Mastercard Expands First-Party Trust Program to Combat Fraud in E-Commerce

Table of Contents

1. Key Highlights
2. Introduction
3. Understanding First-Party Fraud
4. The First-Party Trust Program
5. The Broader Implications of Chargebacks
6. Future Developments
7. FAQ

Key Highlights

• Mastercard is expanding its First-Party Trust program to combat first-party fraud, where legitimate transactions are wrongfully disputed by cardholders.
• The global cost of chargebacks is projected to reach $42 billion by 2028, with nearly half categorized as fraudulent.
• The program enhances data-sharing between merchants and card issuers, facilitating quicker and more efficient dispute resolutions.

Introduction

As e-commerce continues to reshape the retail landscape, the complexities surrounding transaction disputes have surged. A staggering statistic reveals that the cost of chargebacks—a process where cardholders dispute transactions—will escalate to $42 billion globally by 2028, with nearly half of these disputes classified as fraudulent. This alarming trend underscores the urgent need for innovative solutions to protect merchants and consumers alike. In response, Mastercard is expanding its First-Party Trust program, initially launched in the U.S., to several international regions, including Canada, Latin America, the Caribbean, and the Asia Pacific. This initiative aims to tackle the growing issue of first-party fraud while promoting transparency in the payment process.

Understanding First-Party Fraud

First-party fraud, often referred to as "friendly fraud," occurs when a consumer disputes a legitimate transaction, claiming they did not authorize it. This can happen for various reasons, from misunderstanding a charge on their statement to intentional misuse of the dispute process to secure refunds. As e-commerce transactions proliferate, the incidence of such fraud has risen, posing significant challenges for merchants, banks, and payment processors.

According to Mastercard's 2025 State of Chargebacks report, the financial impact of chargebacks is not only substantial but also increasingly complex. The rise in these disputes necessitates robust solutions that can differentiate between genuine claims and fraudulent ones, ensuring that legitimate businesses are not unduly penalized.

The First-Party Trust Program

Mastercard's First-Party Trust program seeks to mitigate the challenges associated with first-party fraud by enhancing data-sharing capabilities between merchants and card issuers. By offering improved insights during transaction processing and dispute resolution, the program aims to streamline the process and reduce the burden on businesses.

Key Features of the Program

1. Enhanced Data Sharing: The program allows merchants to provide additional data during the transaction authorization phase or after a dispute is raised. This data includes:
   • Cardholder purchase history
   • Device details
   • Delivery information
   • Identity elements
   • Geographic location
2. Compelling Evidence Rules: New guidelines define what constitutes compelling evidence to identify genuine purchases, thereby minimizing unnecessary disputes. This includes merchant chargeback protections for disputes adhering to the First-Party Trust data-sharing requirements.
3. Streamlined Dispute Resolution: By facilitating the exchange of evidence, the First-Party Trust program aims to make the dispute resolution process more efficient, saving both time and resources for merchants and issuers.

The Role of Collaboration

The success of the First-Party Trust program is rooted in industry collaboration. Mastercard has worked closely with various stakeholders, including the Merchant Advisory Group, to develop solutions that address the growing challenges posed by first-party fraud. John Drechny, CEO of the Merchant Advisory Group, emphasized the program's potential to enhance transaction experiences for both merchants and consumers, reflecting a shared commitment to reducing fraud across the payment ecosystem.

The Broader Implications of Chargebacks

The rise in chargebacks is not merely a financial concern; it has broader implications for the retail and e-commerce landscape. Merchants face increased operational costs, as handling disputes can be resource-intensive. Additionally, high chargeback rates can lead to penalties for businesses, including higher transaction fees or even account terminations by payment processors.

Case Study: The Impact on Small Businesses

Small businesses, in particular, are vulnerable to the repercussions of first-party fraud. A survey conducted by the National Federation of Independent Business revealed that approximately 30% of small business owners have faced chargebacks due to friendly fraud. The financial strain from these disputes can hinder growth and innovation, compelling small enterprises to allocate resources away from core business operations to manage disputes.

By implementing programs like First-Party Trust, Mastercard aims to support small businesses in navigating these challenges, ensuring they can continue to thrive in a competitive e-commerce environment.

Future Developments

As e-commerce continues to evolve, Mastercard remains committed to adapting its strategies to combat emerging forms of fraud. The company's collaboration with industry partners will be vital in addressing not only first-party fraud but also other fraudulent activities such as refund and return abuse.

Looking Ahead

The payments landscape is rapidly changing, with technological advancements leading to new opportunities and challenges. Mastercard’s proactive approach through the First-Party Trust program reflects a forward-thinking strategy that prioritizes the security and integrity of transactions. As more regions adopt this program, the potential for reduced fraud and improved merchant experiences is promising, paving the way for a more transparent e-commerce environment.

FAQ

What is the First-Party Trust program?

The First-Party Trust program is Mastercard's initiative designed to combat first-party fraud by enhancing data-sharing between merchants and card issuers, facilitating more efficient dispute resolutions.

Why is first-party fraud a growing concern?

First-party fraud is increasing due to the rise of e-commerce, where consumers may dispute legitimate transactions for various reasons, leading to significant financial impacts for merchants and payment processors.

How does the First-Party Trust program work?

The program allows merchants to provide additional data during transaction authorization or disputes, which helps issuers better assess the legitimacy of claims and reduces unnecessary chargebacks.

What are the implications of rising chargebacks for merchants?

Rising chargebacks can lead to increased operational costs, higher transaction fees, and potential penalties from payment processors, especially for small businesses that may struggle to absorb these impacts.

How can businesses protect themselves from first-party fraud?

Businesses can adopt programs like Mastercard's First-Party Trust, enhance their transaction monitoring processes, and educate consumers about responsible dispute practices to safeguard against first-party fraud.