Mastercard’s First-Party Trust Rule Changes: What Merchants Need to Know

Merchants face an ongoing challenge: balancing fraud prevention with customer satisfaction. While 75% of digital goods merchants’ card-not-present fraud is estimated to be the result of first-party fraud, according to Mastercard’s chargebacks trends and outlook report, the need for this initiative is paramount. Mastercard’s First-Party Trust Program aims to improve  this delicate balance by introducing more advanced tools to tackle first-party fraud head-on.

What is it?: The First-Party Trust Program is a new initiative by Mastercard. Mastercard will be using advanced technologies, including artificial intelligence and enhanced transaction insights, to streamline and increase the accuracy of chargeback dispute resolution. By utilizing historical purchase patterns and key data points, the program aims to verify the legitimacy of transactions more accurately, potentially reducing the number of unwarranted chargebacks that merchants face.

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Key features include:

1. Improved data sharing between merchants and issuers
2. AI-powered risk modeling to identify genuinely fraudulent transactions
3. New rules defining compelling evidence for recognizing legitimate purchases
4. Potential chargeback protection for merchants meeting specific data-sharing requirements

When and where: The initial rollout is focused on the U.S. market and starting in October 2024. Mastercard has indicated plans for a global implementation; however, the timeline for international expansion remains unclear.

What merchants need to do today:

• To benefit from Mastercard’s First-Party Trust program, merchants should prepare their data sharing capabilities. First, decide on the integration method: either Identity Check Insights (using their own 3DS server or 3DS Smart Interface API), the Ethoca Consumer Clarity Merchant Transactions API, or both. 
  • Merchants or merchant partners using Identity Check Insights can begin sharing data with Mastercard once the API integration is complete.
  • For merchants or merchant partners using the Ethoca Consumer Clarity Merchant Transactions API, Mastercard will request data for compelling evidence once a chargeback occurs via the API integration.
• Mastercard will match data from the disputed transaction with two historical transactions. If First-Party Trust validates the compelling evidence, the merchant benefits from the liability shift.
• If merchants do not have robust data collection practices to capture and store relevant transaction details consistently, or have a merchant partner who does, focus first on implementing robust data collection and storage practices. 

To join the program:

• Log in or create a Mastercard Developers account
• Review the documentation based on your integration method
• Develop the integration
• Request the production access to launch

By taking these steps now, you’ll be well-positioned to leverage the benefits when the program launches, potentially avoiding costly chargebacks and streamlining your dispute resolution process.

Mastercard’s First-Party Trust Program is likely to have a large impact on fraud prevention, especially for certain types of merchants. 

Who Benefits Most?

While the program is designed to benefit the entire e-commerce ecosystem, certain merchant categories stand to see more benefits:

• Card-Not-Present (CNP) Merchants: Online retailers, particularly those dealing with digital goods or services, are prime beneficiaries. These businesses often face higher rates of friendly fraud due to the nature of online transactions.
• Subscription-Based Services: Companies offering recurring billing models may see substantial improvements. The program’s ability to reference historical purchase patterns could significantly reduce illegitimate chargeback claims on subscription renewals.
• High-Volume Sellers: Merchants processing a large number of transactions will have more robust data sets, potentially leading to more accurate fraud detection by better identifying a customer’s purchasing behavior.

Merchant Data is Paramount for Success

The effectiveness of the First-Party Trust Program depends on the richness and transparency of the transaction data merchants can provide. Merchants with the ability to consistently capture and share this data will be better positioned to benefit from the First-Party trust program. This historical data allows for more accurate identification of a customer’s typical purchasing behavior, making it easier to flag potentially fraudulent activities.

Examples of key data points include:

• IP addresses: Helps in verifying the geographic location of the purchaser.
• Device IDs: Assists in identifying trusted devices associated with legitimate purchases.
• Email addresses: Provides another layer of customer identification and purchase history association.

Mastercard has also clarified its definition of compelling evidence. According to Mastercard, compelling evidence is derived from historical data in the following three categories: Device Identity, Delivery Factor, and Additional Identity Factor. These clarifications on Mastercard’s preferences for evidence bring opportunities and clarity for merchants on what data to collect and share. To provide the liability shift to the merchant in this program, Mastercard must match one element from each of the three categories to establish compelling evidence.

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For newer merchants or those with limited historical data, the benefits of the program may take time to fully materialize. These businesses should focus first on implementing robust data collection and storage practices to build their historical records.

Overall, merchants should view the First-Party Trust Program not just as a new set of rules, but as an opportunity to refine their data strategies and strengthen their position in the ongoing battle against friendly fraud.

Potential Effects on Chargeback Rates

While it’s premature to quantify the potential impacts, Mastercard’s First-Party Trust program has the potential to both significantly reduce illegitimate chargebacks, and for chargebacks that do occur, prove that they are unwarranted. By leveraging AI and comprehensive transaction data, issuers will be better equipped to distinguish between genuine fraud and friendly fraud before initiating the chargeback process. In addition, if the issuer creates a chargeback, Mastercard can match elements of the merchant’s historical data with the disputed transaction, creating a liability shift where the merchant proves the chargeback is illegitimate.

However, the effectiveness of the program will largely depend on:

• The quality and transparency of data shared by merchants
• The sophistication of Mastercard’s AI models
• The willingness of issuers to utilize the additional information in their decision-making process

An important feature of the First-Party Trust program is its liability-shifting mechanism. If merchants can provide data matching two undisputed past transactions, they can transfer liability to the issuers. For businesses frequently hit by friendly fraud, this represents a significant advantage, potentially reducing losses and simplifying dispute resolution.

As the October 2024 launch of Mastercard’s First-Party Trust Program approaches, merchants must take proactive steps to ensure they’re well-positioned to benefit from these changes. 

Here’s what you need to focus on:

Updating Internal Chargeback Solutions

• Data Collection and Storage:

1. 1. • Review your current data collection practices. Ensure you’re capturing all relevant data points, including IP addresses, device IDs, and account specifications.
      • Implement robust data storage solutions that allow for easy retrieval and analysis of historical transaction data.

• Integration Capabilities:

1. 1. • Assess your current systems’ ability to integrate with Mastercard’s new program.
      • Plan for necessary upgrades or modifications to your platforms and payment gateways.

• Staff Training:

1. • Educate your team about the new program and its implications.
   • Provide training on any new processes or tools that will be implemented.

Ensuring Service Providers are Prepared

If you’re working with external chargeback management services or payment processors:

• Communication is Key:

1. 1. • Reach out to your service providers to discuss their readiness for the First-Party Trust Program.
      • Ask about their plans for integration and how they intend to leverage the new data requirements.

• Evaluate Capabilities:

1. 1. • Assess whether your current providers have the necessary technology and expertise to maximize the benefits of the new program.
      • If gaps are identified, consider exploring alternative solutions or pushing your current providers to enhance their offerings.

• Data Sharing Agreements:

1. • Review and update data sharing agreements with your service providers to ensure compliance with the new program’s requirements.

The Role of “Early Alerts” Products

Mastercard’s program relies on an “early alerts” system, such as Ethoca. For merchants that are close to or have passed Mastercard’s chargeback monthly ratio limits, they should prepare their chargeback representment processes to leverage the program as a second line of defense. Merchants can collaborate with payment processors to understand how “early alerts” is being integrated. Additionally, merchants can implement monitoring systems to assess the impact of early alerts on chargeback rates, using this data to continually refine fraud prevention strategies.

As we anticipate the rollout of Mastercard’s First-Party Trust Program, it’s crucial to consider the lessons learned from similar initiatives, particularly Visa’s Compelling Evidence 3.0 (CE 3.0). 

Visa’s CE 3.0, implemented in April 2023, shares similar objectives with Mastercard’s program. The objective for both is to aim to reduce friendly fraud by providing issuers with more comprehensive transaction data. Both programs leverage historical purchase data and advanced analytics to verify transaction legitimacy. Both programs require merchants and acquirers to provide additional data points for streamlined dispute resolution.

However, the impact of CE 3.0 has been mixed, with many merchants reporting less dramatic improvements than initially anticipated.

Realistic Projections for First-Party Trust’s Effectiveness

Based on the CE 3.0 experience, we can make some educated projections about Mastercard’s program:

1. Gradual impact: Like CE 3.0, the full effects of the First-Party Trust Program may take time to materialize. Merchants should expect gradual rather than immediate results.
2. Varied results: The program’s effectiveness will likely vary across different merchant categories and transaction types. Those with robust data and repeat customers may see more significant benefits.

Ongoing refinement: Mastercard will likely need to refine the program based on real-world performance, similar to how Visa has continued to adjust CE 3.0.

While Mastercard’s First-Party Trust Program represents a significant step forward, it’s important to approach it with balanced expectations. The program is not a cure-all for all chargeback issues, but rather another tool in the ongoing fight against fraud.

Merchants should view this program as part of a holistic approach to chargeback management, complementing existing strategies such as:

• Robust customer service to address concerns before they escalate to chargebacks
• Clear communication about products, services, and billing practices
• Continual refinement of internal fraud detection systems

By learning from past initiatives like CE 3.0 and staying attuned to emerging trends, merchants can position themselves to navigate the evolving landscape of fraud prevention and chargeback management effectively. The key lies in remaining adaptable, data-driven, and proactive in the face of new challenges and opportunities.

To prepare for the First-Party Trust Program, merchants should conduct an internal audit of their chargeback management processes, identifying areas for improvement. Based on this assessment, develop a roadmap outlining necessary system and process changes before the program’s launch. Consider partnering with specialized services like Justt to navigate these changes effectively. Finally, ensure your team is well-educated on the program’s implications and prepared for its implementation.

Where Justt fits in

At Justt, we view this development as an opportunity to enhance our services and provide even more robust protection for our merchants. We’re committed to staying at the forefront of these industry changes.

The First-Party Trust program is designed to benefit merchants in the pre-dispute stage. However, when a chargeback does occur, if the necessary merchant data is available, Justt will utilize it to build that most comprehensive evidence against the chargeback that abides by the program’s requirements for Mastercard cases.

Want to make the most out of Mastercard’s First-Party Trust program? Contact Justt today.