Picture this highly likely and relatable scenario: you are walking down the street, on your way to buy a sandwich from the deli, and a harried-looking stranger walks up to you demanding that you explain MasterCard’s pre-arbitration process. Imagine how embarrassed you would be if you couldn’t provide a satisfactory answer.
Ok, so maybe that’s a farfetched hypothetical. But if you are a merchant who accepts payment via MasterCard, it is very much in your interest to understand how they handle pre-arbitration case filings. Being inadequately prepared for pre-arbitration could cost you time and money in lost payments and arbitration fees.
Pre-arbitration is, as the name implies, the last step before potential arbitration in the process of a chargeback dispute. It is essentially the final opportunity for the opposing parties and their banks to resolve a dispute before MasterCard steps in to render a final decision via arbitration.
The involved parties in this process are the merchant, the cardholder, and their respective banks. As a general note on terminology, “the issuer” refers to the cardholder’s bank while “the acquirer” refers to the merchant’s bank.
Several possible causes may lead an issuer to file for pre-arbitration. These include a change in reason code, new information from the cardholder, a conviction that the acquirer’s evidence does not sufficiently resolve the dispute or the issuer feels that there are terms and policies, including return policies, that the merchant did not properly disclose during the transaction.
For Card Not Present merchants, the following Reason Codes and sub-categories are the most common that may be associated with pre-arbitration. Those codes are as follows:
4837 - No Cardholder Authorization
4853 - Not as Described or Defective Merchandise
4853 - Non-Receipt of Merchandise
4853 - Services Not Rendered
4853 - Credit Not Processed
It may be helpful to enumerate the steps between an initial transaction and an ultimate arbitration case filing in order to fully explain how pre-arbitration fits into the process. The general dynamic of this progression is such that each successive step after the initial presentment is a response by the opposite party to the previous step.
Step 1. First Presentment
The acquirer submits transaction data to the issuer in order to receive payment, which the issuer then remits.
Step 2. Chargeback
The issuer disputes the transaction, and the payment from step 1 is removed from the acquirer’s account.
Step 3. Second Presentment
The acquirer presents some sort of evidence to dispute the chargeback.
Step 4. Pre-Arbitration Case Filing
The chargeback process having been completed; the issuer disputes some aspect of the second presentment.
Step 5. Pre-Arbitration Response
Having received the case filing, the acquirer can either choose to accept or deny liability. If the acquirer accepts liability, the process ends here. If the acquirer does not accept liability, they rebut the case and send it to arbitration.
Step 6. Arbitration
The issuer and acquirer each present their side of the case to MasterCard, who assigns responsibility. Whichever side loses is also required to pay all fees.
As described above, the acquirer has two possible responses to a pre-arbitration filing: accepting or denying liability. While accepting liability means lost revenue, it does prevent the possibility of incurring further costs.
Denying liability and rebutting the case does present the possibility of recovering revenue if the acquirer prevails during arbitration with MasterCard. But this course of action also carries the risk of losing the payment AND paying arbitration fees if the acquirer loses at arbitration. It is generally inadvisable to deny liability in a pre-arbitration response unless the acquirer has reason to believe that they will prevail at arbitration.
Of course, the best way to handle pre-arbitration risks is to reduce the likelihood that your business will face it. There are proven techniques to reduce the incidences of payment disputes with customers. They include:
Fraud Prevention Solutions
Fraud comes in different forms, and not all of it is preventable, but there are tools that you can use to identify and eliminate some of the most frequent types of fraud before payments become disputes.
Well Trained Customer Service Reps
Many disputes originate with a well-meaning but confused customer. Well trained and easily accessible customer service representatives could give these customers recourse to assuage their confusion that does not involve the credit card company dispute systems.
Transparency in Refund Policies
A particular source of confusion for customers, and thus an origin point for many payment disputes, are misunderstandings regarding refund policies. Make your refund policies accessible and easy to understand, and it will cut down on the number of disputes that lead to pre-arbitration.
A Trusted Partner
MidMetrics is the trusted chargeback business you need to handle your chargeback management to avoid pre-arbitration. We can give you the insights you need to reduce your number of chargebacks, grow your revenue, and get your merchant accounts back in order. Additionally, we offer in-depth analytics tools, a variety of integrations, an experienced team of chargeback experts, robust reporting systems, and easy-to-understand dashboards.