Protecting Merchants from Reason Code 4871 – Chip/ Pin Liability Shift

Mastercard implements chargebacks to provide a mechanism for customers to dispute and resolve transaction issues, ensuring a fair, more secure payment system. The reason code 4871, known as the Chip/ Pin Liability Shift, is one such mechanism that comes into play when a chip and PIN-enabled card is used at a terminal that doesn’t support either chip or PIN authentication.

Like the reason code 4870, this chargeback also involves a liability shift, with non-compliant merchants bearing the responsibility for the resulting fraudulent transaction. Ultimately, liability shift reason codes aim to encourage businesses to upgrade to compliant terminals, and reason code 4871 is no exception. We’ll explore this code, its implications for merchants, and best practices for preventing related chargebacks.

Understanding Reason Code 4871

The reason code 4871, or Chip Liability Shift – Lost/ Stolen/ Never Received Fraud, is one of Mastercard’s fraud-categorized reason codes. It indicates that a fake chip-and-pin card was used for a purchase that didn’t follow the correct authorization process for chip-and-pin transactions.

Modern payment cards feature an EMV chip designed to prevent card-present fraud. One way these chips achieve payment security is by requiring PIN validation for every transaction. However, in cases where merchants authorize a transaction without validating the card PIN, they are liable for a 4871 chargeback.

4870 vs. 4871

Both 4870 and 4871 reason codes involve a liability shift from the card issuer to non-compliant merchants. However, their distinct difference lies in whether the cardholder was present for the transaction. Merchants need to understand the difference between both reason codes. Let’s explore them further.

The Reason Code 4870, or Chip Liability Shift, is used when a transaction dispute arises due to a merchant using a chip-enabled card at a non-chip-enabled terminal. A 4870 chargeback is commonly used in situations where merchants have not upgraded their terminals to accept EMV chip cards.

However, even with EMV-compliant terminals, some regions and situations require PIN verification for an added security layer. This is where the reason code 4871 becomes relevant. Typically, this code applies when a chip card with PIN capabilities was used at a terminal that didn’t process the chip or PIN functionality.

The PIN is a unique number only known to the cardholders, and when the PIN functionality is correctly processed, merchants can be sure it's the cardholder authorizing the transaction. Over time, chip-and-pin cards have significantly reduced fraud in face-to-face transactions, with pin-based transactions particularly experiencing a lower fraud loss rate of 0.035%. Consequently, merchants who fail to request the PIN will be held liable for any resulting fraud. 

Possible Causes for a 4871 Chargeback

Businesses can expose themselves to a 4871 chargeback by not correctly processing chip and PIN card transactions. Fraudsters with stolen credit cards tend to target merchants using Point-of-Sale terminals that do not support PIN entry. Both cases lead to unauthorized transactions and the resulting chargeback.

Like other chargebacks, this can also result from intentional friendly fraud, where customers convince merchants to bypass PIN authorization for legitimate transactions and later file a chargeback against the business. Hence, merchants must be extra careful and follow the correct procedures for every transaction.

Disputing 4871 Chargebacks

Merchants can only dispute a 4871 chargeback by proving the transaction followed proper procedures, including cardholder PIN authorization. Mastercard gives merchants 45 days after the charge to respond; this chargeback response should feature any of the following evidence:

• Documents that clearly show the transaction was PIN-authorized by the cardholder.
• For non-EMV cards, merchants can provide evidence that the card does not have an EMV chip and that the transaction was properly authorized.
• Evidence that the chargeback does not follow Mastercard’s requirements.
• Documents that show the merchant already refunded the cardholder’s account.
• If the issue has been resolved directly with the cardholder, the merchant should provide proof that the cardholder no longer wishes to contest the transaction.

Preventing Reason Code 4871

The heightened payment security offered by PIN authorization ensures merchants can completely prevent a 4871 chargeback. Merchant errors mostly cause these chargebacks and can be avoided by following the following basic payment practices:

• All payment terminals must be EMV-compliant.
• Aside from chip processing, merchants must always obtain a secondary verification for every transaction. It could be a token, PIN, biometrics, or signature.
• Merchants must insist all cards be inserted into the machine rather than swiped.
• Each card-present transaction should have a manual or electronic imprint as evidence.

Intelligent chargeback management tools can also be very helpful in preventing a 4871 chargeback. If you’re looking to manage chargebacks effectively, then consider MidMetrics™ Chargeback Software, specifically built for merchants, designed to scale with you. This innovative solution incorporates all relevant chargeback services, software, and support, including chargeback analytics, alerts, chargeback representment, and rapid dispute resolution. Book a demo today!

Conclusion

Ultimately, the Mastercard Reason Code 4871 chargeback aims to deter merchants from processing any chip and PIN-enabled card transaction on a non-compliant terminal. As such, merchants must ensure their terminals are EMV-compliant and enhance security by obtaining secondary verifications like PIN authorization for every transaction.

By following best practices and utilizing chargeback management tools like MidMetrics™ Chargeback software, businesses can prevent Reason Code 4871 chargebacks and ensure a more secure payment system.

Glossary

Liability Shift: A liability shift occurs when card issuers transfer responsibility for a disputed transaction to merchants who fail to comply with industry regulations or process transactions without proper authorization.

EMV (Europay, Mastercard, and Visa): It’s a global standard for chip-based debit and credit cards, helping to prevent card-present fraud. EMV chips are excellent fraud-prevention tools for card-present merchants.

POS (Point-of-Sale): Refers to a physical location or device where a transaction occurs, such as a payment terminal or card reader.