Mastercard Chargeback Reason Code 4840: Fraudulent Processing of Transactions

What is Mastercard Chargeback Reason Code 4840?

The Mastercard chargeback reason code 4840 refers to the fraudulent processing of transactions. It is a fraud-related chargeback that can blacklist your business if you don’t handle it properly. Hence, you must treat chargeback messages with the reason code 4840 with urgency and importance.

Fraud continues to rise despite spirited efforts by financial regulators and e-commerce platforms to mitigate it. Cardholders often dispute unapproved debit statements with their issuers. Once the issuer confirms the lack of authorization, your business risks receiving a chargeback message with this reason code.

Sometimes, issuers will send inquiries to gain clarity over the dispute. That gives you enough time to explain and validate your position for the debit statement. Hence, the cardholder dispute might not result in chargebacks with reason code 4840.

Issuers can also initiate chargebacks with this reason code. Mastercard allows two primary scenarios where issuers can initiate chargebacks, with or without the cardholder’s input. We’ll explain that in more detail subsequently.

Backstabbing merchants exist, placing the good ones, including you, under intense scrutiny. Similarly, fraudulent cardholders exist, making false claims of fraud.

Disputing chargebacks with this reason code isn’t a big deal. However, we are more concerned with the legal repercussions that may arise if you exceed a threshold for fraud-related chargebacks.

Issuers will bear the liability for actual fraud if you did everything right. Otherwise, you’ll take the fall and incur the chargeback to refund the cardholder.

This Mastercard chargeback reason code often occurs in card-present transactions. Also, it references at least one legitimate transaction that resulted in multiple fraudulent ones.

The best approach to disputing chargebacks with this reason code is to examine the message and transactions. We’ll explain the primary cause to give you some insight. Then, you can follow our recommendations to dispute these chargebacks.

Why Did It Happen?

Chargebacks under reason code 4840 occur when issuers consider subsequent transactions fraudulent. To them and the cardholders, the latter only authorized the first transaction. That means subsequent transactions lack the needed authorization for processing.

Since authorization does not come from cardholders, issuers consider the transactions fraudulent. They will process a chargeback (one or multiple) to refund the cardholder. Notwithstanding, actual fraud is not always the cause of chargebacks under this reason code.

The causes of these chargebacks boil down to the following:

• Merchant error: We are not beyond errors. Sometimes (although rarely), processing errors may slip in, resulting in transactions without adequate authorization. Submitting new transactions with the previous authorization details is the primary cause.
• Merchant fraud: Some fraudulent merchants may knowingly use one authorization detail to process multiple payments. The cardholder often authorizes one payment, while these fraudsters use that authorization for more transactions.

Merchant fraud does not require the cardholder’s consent to process payments. The cardholder will dispute the debit statement upon review. Then, such merchants will receive chargeback messages.

• Friendly fraud: Some cardholders can make multiple payments and forget later. They may believe they authorized only one transaction and consider subsequent ones fraudulent. Then, the issuer can process a chargeback as a refund.

Some cardholders can intentionally dispute transactions they have knowingly authorized. On that end, they commit actual fraud against your business. They can get away with it if you do not have sufficient evidence to dispute their claims.

Chargebacks under this reason code can involve two or more transactions. Often, the transactions occur within 15 minutes in quick succession. Those that exceed that time may be considered for chargebacks with other reason codes.

Late or no notification

A cardholder may have agreed to a purchase. However, you had to split multiple payments for legitimate reasons. The cardholder would move, hoping to see one debit transaction.

Seeing more than one calls subsequent ones into question. Hence, the cardholder will dispute the payments and request a chargeback.

The above scenario takes us back to payment terms and conditions. Of course, your customers should always be aware of any changes before authorization.

FNS Counter Records More Than 15 Fraud-related Chargebacks

The fraud notification service (FNS) reads each time a card (account) is involved in fraud-related chargebacks. If the number exceeds 15, you may receive a chargeback under the reason code 4840. Other codes in this scenario include 4837, 4870, and 4871.

Improper handling of chargebacks involving the FNS can place you on the wrong side of the law. Hence, keep the best business ethics in your daily operations.

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How to Fight Mastercard Chargeback Reason Code 4808: Fraudulent Processing of Transactions

Mastercard generously allows 45 days to take up the chargebacks with the issuer. They will validate the chargeback if you don’t reply or dispute it within this timeframe. You can’t dispute it anymore.

The best approaches boil down to the peculiarities of the multiple transactions and proper cardholder authorization. With that in mind, here’s how you can dispute chargebacks under reason code 4840:

• Prove that the multiple transactions involved different purchases. Of course, this approach must have cardholder authorization for each transaction.
• Show evidence that the cardholder entered their PIN for each payment. Back this proof up with the authorization requests you forwarded.
• Prove why you split the payment into multiple transactions. The cardholder must have been fully aware of the arrangement at the time of the purchase. Otherwise, the issuer might doubt your defense.

The above approaches only apply when you do the right thing and request authorization. Conversely, you may have processed the payments in error. Accept the chargeback if you have yet to provide a refund.

If you refunded the cardholder, submit the evidence. The amount should match the disputed payments.

Alternative settlements with the cardholder can spare you from incurring chargebacks under this reason code. Submit evidence of the cardholder’s agreement.

How to Prevent Mastercard Chargeback Reason Code 4808: Fraudulent Processing of Transactions

The primary preventive measure is being careful with your transactions. Other helpful tips include the following:

• Process refunds immediately.
• Respond promptly to customer complaints involving multiple debit transactions.
• Ensure the cardholder is aware if a purchase will spread over several payments.
• Request authorization for all transactions.
• Keep the FNS counter low for your business.
• Void and start over transactions if the cardholder switches payment methods.

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