Mastercard charges a Dispute Administration Fee (or DAF) for intra-European and inter-European transactions. It automatically assesses the DAF for each cycle of the dispute process, which is paid to the sender and charged to the receiver.
This isn’t unusual: several fees are involved in processing payment card transactions, with funds variously going to different issuers, card networks and acquirers.
In most situations, the merchant is debited for these reimbursements. This makes it imperative to monitor fees closely, so merchants don’t end up paying more than anticipated.
Mastercard has introduce this fee to try to encourage greater fightbacks against illicit chargebacks. Issuing banks have reportedly been forfeiting chargeback rights after not deeming it worth the time and money to challenge the chargeback claim. Meanwhile, it claims merchants need an extra incentive to improve their fraud detection and chargeback prevention tools.
Our proprietary research has found that just two in ten merchants actively engage in representment activity. The rest simply accept chargebacks as a cost of doing business, assuming the odds are not in their favour and that they would simply be wasting resources in challenging it.
Merchants (and by association their customers, who face rising prices to cover their losses) already bore the brunt of nearly all monetary penalties involved in these chargeback disputes.
Now, with DAF, merchants are strongly pressured into disputing every possible chargeback, and even so will largely be unable to break even.
Compensation of €15 does not come close to compensating for the resources lost in creating and submitting the representment (assuming they even win the case; card networks report merchants win just 21% of representments). Sufficient supporting details are vital in substantiating the evolving requirements of providing compelling evidence.
Add to this the right that issuing banks hold to issue an arbitration chargeback (basically, disputing the validity of the original transaction a second time), and this is simply a minefield for many merchants to navigate as part of a lengthy chargeback management process.
A prospective client we worked with, for example, was winning won 48% of its initial representment efforts, but experienced second chargebacks in more than 50% of those cases. As a result, the merchant’s net win rate was only 23.8%.
Now, with the Dispute Administration Fee, second chargebacks double the merchant’s expenses and losses. The merchandise and revenue is forfeited, the resources used to dispute the chargeback are wasted, and the DAF is doubled to €30 EUR.
It is absolutely imperative for European merchants to create a proactive chargeback management plan. This involves two crucial steps:
- Preventing transaction disputes. Merchants need to use complimentary tools in a multi-layer fraud detection strategy to minimise liability.
- Creating compliant representment cases. Not only do chargebacks need to be disputed, they need a compliant case that ensures success.
The longer merchants allow fees to accumulate, the more challenging it will be to mitigate risk and maintain stability. Act now!