How does TC40 data affect chargebacks?
Where does TC40 Data originate and how is TC40 Data distributed?
TC40 data is a file of all compiled fraud cases where the cardholder claims a charge took place without his/her permission. These reports include raw data for each transaction identified as fraudulent: fraud postdate, issuer BIN, currency code and region.
What other problems result from using TC40 data for chargeback prevention?
Merchants usually don’t receive information until it is too late because of the way TC40 data is gathered and distributed, leaving a small amount time for response. This scenario creates a “race to the refund,” where merchants refund the customer in attempt to avoid the chargeback. Too often the chargeback happens anyway and a double refund, plus chargeback must be absorbed by the retailer. Since TC40 only includes instances of true fraud, disputes originating from customer dissatisfaction, shipping mistakes or a lack of shipment are not included in these reports. “Friendly fraud” is an $4.8 billion problem and growing is also not included in this data resulting in decision-making tools that are incomplete for retailers looking for a complete chargeback picture. Often issuers write-off smaller transactions that would cost them more to process as a chargeback. TC40s include this data resulting in false positive fraud alerts for merchants who would not incur a chargeback from this specific type of transaction. Also, aging of this data often results in disputes being outside of the allowable period for a chargeback to occur, resulting in additional false positives.
Is using TC40 data for chargeback prevention problematic?
TC40 is raw data from the issuer that contains past instances of fraud reported by issuers. Because TC40 includes more than just chargeback data it is a key tool in helping merchants access their fraud prevention and risk management approaches. Most importantly, this data can help merchants create more effective fraud prevention strategies.
It is logical for merchants to use TC40 data to evaluate their overall fraud prevention strategy since issuers generally use these reports to measure the risk of fraud at each merchant. Using TC40 files as a measure of fraud risk, merchants can adjust their fraud prevention tools to keep fraud within a reasonable threshold. This not only protects their bottom line, it also allows them to avoid fines from issuers and the potential of total loss of card processing privileges.
Because the file contains more data than just chargebacks occurrences, it is often ineffective to help merchants prevent chargebacks. TC40s only include claims by cardholders of fraud, not necessarily a dispute or chargeback. Open-loop services that offer chargeback alerts based on TC40 data contribute substantially to double refunding, false positives and chargebacks that could have been prevented.
TC40s are typically released within days of the initial report of fraud, but these are merely reports of fraud and do not stop the chargeback process. That means that merchants often do not have ample time to resolve disputes before they become chargebacks, defects occur often resulting in double refunding, chargeback fees are incurred, loss of goods and increased operational costs are experienced.