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Chargebacks and Retrievals General Overview 1 Chargebacks and Retrievals General Overview 1

Agenda • Retrieval Requests/Copy Requests Process Overview • Chargeback Basics • Arbitration Overview • Agenda • Retrieval Requests/Copy Requests Process Overview • Chargeback Basics • Arbitration Overview • Pre-Compliance & Compliance Overview • Good Faith Collection Overview • Retrieval/Chargeback Statistical Volume • ADRP – Automated Dispute Resolution Processing • Four Top Chargeback Reason Codes – Conditions to Raise and Representment Chargebacks • Best Operating Practices to Reduce Chargebacks 2

Retrieval Requests/Copy Requests Overview Why are copy requests initiated? Usually the issuer will raise Retrieval Requests/Copy Requests Overview Why are copy requests initiated? Usually the issuer will raise a copy request to help their cardholder identify a transaction that has appeared on the cardholder’s bill that they do not recognize. There a few other reasons that are common as well. Sometimes the cardholder needs a physical copy of the voucher for tax or other identification purposes. Many times, the issuer is satisfying a requirement that comes with raising a chargeback later, especially if they suspect fraud. Regardless of the reason it is initiated, it’s important for merchants to respond to all retrieval requests. 3

Retrieval Requests/Copy Requests Overview How are copy requests different from chargebacks? Copy requests are Retrieval Requests/Copy Requests Overview How are copy requests different from chargebacks? Copy requests are non-financial and chargebacks are financial: that is the biggest difference. When a chargeback is initiated, it comes with an automatic debit from the issuer to the acquirer that must be passed to the merchant. When a copy request is initiated, it does not have an accompanying debit – it is a request for information only. It should be noted that non-response to a copy request grants the issuing bank a chargeback right that they would not have available if the copy 4

Chargeback Process Flow 5 Chargeback Process Flow 5

Chargebacks Basics Where exactly do chargebacks come from? The cardholder’s issuing bank initiates a Chargebacks Basics Where exactly do chargebacks come from? The cardholder’s issuing bank initiates a chargeback or copy request by keying information through their system and attaching supporting documentation (if required), which in turn is passed through the card association to the merchant’s bank/processor. The merchant’s bank/processor reviews the incoming chargeback to ensure rule-compliance, then passes it on to the merchant if all requirements have been met. 6

Chargeback Basics Why are they initiated? • There a variety of reasons that chargebacks Chargeback Basics Why are they initiated? • There a variety of reasons that chargebacks are initiated. The primary reasons are cardholder-based, and include claims of fraud, that they are due a credit, they are dissatisfied with the quality of services or merchandise, they didn’t receive merchandise, they don’t recognize the transaction or for cancellation of recurring transactions. • There also issuer-based disputes that can be initiated, primarily for technical reasons when 7

Chargeback Basics What are the chargeback cycles? • The first incoming cycle for Visa Chargeback Basics What are the chargeback cycles? • The first incoming cycle for Visa and MC is the chargeback dispute initiated by the issuer/cardholder. • If the item is invalid on the part of the issuer, or if the merchant provides a valid response to the chargeback, then it can be represented back to the issuing bank. • The next level of dispute for MC is called a secondcycle chargeback, and means that the issuer/cardholder did not agree with the representment. If the merchant chooses to continue disputing the issuer/cardholder claims, the case is sent pre-arbitration to the issuing bank notifying them of 8

Arbitration Overview • Arbitration is used when the issuer/cardholder and the acquirer/merchant cannot agree Arbitration Overview • Arbitration is used when the issuer/cardholder and the acquirer/merchant cannot agree about which party should be financially liable for a transaction during the pre-arbitration stage. • Visa - the issuers file the arbitration cases against the acquirer/merchant. • Master. Card - the acquirer files the arbitration case against the issuer on behalf of the merchant. • Visa and Master. Card rule on the case filings. The losing member is responsible for any filing fees • Technical fees can also be assessed during this stage. 9

Pre-Compliance &Compliance Overview • Pre-Compliance can be initiated by the issuer or the acquirer, Pre-Compliance &Compliance Overview • Pre-Compliance can be initiated by the issuer or the acquirer, but is most commonly raised by the issuer. • Pre-Compliance is a part of the dispute process available when either member claims that the other member violated card association regulations however they do not have a chargeback right available to shift financial liability per their claim. • The issuer and/or the acquirer can choose to accept or decline an incoming precompliance case. • If pre-compliance is declined, it can be filed as a compliance by either the issuer or the acquirer. • Cases filed compliance are sent to the associations for ruling. • The association will rule in favor of either the issuer or the acquirer. • The member that is deemed responsible for the case is required to pay the compliance fees for both parties and any technical fees that pertain to the case. 10

Good Faith Collection Overview • A good faith collection case can be initiated by Good Faith Collection Overview • A good faith collection case can be initiated by the issuer or the acquirer. • Good Faith Collection is a level of the dispute process that is used when no other avenue is available (chargeback, representment, or pre-compliance) to try and resolve a claim for financial liability of a transaction, and is essentially “asking” the other party to consider acceptance of that liability. • The issuer and/or the acquirer can choose to accept or deny an incoming good faith collection case. • There are no definitive time frames surrounding the good faith/collection process. • We will contact the issuer with a good faith collection letter and reminder letters at 30, 60, and 90 days. • If there is no response from the issuer after 120 days, the case is closed. 11

Chargeback and Retrieval Statistics • Approximately 58, 000 incoming chargebacks per month • Approximately Chargeback and Retrieval Statistics • Approximately 58, 000 incoming chargebacks per month • Approximately 50% auto decisioning percentage for incoming cases • Approximately 27% representment rate on first cycle chargebacks – 15% of which are auto-represented back to the issuer without financial impact to the merchant • Approximately 23, 000 retrieval requests per month • 99. 5% retrieval fulfillment rate which has contributed to industry awards received 12

What a year’s worth looks like… • 2007 Volumes: • 275, 153 retrieval cases What a year’s worth looks like… • 2007 Volumes: • 275, 153 retrieval cases (9% increase over 2006) • 694, 487 chargeback cases worth over $196 million (10% increase over 2006) • 33, 971 pre-arbitration cases worth over $18 million (37% increase over 2006) • 7, 944 good faith cases • 3, 947 pre-compliance cases • 414, 804 quality control cases • 371, 502 indexed documents • 153, 058 incoming merchant calls (10% increase over 2006) 13

Automated Dispute Resolution Processing (ADRP) • • Our proprietary system designed specifically for working Automated Dispute Resolution Processing (ADRP) • • Our proprietary system designed specifically for working chargebacks and retrievals with direct links to the card associations – updated regularly Systematic chargeback edits for compliance of Visa and Master. Card operating regulations Auto-decisioning logic is built into the system The system will allow processing in 14 currencies settled throughout 8 portfolios worldwide Systemic retrieval fulfillments with FSD (facsimile draft) when the retrieval is received based on Visa/Master. Card eligibility 25 Day FSD fulfillments on any retrieval request still pending a merchant response System assigns chargeback and retrieval cases for manual work based on highest dollar amount and oldest item, insuring cases do not go past timeframes 14

ADRP Document Processing • System generated letters print with a barcode used for auto ADRP Document Processing • System generated letters print with a barcode used for auto indexing • Autofax feature provides notification of Chargeback and Retrieval Requests the same day they are processed. This feature also provides a second notice on all retrieval requests faxed but not responded to within 15 days • Connectivity with Associations allows systematic processing of incoming cardholder documents • All chargeback letters to merchant include a Preventative Tips letter to educate merchants on avoiding chargebacks 15

No Cardholder Authorization Reason Code 4837 Chargeback Conditions: • The cardholder states in writing No Cardholder Authorization Reason Code 4837 Chargeback Conditions: • The cardholder states in writing that neither he, she, or anyone authorized by him or her engaged in the transaction • A face-to-face or non-face-to-face transaction took place and the card was either not swiped or an imprint was not obtained at the time of the transaction 16

No Cardholder Authorization Reason Code 4837 Representment Conditions: • Chargeback is improper or invalid No Cardholder Authorization Reason Code 4837 Representment Conditions: • Chargeback is improper or invalid • Signed/swiped or imprinted sales draft showing cardholder participation. If cardholdersigned documentation cannot be provided, supply all compelling evidence supporting cardholder participation such as: ØAVS (Address Verification Service) response code ØCVC 2 (Cardholder Verification Confirmation) response code ØSecure. Code transaction validation 17

Transaction Not Recognized/Cardholder Does Not Recognize Transaction 4863/75 Chargeback Conditions: • The cardholder does Transaction Not Recognized/Cardholder Does Not Recognize Transaction 4863/75 Chargeback Conditions: • The cardholder does not recognize a transaction showing on their credit card statement 18

Transaction Not Recognized/Cardholder Does Not Recognize Transaction 4863/75 Representment Conditions: • Documentation to assist Transaction Not Recognized/Cardholder Does Not Recognize Transaction 4863/75 Representment Conditions: • Documentation to assist the cardholder in identifying the transaction such as: ØA signed/swiped or imprinted sales draft ØA signed contract with card imprint ØAn invoice ØSigned POD 19

Fraud – Card-Not-Present Reason Code 83 Chargeback Conditions: • The cardholder states in writing Fraud – Card-Not-Present Reason Code 83 Chargeback Conditions: • The cardholder states in writing that neither he, she, or anyone authorized by him or her engaged in the transaction • A non-face-to-face transaction took place and the card was not swiped or an imprint was not obtained at the time of the transaction 20

Fraud – Card Present Reason Code 83 Representment Conditions: • Chargeback is improper or Fraud – Card Present Reason Code 83 Representment Conditions: • Chargeback is improper or invalid • Signed/swiped or imprinted sales draft showing cardholder participation. If cardholdersigned documentation cannot be provided, supply all compelling evidence supporting cardholder particiaption such as: ØAVS (Address Verification Service) response code ØCVV 2 (Cardholder Verification Confirmation) response code ØVerified by Visa transaction validation 21

Duplicate Processing Reason Code 82 Chargeback Conditions: • The cardholder was billed more than Duplicate Processing Reason Code 82 Chargeback Conditions: • The cardholder was billed more than once for a single transaction in error • The transactions were processed by the same merchant location • The transaction amounts and transaction dates do not have to be the same 22

Duplicate Processing Reason Code 82 Representment Conditions: • Proof of two valid transactions authorized Duplicate Processing Reason Code 82 Representment Conditions: • Proof of two valid transactions authorized by the cardholder 23

Best Operating Practices to Reduce Chargebacks • Make sure cardholder statements reflect accurate transaction Best Operating Practices to Reduce Chargebacks • Make sure cardholder statements reflect accurate transaction information including the contact phone number for the MID (for assistance with updates or issues on this point, contact MSP Support). • Secure an authorization code for every transaction. • Check point-of-sale devices before reprocessing transactions to help avoid duplication processing. • Respond to retrieval requests/copy requests in a timely manner. • Utilize fraud-prevention tools and process transactions correctly according to regulations. • If you have any questions in relation to a retrieval or chargeback notice you have received, please call the toll free number printed on the notice, or go through the MSP Channel at 1 -866 -600 -5008. 24