Introducing a New Powerful Way to Fight First-Party Fraud

First-party fraud—when customers dispute legitimate payment transactions as fraud—has been a fast-growing concern for merchants and issuers in recent years. In fact, 75% of fraud experienced by digital businesses was first-party, according to recent data from Datos Insights, featured in Mastercard Ethoca’s Chargeback trends and outlook report. 

Also known as friendly fraud, first-party fraud happens for many reasons, ranging from cardholders not recognizing transactions on their statement to them knowingly disputing legitimate transactions due to being unhappy with their purchases. It’s critical for merchants and issuers to protect themselves and prevent this kind of fraud due to how common and costly it is.

It presents a unique and frustrating challenge for businesses of all types and sizes, as it’s not always easy to distinguish true fraud from first-party fraud. And yet, the result is the same: a chargeback process that is time-consuming and expensive to navigate.

So, what can be done? Mastercard recently announced its First-Party Trust program, designed to help merchants and issuers significantly reduce this kind of fraud by making more data available during the purchase lifecycle. It can spot and prevent such fraud by proving that transactions were genuine.
Here’s what you need to know about the new program and how Ethoca can further help prevent first-party fraud.

How does the Mastercard First-Party Trust program work?

Merchants—both large and small businesses—that enroll in the new program can shift the liability of certain disputed ecommerce transactions (those with reason code 4837) to issuers, allowing them to avoid the costly chargeback process associated with those transactions. 

To qualify for that liability shift, the merchant must present transaction data that matches the data of two non-fraudulent transactions that occurred within the past 120 to 365 days. 

Merchants need to send one data point from each of the following categories:

• Device identity: IP address or device ID/fingerprint
• Delivery details: shipping address or email
• Additional identity factors: Account ID login, telephone number, device location, device name, shipping or billing address. Additionally, any unused data points from the Device identity or Delivery details can also be used. 

This type of “compelling evidence” is sometimes collected during the existing chargeback process, but this new program helps ensure this data is collected in a more standard and consistent way.  By providing this compelling evidence through the First-Party Trust program, merchants and issuers can remove more unnecessary chargebacks out of the ecosystem. 

What are the benefits to merchants and issuers of using enhanced data?

Both merchants and issuers will benefit from participating in the Mastercard First-Party Trust program. Here’s how:

• Merchants: By providing compelling evidence sooner, merchants can help prevent costly chargebacks caused by friendly-fraud disputes. Chargebacks found to be the result of friendly fraud will also not count towards a merchant’s overall chargeback volume within chargeback compliance programs. 
• Issuers: With more reliable data to fuel their fraud models, issuers can more accurately distinguish true fraud from first-party fraud. It will also provide them with more reliable information and insights when discussing disputes with their cardholders.

Moreover, by making additional data available during both the pre-authorization and pre-dispute stage, merchants and issuers can be more confident in spotting cases of first-party fraud, which can lead to better approval rates.

How can merchants provide this additional transaction data to issuers?

The additional data can be provided in two ways: pre-authorization—as the payment transaction is happening—or pre-dispute—after the customer contacts the issuer to question the transaction but before a dispute is formally created. Merchants can choose to provide the additional data through one or both options, but merchants who provide it during both stages are likely to see more disputes deflected. 

Ethoca can help make this process of sending details to the issuer easier and more seamless during the pre-dispute phase. Merchants will send the additional transaction data to the issuer via an API that allows them to transfer the information quickly, easily and securely. The process will be similar to how many merchants already provide details for digital receipts through Ethoca Consumer ClarityTM before disputes happen.

How else can businesses prevent first-party fraud chargebacks?

While the new Mastercard First-Party Trust program will be an effective tool for merchants and issuers to help prevent costly chargebacks, it should be part of a multilayered approach—as disputes and chargebacks can happen in various ways and times.

Ethoca Consumer Clarity and Ethoca Alerts are two other powerful tools for helping both prevent disputes before they happen and stopping disputes from turning into chargebacks. When you tackle chargebacks on multiple fronts, you’ll see the biggest impact on your bottom line.