Understanding and Protecting Against Chargeback Reason Code 4840

Card fraud remains a significant issue globally, posing challenges to individuals, businesses, and financial institutions. And despite vigorous efforts from these financial regulators and e-commerce platforms to mitigate it, fraud rates continue to rise. According to a worldwide report, card fraud losses increased by over 10 percent in 2022, with merchants and cardholders losing over 30 billion dollars. 

It’s not uncommon for cardholders to frequently challenge unauthorized debit transactions with card issuers like Mastercard. If Mastercard confirms the validity of this dispute, the business responsible for the transaction may be at risk of receiving a chargeback notification with the reason code 4840.

However, as with other financial disputes, the first impression is not always accurate. Merchants who suspect the chargeback has been falsely filed can nullify the chargeback with compelling evidence. But what makes for compelling evidence, and how can you prevent this chargeback? We’ll explore all you need as a merchant regarding reason code 4840.

4840 Chargeback: Fraudulent Processing of Transactions

Chargeback reason code 4840, or “Fraudulent Processing of Transaction,” is one of Mastercard’s reason codes that fall under the fraud category. This code suggests that a cardholder initiated an authorized card-present transaction with a merchant but subsequently received unauthorized transactions, typically within the next fifteen minutes.

Since the cardholder didn't provide authorization for those subsequent transactions, the issuer, in this case, Mastercard, considers these transactions fraudulent, prompting them to initiate one or more 4840 chargebacks to refund the cardholder. That said, chargebacks under this reason code do not always result from actual fraud.

Possible Causes for a 4840 Chargeback

The apparent cause of a 4840 chargeback is merchant fraud. Here, merchants obtain valid payment credentials through an authorized transaction and then rerun the transaction to process additional charges, but this time, without authorization from the cardholder.

Yet, the predominant explanation for this reason code is typically merchant error. Merchants often encounter errors leading to inadequate authorization. Sometimes, businesses may resubmit transactions using previous authorization details without informing the customer of their intention to split one sale into multiple transactions.

Merchants could also receive friendly fraud chargebacks with this reason code if the cardholder forgets they authorized more than one transaction. It’s also possible for fraudulent cardholders to intentionally dispute an authorized transaction. Regardless, merchants can dispute these claims and nullify this chargeback if they possess sufficient evidence.

Disputing Code 4840

Mastercard provides a generous 45-day window to address chargebacks with the issuer. Should a merchant fail to respond or dispute the chargeback within this timeframe, the chargeback will be validated, rendering them unable to dispute it further.

If merchants wish to dispute this chargeback, they must have evidence proving that subsequent transactions were authorized or have already refunded the cardholder for the error. Typically, a dispute response should include one or more of the following evidence:

• Proof that all transactions were authorized separately and for different goods or services.
• Evidence that a PIN was provided and sent with the authorization request for all transactions
• Proof that the cardholder actively participated in the first transaction and that subsequent transactions are valid
• Documents to refute the cardholder’s fraud claims.
• Proof that the chargeback is invalid because it goes against Mastercard requirements.
• Documents showing you already refunded the cardholder.
• If the issue has been resolved directly with the cardholder, show proof that the cardholder no longer wants to dispute the transaction.

Opting for a chargeback tool like the MidMetrics™ Chargeback Management Software can also help effectively dispute a reason code 4840. This software’s DisputeGenius feature allows you to generate highly effective rebuttal letters, including compelling evidence, giving you more control over your representment process. Request for a demo now!

Preventing Mastercard Reason Code 4840

Dealing with the hassle of disputing a chargeback can be very stressful, and while it’s inevitable in cases of friendly fraud and fraudulent cardholders, it’s essential to minimize the chances of receiving a chargeback.

As with any other authorization-related chargeback, merchants can prevent the reason code 4840 chargeback by always requesting and receiving authorization approval for every transaction. We also can’t discount the possibility of mistakes, so businesses should consider implementing the following actions to avoid this chargeback:

• Issue a reversal or credit cardholder immediately after duplicate transactions occur
• Double-check all transaction receipts before depositing them to identify mistakes.
• Cancel ongoing transactions when customers wish to switch payments during the transaction.
• If there was a mistake with the first transaction and you need to initiate a new one, ensure the customer knows this and authorizes the new transaction.
• Ensure customers are aware if a purchase is spread over several payments.

Receiving several chargebacks can significantly impact a merchant’s reputation; as such, it’s necessary to limit these risks with proactive safety measures. Even if chargebacks occur, these actions ensure you have enough evidence to dispute them successfully.

Conclusion

Over time, Reason Code 4840 chargebacks have significantly impacted businesses globally. Beyond fraudulent processing of transactions, which, by the way, is a legitimate concern, merchants also have to worry about transaction errors and friendly fraud resulting in false chargebacks. That said, the safety measures we’ve highlighted can help reduce the likelihood of receiving a 4840 chargeback.

However, when false chargebacks occur, merchants can improve the success of their representment process with chargeback management tools like MidMetrics™. Taking such proactive actions can help protect businesses from potential financial losses and reputational damage.

Glossary 

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.

Friendly Fraud: A chargeback where a cardholder disputes a legitimate transaction, claiming it was unauthorized or fraudulent despite having purchased or received the goods or services.