is simply a different name for prevention alerts. After all, the goal — to refund disputed transactions so they don’t become chargebacks — is essentially the same. 

In general, we usually advise merchants to create multiple layers of protection. The more solutions you use, the greater your protection will be. 

But there is a stipulation when it comes to prevention alerts and Collaboration.

You don’t need both Ethoca alerts and Collaboration.

When a Mastercard transaction is disputed, the issuer will first check to see if you use Ethoca alerts. If you do, an alert will be issued. If you don’t, the case will advance to Collaboration.

However, Collaboration is only capable of resolving Mastercard disputes. So you still need to address disputes from other card brands (Visa, American Express, and Discover). 

That means to prevent the maximum amount of chargebacks, you need Ethoca alerts (which can address both Mastercard and non-Mastercard disputes) or Collaboration — and Verifi CDRN alerts and RDR.

This is how all those prevention solutions work together.

Rapid Dispute Resolution, or RDR, is another chargeback prevention tool. 

There are a few similarities between Collaboration and RDR. For example, they are both brand specific (Collaboration for Mastercard and RDR for Visa). And both solutions are built into the card brand’s technology, making them available to all brand issuers and acquirers (and an acquirer’s merchants). 

But that’s where the similarities end. There are more differences than likenesses.

The differences can be a nuisance. If you use both solutions, you’ll need to understand and optimize two different workflows. 

But ultimately, the goal is to prevent as many chargebacks as possible. Both tools are capable of keeping chargeback activity to a minimum — even if they do go about it in different ways.

The new process could have a significant impact on your business — or it might not change anything at all. 

There are two reasons why the impact could be minimal.

You already use Ethoca prevention alerts.

Prevention alerts are the first stage in the dispute resolution workflow. 

If the issuer (cardholder bank) is part of the Ethoca prevention alert network, alerts will keep being sent like normal. And you will keep receiving and managing them the same way you do now.

Your acquirer doesn’t offer the solution to merchants.

All acquirers (merchant banks) must be able to receive Collaboration requests. However, there are no regulations on how or if those requests are shared with merchants.

Before acquirers and processors can offer the Collaboration service to merchants, they have to build a mechanism to facilitate responses. And that’s a big undertaking! Some acquirers might not have enough employees or development resources to create the needed technology. 

So if your acquirer hasn’t developed Collaboration functionality, you might not be able to participate. And if you can’t participate in Collaboration, your existing processes probably won’t change. 

However, acquirer adoption is the only way to ensure Collaboration operates at its fullest potential and offers the biggest benefits to everyone involved.

Midigator is currently partnering with acquirers and processors to provide the technology needed to enable Collaboration (along with prevention alerts and chargeback management features).

Once Collaboration does gain adoption, your business will probably be impacted in some way — even if the changes don’t happen immediately. 

There are still a lot of unknowns, but the following are possible outcomes of the Collaboration initiative.

You may be required to participate.

Mastercard only regulates the official partners in its network: issuers and acquirers. Each acquirer then gets to choose if and how those regulations are passed down to merchants. Therefore, participation requirements will vary based on the processor or acquirer you work with. 

It’s probable that if a chargeback prevention solution is available, your processor or acquirer will expect you to use it. This is especially true if you have a high-risk merchant account. 

You may be asked to use a third-party service provider for Collaboration.

Implementing the new Collaboration process will be a significant undertaking for acquirers and processors. Some might not have enough resources to fully comply.

Since chargeback companies — like Midigator — are accustomed to managing such workflows and have already been involved in the alert process for years, they are perfectly positioned to help merchants with Collaboration. 

If you are interested in using Collaboration, your acquirer may ask you to sign up through a Collaboration solution provider.

You may be asked to use Ethoca prevention alerts instead of Collaboration.

Again, implementing Collaboration could be a challenge for acquirers. Some might choose to avoid the hassle altogether by opting for prevention alerts instead.

Prevention alerts and Collaboration use the same technique to achieve the same outcome — refunding a disputed transaction to eliminate the need for a chargeback. But there is one major difference between the two services: most acquirers are not currently involved in the prevention alert process. 

In order to fulfill Mastercard’s issuer-merchant collaboration expectations, your acquirer or processor might require that you use Ethoca prevention alerts. This will help keep chargeback activity to a minimum, but your acquirer won’t have to build the technology to make it happen.

You may have to juggle multiple different expectations and workflows.

There is no standardization for how acquirers and processors implement Collaboration. So if you have more than one processor, you’ll probably have different rules and expectations for each. 

Managing the differences could be an administrative nightmare, prone to mistakes and increased labor costs.

You may be charged a fee.

The Collaboration process includes several fees applied at different stages of the workflow. These fees vary based on the type of business that processed the transaction (pricing tiers are dictated by the merchant category code or MCC) and the response that is given.

Fees will be charged to the acquirer — and the acquirer will probably pass the costs along to you. 

Decisions might be made without your input.

There are four different Collaboration response options. The Collaboration process was designed so that you, the merchant, can choose how cases are handled. 

However, you might not actually be included in the decision making process. If your processor or acquirer struggles to adapt to the new requirements, steps may be taken to simplify the process. And making all responses universal for a merchant — or even an entire portfolio of merchants — might be easiest. 

Your results might not be what you expect.

In theory, if you use the solution as intended, you can completely eliminate the risk of a chargeback. But processes don’t always work as expected. 

For example, maybe you refunded the transaction. But you don’t include the refund transaction ID in your response. So Mastercard has no way to match the refund to the Collaboration request.

Maybe you say you are going to issue a refund, but you forget. Or an employee is on vacation. Or there is a holiday. Or your system goes down. 

Whatever the reason, failure to resolve the issue will result in a chargeback.

There are definitely challenges and complexities associated with the new Collaboration process. But there are also potential benefits.

✔  Collaboration helps keep your chargeback rate low.

The card brands carefully monitor merchant risk. If your chargeback activity becomes excessive, you could be penalized with additional fees or the termination of your payment processing privileges. 

Collaboration reduces chargebacks which can help you avoid penalties.

✔  Collaboration helps identify and resolve issues quicker.

With Collaboration, you’ll be notified of a potential dispute within hours of the cardholder’s complaint. But with a chargeback, you wouldn’t know about the issue for several weeks. 

The sooner you know about a problem, the quicker you can fix it. And the quicker you fix a problem, the faster you can stop chargebacks from happening.

✔  Collaboration could help save the cost of goods or services.

If you receive notice of the dispute before you’ve fulfilled the order, you may have enough time to cancel it. This could save you from losing money on things like fulfillment, shipping, and the product or service costs. 

✔  Collaboration helps improve the customer experience.

When a refund is issued, the funds will be returned to the cardholder’s account within a matter of days. But resolving a chargeback could take months. 

Cardholders will appreciate the quick resolution. And positive experiences could save you from challenges like negative online reviews. 

What is Midigator’s stance on merchant adoption of Collaboration? 

Chargebacks are a costly, confusing, labor-intensive problem. In general, we recommend merchants consider any solution that makes chargeback management more efficient and effective. 

And Mastercard’s new mandates put a heavy emphasis on issuer-merchant collaboration that shouldn’t be ignored. 

However, it’s challenging to give guidance before the workflow has gained widespread adoption. So for the time being, here’s what we suggest.