Reason Code 4870 Chargeback: Protecting Your Business with EMV Compliance

The payment system is notoriously complex and has featured several safety precautions to secure all parties involved. One such precaution is the Mastercard reason code 4870. Like all chargebacks, Reason Code 4870 is a significant concern for businesses, particularly those that accept card-present transactions.

Typically, a 4870 chargeback occurs when a cardholder disputes a transaction and alleges that the merchant failed to use EMV-compliant equipment to process the payment ie the mag strip was used instead of the EMV chip. Mastercard initiates this chargeback under their EMV Liability Shift Policy, which holds merchants liable for fraudulent transactions due to their failure to use EMV-compliant equipment.

Understanding chip liability shift and EMV compliance is crucial for merchants looking to avoid this chargeback and protect their businesses from financial losses. This guide provides an extensive overview of Mastercard’s 4870 chargebacks, highlighting the causes, representment process, and prevention measures.

What is Chip Liability Shift?

Chargeback reason code 4870 pertains to a merchant’s use of terminals that accept EMV or “chip” payment cards. Mastercard emphasizes EMV compliance to curb the growing prevalence of fraud, and in cases where merchants accept non-compliant transactions, they bear the liability for such transactions.

For better context, card issuers traditionally stored customer data on payment cards, coded into a magnetic strip. And while this worked for some time, it was vulnerable to fraud, as criminals could copy the data and produce fake cards. To enhance security, card issuers replaced these magnetic strips with card chips, which generate a unique, single-use code for every transaction, a process known as tokenization.

However, this new card technology required merchants to upgrade their payment systems to EMV-compliant readers, which were often expensive, hindering the widespread adoption of this innovation.

Liability Shift Chargeback

The chip liability shift was a means to compel merchants to adopt EMV-compliant machines capable of detecting fraudulent transactions. Under this policy, if a fraudulent transaction involves a chip card, but the merchant fails to process the transaction using the chip, they are liable for the fraud.

Although card issuers typically refund cardholders for fraudulent transactions, they file a liability shift chargeback against the non-compliant merchant and seek compensation for the loss.

Chargeback Code 4870 Causes

Usually, a 4870 chargeback occurs when fraudsters clone a credit card or steal customer data. They specifically target businesses without EMV-compliant payment terminals, allowing them to use the cloned card without detection. Other times, fraudsters convince merchants to process the transaction by simply swiping the card instead of using the chip. In either scenario, the counterfeit card is successfully used, leaving cardholders with unauthorized charges, which they eventually dispute.

This chargeback can also result from intentional friendly fraud, where customers exploit the liability shift rules by having their EMV cards processed as swipe transactions, which they later dispute. Businesses need to secure themselves from this type of chargeback by following the correct translation processing rules.

Disputing a Reason Code 4870

Merchants dispute code 4870 chargebacks by proving each transaction was authorized, the card didn't have an EMV chip to process, or they scanned the EMV chip correctly. The representment process should include any of the following evidence:

• Documents refuting the cardholder’s claims
• Proof that the transaction was authorized and the card didn’t have an EMV chip
• Evidence that you already acknowledged a mistake and refunded the transaction.
• Proof that the chargeback does not adhere to Mastercard’s requirements; hence, it’s invalid.
• Proof that the cardholder no longer wishes to dispute the charge if it has been resolved directly.

Preventing a Liability Shift Chargeback

The most effective preventive measure against 4870 chargebacks is to ensure merchants are EMV-compliant and all card-present transactions go through recommended rules and procedures for processing chip transactions. Here are some tips to avoid this chargeback:

• Always incorporate EMV-compliant terminals. For merchants still using POS devices without an EMV chip reader, they must be replaced immediately.
• Train staff to understand the EMV liability shift policy and procedures for correctly handling EMV card transactions.
• Request for correct verification information for every transaction.
• Merchants must obtain an imprint for all card-present transactions, 

Ultimately, Mastercard Reason Code 4870 can have significant implications for non-EMV-compliant merchants. Therefore, it’s essential to identify the impact of non-compliance and take necessary steps to prevent this chargeback. If a 4870 chargeback does occur, merchants should gather all the required documentation and prepare a rebuttal letter to dispute the chargeback.

Conclusion

Like every other fraud-categorized chargeback, understanding Reason Code 4870 is key for merchants to protect their businesses from the financial repercussions of fraudulent transactions. This chargeback’s link to non-compliance with EMV standards also underscores the importance of using EMV-compliant equipment to process card-present transactions.

Ultimately, merchants should look to upgrade their payment systems to EMV-compliant terminals, train staff, and utilize tools like MidMetrics™Chargeback Software to mitigate risks, maintain compliance, and safeguard their operations against chargeback-related losses.

Glossary

EMV (Europay, Mastercard, and Visa): It’s a global standard for chip-based debit and credit cards, helping to prevent card-present fraud. EMV-compliant terminals can process EMV chips on debit and credit cards.

Chip Liability Shift: A policy that shifts the liability for fraudulent card-present transactions from card issuers to merchants if the merchants do not use EMV-compliant payment terminals. This policy encourages the adoption of EMV-chip technology.

Representment: The process of disputing a chargeback and presenting evidence to the card issue or the acquiring bank to reverse the chargeback and return the funds to the merchant.